Key Takeaways

  • A breach of implied contract occurs when obligations not written but reasonably expected are violated.
  • Implied contract terms can arise from statutes, trade customs, or judicial interpretation.
  • Courts often look at conduct, industry practice, and fairness to determine if an implied contract exists.
  • Remedies for breach can include compensatory damages, reliance damages, and in limited cases, equitable relief.
  • Employment law often involves implied contract disputes, especially regarding termination or workplace promises.

A breach of implied terms of contract occurs when agreement terms that are not expressly stated are not fulfilled.

Types of Implied Contract Terms

Implied contract terms can be:

  • Implied by the courts when a term that was clearly intended by the parties was not included. This type of implied term must be equitable, reasonable, give efficacy to the contract, be obvious enough to go without saying, be able to be clearly expressed, and not contradict any of the stated contract terms. For example, an implied term by the court could be that purchased goods should be in new condition unless otherwise indicated by the contract.
  • Implied by statutes such as the Trade Practices Act of 1974 or the sale of goods act of the state in question. These laws imply that products must be of sellable quality, meet the provided description, and be suitable for the intended purpose.
  • Implied by trade usage or custom, which means that the court may imply certain terms that correspond to an established practice. This can be done if the custom in question is well-known, reasonable, and certain. It cannot be done if the implied term is inconsistent with an expressed contract term or an existing statute.

Employment and Implied Contract Obligations

Employment relationships frequently give rise to disputes over breach of implied contract. Even without a written employment agreement, courts may find that implied promises exist. For example, employee handbooks, verbal assurances of job security, or consistent past practices can create implied obligations of continued employment or fair treatment. If an employer terminates an employee in violation of these implied terms, it may be considered wrongful termination based on a breach of implied contract.

Courts often evaluate:

  • Whether the employer’s policies or statements reasonably created expectations of job security.
  • The length and stability of employment.
  • Consistent practices, such as always providing warnings before termination.

While most states recognize employment at will, implied contracts can limit this doctrine where fairness and established practices suggest a binding promise.

Elements of a Contract

A valid contract must include the following elements:

  • The parties involved must intend to create a legally enforceable relationship. The court will examine the nature of the agreement. Social or domestic agreements do not constitute legal intention.
  • One party must make an offer that is accepted by the other party.
  • Consideration, or an item of value, must be offered by each party. The promisor performs an action that constitutes consideration while the promisee provides financial or other compensation in return.
  • Both parties must have the ability to enter a legal contract. Those who cannot do so include minors, intoxicated individuals, and those who are not of sound mind. You can enter a contract if you are bankrupt but in some cases must disclose the bankruptcy beforehand. Corporations have the ability to contract as a separate legal entity.
  • The consent of each party must be genuine and not attributable to duress, misrepresentation, error, or undue influence.
  • The action or object covered by a contract must not be illegal under state, federal, or local law.

Proving an Implied Contract Exists

Unlike express contracts, implied contracts rely on conduct and circumstances rather than written or spoken words. To prove an implied contract, courts generally consider:

  • Conduct of the Parties: Repeated business dealings or behavior suggesting mutual expectations.
  • Custom or Usage: Standard industry practices that both parties are assumed to accept.
  • Reasonable Reliance: Whether one party reasonably relied on the other’s promises or conduct.
  • Fairness and Equity: Courts often imply terms to prevent unjust enrichment or unfair outcomes.

For example, a client who consistently pays a contractor after services, without a written contract, may establish an implied-in-fact agreement requiring future payment.

Establishing a Contract Breach

A breach can occur when a business fails to provide services or goods as promised, the goods are defective, services or goods or not paid for, or other restrictive covenants are breached.

To prove that the breaching party was negligent, the following elements must be present:

  • The party in question had a legal obligation to maintain a reasonable standard, called the duty of care, if he or she was doing something with the potential to harm others.
  • This duty of care was expected but has not been fulfilled.

To examine these elements, the courts consider the care a reasonable person would have taken in a specific situation to prevent foreseeable harm. Factors considered include:

  • How much effort would be needed to eliminate the potential risk
  • The inherent risk for injury
  • The extent of injury that would result from a breach
  • Whether the injury in question was caused by the actions of the defendant

Common Examples of Breach of Implied Contract

Breach of implied contract claims arise in various contexts, including:

  • Employment: Terminating an employee after promising job stability through policies or long-standing practices.
  • Business Services: Failure to pay for services regularly provided and accepted without a written agreement.
  • Sales of Goods: Delivering defective products where statutes imply quality and merchantability standards.
  • Professional Relationships: Breaking promises implied by conduct, such as confidentiality or fiduciary duties.

Each situation requires proving both the existence of an implied agreement and a failure to honor it.

Damages for Breach of Contract

If a contract is breached, the party who did not breach the contract may be entitled to financial compensation for damages from the party who committed the breach. Damages are legally limited and cannot be ordered if the breach was too remote.

Common law calls for equitable remedy, but this is not always appropriate in a breach of contract case.

When awarding damages, the court will consider:

  • Whether the loss claimed was directly caused by the contract breach
  • Whether the loss would be considered to result from the breach by a reasonable person
  • Whether the plaintiff was able to mitigate his or her losses

The types of damages that may be awarded include coverage for damage to goodwill or business reputation, economic loss, profit loss, and physical damage.

The court will typically interpret a contract differently when it is between a business and consumer than if it is between a business and another business, particularly when it comes to issues of liability.

Remedies and Limitations for Breach of Implied Contract

When a breach of implied contract occurs, courts may award remedies similar to those in express contract cases. These include:

  • Compensatory Damages: To cover direct losses such as unpaid wages, lost profits, or replacement costs.
  • Reliance Damages: Compensation for expenses incurred in reliance on the implied agreement.
  • Equitable Remedies: In rare cases, courts may order reinstatement in employment or specific performance where monetary relief is inadequate.

However, courts also impose limits. Claims may fail if the alleged implied promise conflicts with an express agreement, violates statutory law, or lacks sufficient evidence of mutual intent.

Frequently Asked Questions

1. What is a breach of implied contract?

It occurs when one party fails to honor obligations reasonably expected from conduct, law, or custom, even though not explicitly stated in writing.

2. Can an implied contract exist without a written agreement?

Yes. Courts recognize implied-in-fact and implied-in-law contracts that arise from actions, customs, or fairness principles.

3. How does breach of implied contract apply in employment?

It often involves wrongful termination claims when employers violate implied promises from handbooks, policies, or practices suggesting job security.

4. What damages are available for breach of implied contract?

Courts may award compensatory or reliance damages, and in limited cases, equitable remedies such as reinstatement or injunctions.

5. How can businesses prevent breach of implied contract claims?

By using clear written agreements, updating employee handbooks with disclaimers, and avoiding informal promises that may create legal obligations.

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