Implied Contract: Everything You Need to Know
Two types of implied contracts exist. Those are implied in-fact and implied at-law contracts. Contracts do not necessarily need to be put in writing in order to be legally binding, although it's a good idea to do so.4 min read
Implied Contract Definition
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. An implied contract is legally enforceable, even though it is not put into writing. Implied contracts are more difficult to enforce than express contracts, but to some extent, this can be done. It arises from intentions that are assumed due to the relationship between the parties, or from the principle of equity — a party accepts an item or service of value that is not considered a gift. In that case, the accepting party is obligated to provide fair value for the benefit they received.
Types of Implied Contracts
Two types of implied contracts exist. Those are implied in-fact and implied at-law contracts. Contracts do not necessarily need to be put in writing in order to be legally binding, although it's a good idea to do so.
Implied In-Fact Contracts
Implied in-fact contracts are based on the situation's facts, which create an obligation between two parties. The facts, circumstances, or conduct of the parties may suggest that an agreement exists between them, and if so, the law may rule that an implied in-fact contract exists. If you are paid for something each week, such as babysitting, even though it's not in writing you may be able to claim to have a contract with the other party and a reasonable expectation that payment for your service will continue.
Implied At-Law Contracts
Implied at-law contracts are created when one party is entitled to payment for items or services provided to them even though neither party intended for the agreement to be made. This can arise from accidents or other unintentional occurrences. The only legal requirement is that one party is unfairly enriched by the action that took place, and therefore the other party is due some sort of restitution. This type of contract is also referred to as a quasi-contract.
Implied Contract Example
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.
Are Oral Contracts Enforceable?
Not all contracts need to be in writing to be enforceable, although some do. Individual states have laws specifying which kinds of contract must be in writing; this is commonly known as the Statute of Frauds. Most states require the following types of contract to be in writing, though there may be others:
- Contracts for the sale of land.
- Contracts for the repayment of debts.
- Contracts that cannot be performed within one year.
- Contracts over a certain dollar amount.
- Contracts regarding the sale of certain goods, which are listed in the state statute.
Written agreements are always a good idea because they prevent possible disputes from occurring in the future. Most oral contracts are legally binding, however, and recognized by courts.
How Are Implied Contracts Enforced?
When an implied contract exists, one of the parties can sue the other in a court of law in order to demand that the other party fulfills their obligation.
For example, one real-life example included a screenwriter who had submitted ideas to a TV network, hoping that they would accept one and pay him for his work. Unfortunately, his ideas were rejected. But when they produced a successful show later that he claimed was similar to his idea, he sued them for restitution, claiming that the network had an implied contract with him. Although the initial case was lost, the decision was appealed and reversed, resulting in victory for the screenwriter.
The court ruled that when a writer submits work, an implied contract exists between the writer and producer or publisher that the work cannot be used unless the writer is paid. This set a precedent for other writers in similar circumstances, protecting them from having their submissions stolen. As a result, studios and publishers are careful about how submissions are handled.
Avoiding Implied Contracts
Since an implied contract can arise from an unpredictable situation, you might be concerned about how a person can avoid creating one and entering into such an agreement. For example, if a person is choking in a restaurant and a doctor saves them with the Heimlich maneuver — and sends them a bill for his services — the patient couldn't tell the doctor not to help him and avoid payment.
The best you can do to avoid creating an implied contract is to be vigilant for situations that might result in one and be careful with your actions. Make sure to communicate your intentions when dealing with others, either in personal or business situations.
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