Key Takeaways

  • An implied in fact contract is created through conduct, circumstances, or a pattern of behavior that indicates mutual assent, even without written or spoken terms.
  • Courts look for elements like mutual intent, performance, and reliance when determining if an implied contract exists.
  • Breaching an implied in fact contract can lead to remedies similar to those for express contracts, including restitution, damages, and quantum meruit.
  • Common examples include ongoing services, employment expectations, and business dealings where compensation is reasonably anticipated.
  • Clearly documenting agreements and using disclaimers can reduce the risk of unintended implied contractual obligations.

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.

Implied in Fact Contract vs. Express Agreement

While express contracts are clearly stated—either verbally or in writing—an implied in fact contract arises from the parties’ behavior, industry norms, or prior dealings. The key distinction is that, despite the lack of explicit agreement, both parties’ actions demonstrate mutual assent and a shared understanding of their obligations.

For instance, if a client repeatedly accepts consulting services and pays invoices without a written agreement, the pattern of conduct establishes an implied in fact agreement. This principle is vital because it shows that enforceable obligations can exist even when formalities are absent, so long as mutual intent is evident.

Key Elements Courts Consider in Implied Contracts

When determining whether an implied contract exists, courts generally evaluate several factors:

  • Conduct of the Parties: Actions that indicate mutual understanding, such as regular provision and acceptance of services.
  • Established Relationship: Ongoing dealings that imply an expectation of continued obligations.
  • Industry Practices: Customary behaviors in a specific field that suggest certain terms are standard.
  • Circumstances Surrounding the Transaction: Context, such as urgency or prior history, that reasonably leads one party to expect compensation.
  • Reasonable Reliance: Whether one party reasonably relied on the other’s conduct to their detriment.

For example, if a consultant routinely provides monthly reports to a client who consistently pays without a formal agreement, a court may find an implied in-fact contract exists.

Legal Standards for Proving an Implied in Fact Contract

Courts carefully examine whether a party seeking to enforce an implied in fact contract can demonstrate three critical elements:

  1. Mutual Intent: Evidence must show that both parties intended to enter into an agreement, even if they never formalized it.
  2. Definiteness of Terms: The scope of services, compensation, and expectations must be reasonably clear from conduct or circumstances.
  3. Performance and Reliance: One party must have performed an act expecting compensation, and the other must have knowingly accepted the benefit under conditions implying payment.

Failing to prove these elements may result in dismissal of the claim, as courts will not infer contractual obligations where no mutual understanding exists.

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.

How Implied in Fact Contracts Are Formed

Implied in fact contracts are formed through a combination of behavior and circumstances rather than explicit promises. Common ways they arise include:

  • Consistent Course of Dealings: Repeated transactions under similar terms can establish a contractual expectation.
  • Acceptance of Services: Receiving and benefiting from services with knowledge that compensation is expected.
  • Industry Practices: Following customary practices in a field that signal payment is standard.
  • Pre-Contractual Conduct: Negotiations and preparatory actions that reasonably imply agreement.

Even informal interactions—such as agreeing to collaborate on a project without discussing payment—can create legal obligations if the surrounding facts show mutual understanding.

Common Situations Where Implied Contracts Arise

Implied contracts often occur in everyday and professional settings, including:

  • Employment: When an employer’s policies or actions suggest ongoing work conditions, benefits, or job security beyond what is written in a contract.
  • Professional Services: Accepting services like legal advice or accounting without a formal engagement letter but with an understanding of payment.
  • Creative Submissions: Providing ideas, designs, or proposals where industry norms dictate compensation if the ideas are used.
  • Medical Services: Receiving treatment in emergencies where consent is assumed and payment is expected.
  • Business Dealings: Regular supply of goods without a written agreement, but with a pattern of payment.

Recognizing these scenarios can help individuals and businesses avoid disputes over expectations and obligations.

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.

Relationship Between Oral and Implied Contracts

While oral contracts rely on spoken agreement, implied contracts arise from conduct or circumstances. In practice, the two often overlap. For instance, an oral agreement may be supported by a history of conduct that further solidifies the contractual relationship.

Courts may treat consistent performance under an oral agreement as evidence of an implied in-fact contract. However, both oral and implied agreements face similar challenges in enforcement due to the difficulty of proving terms without written documentation.

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.

Breach of an Implied in Fact Contract

A breach of an implied in fact contract occurs when one party fails to fulfill their obligations under the agreement, despite having benefited from the other party’s performance.

 Examples include:

  • Accepting services but refusing to pay.
  • Using proprietary information provided with an expectation of compensation.
  • Abruptly terminating an ongoing service relationship without notice or payment.

The legal remedies mirror those for express contracts. Courts may order restitution (to prevent unjust enrichment), compensatory damages (to place the injured party in the position they would have been in), or quantum meruit (reasonable value for services rendered). Plaintiffs must show that the defendant’s actions violated the implied agreement and that they suffered measurable harm as a result.

Remedies for Breach of Implied Contracts

When a party breaches an implied contract, the court may order remedies such as:

  • Restitution: Returning any benefits wrongfully retained by the breaching party.
  • Compensatory Damages: Monetary awards to place the non-breaching party in the position they would have been in if the contract was honored.
  • Quantum Meruit: Payment for the value of work performed when no specific contractual amount was agreed upon.

The chosen remedy depends on the nature of the breach, the benefit conferred, and whether unjust enrichment occurred.

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.

Best Practices to Minimize Risk of Unintended Obligations

To reduce the risk of forming unintended implied contracts:

  1. Document Agreements: Put terms in writing whenever possible, even for small transactions.
  2. Clarify Scope of Work: Specify what is and is not included in any service or delivery.
  3. State Payment Terms Clearly: Outline how and when payment will occur.
  4. Train Staff: Ensure employees understand actions that could create contractual obligations.
  5. Use Disclaimers: When appropriate, include written notices stating that certain actions do not constitute acceptance of contractual terms.

These practices can help prevent costly misunderstandings and legal disputes.

Practical Tips for Businesses and Individuals

Because implied contracts can arise unintentionally, parties should proactively manage risk by:

  • Using Written Agreements: Even brief written terms clarify expectations and reduce ambiguity.
  • Sending Confirmations: Follow up verbal or implied agreements with written summaries.
  • Including Disclaimers: Clearly state when services are complimentary or exploratory.
  • Defining Payment Expectations: Outline pricing and billing terms before work begins.
  • Reviewing Ongoing Practices: Regularly audit business relationships to ensure no unintentional obligations have formed.

These precautions not only reduce litigation risk but also strengthen trust and transparency in business relationships.

Frequently Asked Questions

  1. What is an implied in fact contract?
    It’s a legally binding agreement formed by conduct, circumstances, or a course of dealings, even without written or spoken terms.
  2. How is it different from an implied at law contract?
    An implied in fact contract is based on mutual intent, while an implied at law (quasi-contract) is imposed by courts to prevent unjust enrichment.
  3. Can you sue for breach of an implied in fact contract?
    Yes. If one party fails to uphold their obligations, the injured party can pursue damages, restitution, or payment for services rendered.
  4. What are common examples of implied contracts?
    Ongoing services, employment benefits, repeated business transactions, and acceptance of services with payment expectations.
  5. How can I avoid unintended implied contracts?
    Document terms in writing, clarify compensation before providing services, and include disclaimers when no payment is expected.

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