Key Takeaways

  • Implied contracts are legally binding agreements created through conduct, circumstances, or established relationships, rather than explicit written terms.
  • They fall into two main categories: implied in-fact (based on parties’ conduct) and implied at-law (quasi-contracts created to prevent unjust enrichment).
  • Courts assess implied contracts by evaluating the behavior, context, and reasonable expectations of the parties involved.
  • Certain contracts must still be in writing under the Statute of Frauds, but many oral and implied agreements are enforceable.
  • Risks include unintended obligations; parties can reduce exposure by communicating intentions clearly and documenting agreements when possible.
  • Implied contracts are recognized in many industries, including employment, creative services, healthcare, and business dealings.
  • Remedies for breach often involve restitution or damages aimed at restoring fairness.

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.

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.

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.

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.

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.

Frequently Asked Questions

  1. What is the difference between implied in-fact and implied at-law contracts?
    Implied in-fact contracts arise from parties’ conduct, while implied at-law (quasi-contracts) are imposed by courts to prevent unjust enrichment.
  2. Are implied contracts legally binding?
    Yes, if the court finds sufficient evidence of mutual obligation, implied contracts are enforceable like written agreements.
  3. Can implied contracts exist without payment terms?
    Yes. In such cases, courts may award payment based on quantum meruit—the reasonable value of services provided.
  4. How can I prove an implied contract?
    Evidence may include consistent conduct, prior dealings, communications, industry norms, and testimony from witnesses.
  5. What industries most commonly deal with implied contracts?
    They are common in employment, healthcare, creative services, consulting, and ongoing supplier relationships.

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