Definition of Implied Contract: Everything You Need to Know
An implied contract is a legal agreement that is formed out of conduct, assumptions, relationships and common law practices and usually written down and signed.3 min read
Implied Contract Overview
The definition of implied contract is a legal agreement that is formed out of conduct, assumptions, relationships, and common law practices, rather than a contract that is stated outright and, in many cases, written down and signed. Implied contracts occur by default when parties have dealings without explicitly stating their terms, with the law creating an obligation to fairness between the parties as a stand-in. Implied contracts are more difficult to enforce than express contracts, but to some extent, this can be done.
Implied-in-fact contracts are a kind of implied contract formed from non-verbal conduct between two parties. In these contracts, an obligation is created between parties due to the circumstances of the situation. This means that if two parties act as if they are in agreement, the law will generally rule that an implied agreement existed between them due to the fact of their actions.
An example of this in action would be if you take your car to a mechanic and the mechanic by their action leads you to believe they will do their best to fix your car, then there will be an implied-in-fact contract between you and them. If the mechanic tries to cheat you or you fail to pay for work that was done well, then a breach of contract will have occurred.
Another implied contract is the implied-at-law contract, which is when parties are forced into an agreement by the facts of the law, regardless of whether they wish to be in an agreement or not. For instance, if your car broke down on the side of the road, and a mechanic who happened to pass by stopped to help, the mechanic could if they chose, bill you for their services. And if they did so, you would be obliged to pay for them, since otherwise you would have profited unduly at the expense of the mechanic, which in normal circumstances would be against the law.
Writing and Contracts
Although the most common notion of a contract is a paper document signed by both parties, courts will very often enforce unwritten contracts, as well, and only certain types of contracts are required to be in writing. What these contracts are and what their parameters are will vary by state, with state stipulations for such contracts usually being defined by that state’s Statute of Frauds.
Some common examples of contracts that must be in writing include:
- Contracts that deal with land sales.
- Contracts that answer for another’s debts.
- Contracts that will take longer than a year to complete.
- Contracts that involve more than a certain dollar amount being transferred.
- Contracts that involve the sale of certain types of goods.
Even though a great many kinds of contracts do not need to be put in writing to be enforceable, it is highly recommended that one gets any contract in writing, if possible. Written contracts have more weight in the courts and are more easy to argue the details of than an implied or oral contract. Written contracts can also help one avoid future legal disputes.
Sample Implied Contract Dispute
An excellent example of the kind of dispute that can arise from a contract being implied rather than expressed is the case involving Larry Montz and NBC. In it, Montz submitted multiple ideas to NBC for television shows, all of which were passed upon. However, a few years later, the network came out with a show called Ghost Hunters, which Montz believed bore a striking similarity to one of the ideas he pitched to NBC. Montz then sued NBC for copyright infringement, claiming that an implied contract existed between him and NBC through his submission, and that he deserved compensation as a result.
In the courts, Montz lost at the District level, but this decision was reversed on appeal by the 9th Circuit Court. In their ruling, they stated that they sided with Montz because even without a written contract there should have been an implied understanding by both sides that using the idea of another party would require fair compensation of that party.
This ruling had important implications in the realm of law insofar as it broadened how an implied contract could be interpreted. It also increased the protections individuals had for their intellectual property (IP) and changed how studios handled the submissions of screenwriters. After all, had terms regarding IP rights been stated openly, such a lengthy court battle could have been avoided in the first place.
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