Implied Contract

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An implied contract is a contract that exists based on the actions of those involved. Though it is not a written or spoken contract, it is just as legal. A contract is assumed to exist based on the behaviors of the parties to it. An example of an implied contract is an implied warranty that goes into effect upon the purchase of a product. The product is guaranteed to work as expected when purchased, meaning a washing machine must be able to wash clothes the moment it is plugged in and turned on. To explore this concept, consider the following implied contract definition.

Definition of Implied Contract

Noun

  1. A contract that is not written or spoken, but which is assumed to exist based on the words and actions of the parties involved.

Origin

1325-1375       Middle English

What is an Implied Contract

An implied contract is exactly what its name would suggest: a contract that is “implied,” based on the actions of those involved. An implied contract is not written down, and its terms are not even explicitly discussed. However, a contract is assumed to legally exist due to the actions of the parties who are involved in the situation. For instance, an implied contract exists when a customer purchases a product or service. The customer assumes that the product will work as expected right out of the box, just as he also assumes he will receive the exact service he a service mechanic to perform on his car.

Implied in Fact

Implied-in-fact contracts are contracts that create an obligation between the parties, based on the circumstances of their situation. If the parties behave in such a way as to suggest that they have agreed to some sort of obligation, then the law will find them to have participated in an implied-in-fact contract. The name itself sums up the situation: the facts at issue create an implied contract. An example of an implied contract that is an implied-in-fact contract is presented below:

Jake, who has a snow blade attachment on his 4-wheel ATV, heads over to his neighbor’s house to dig out his driveway. Paul, the neighbor, is grateful that the young man came over to help out, so when Jake is finished, Paul hands him a $20 bill. Jake says he should be able to come back periodically to keep the snow at bay for his neighbors, and the two wish each other a good day before Jake heads to the next neighbor’s yard.

As this is a particularly snowy winter, Jake stops by Paul’s house every weekend to shovel Paul out. The first three times, Paul paid Jake $20, even though there was no agreement for payment. However, on the fourth day, Paul stays indoors, not coming out to pay Jake. A few days later, after Jake plows again, he asks Paul for payment for the two days he received no money. Paul claims he never entered into an agreement to pay Jake for his services; rather, he thought Jake was just being a nice neighbor.

If Jake was to sue Paul for lack of payment, the law would likely be on Jake’s side. The courts would infer that an implied in-fact contract existed between Jake and Paul, even though the two never reduced the terms of the contract to writing. This implied contract was created when Paul paid Jake for his services, not once, but three times, and continued to accept Jake’s services.

Implied in Law

For implied-in-law-contracts, the law imposes upon a person a responsibility to uphold his end of the contract, and will even enforce the contract against that person’s will. Implied-in-law-contracts are enforced when circumstances dictate that, without the courts stepping in to enforce the contract, one party would be unfairly enriched by another’s behavior. Here, one party would be entitled to restitution for the services he received, even if there was never any intention on the part of either party to enter into a contract. Consider the following example of an implied-in-law-contract:

Ralph is traveling on an airplane when he suffers a heart attack. Tim, a doctor, is seated close to Ralph and observes Ralph clutching his chest and falling to the floor. Tim rushes over with his medical bag and manages to stabilize Ralph until the plane can perform an emergency landing.

Tim later sends a bill to Ralph for medical services rendered. Ralph is, in fact, legally responsible for paying that bill, even though he never intended to enter into a “contract” with Tim. This is because otherwise, Ralph would have been unjustly enriched by Tim’s services to save his life. Here, the law would likely find for the existence of an implied-in-law contract, and would order Ralph to pay Tim for the services he received.

An implied-in-law contract is also referred to as a “quasi-contract.” A quasi-contract is a contract wherein the law imposes responsibility upon the parties when the parties did not intend to become parties to a contract in the first place. However, because one party would have received unjust enrichment through the actions of the other party, then the party receiving the enrichment must pay restitution for the services provided. This is true even if the receiving party never intended to enter into any sort of agreement with the other party.

Oral Contracts

Many believe that oral contracts are not legally binding, but this is actually not the case. Most forms of oral contracts are recognized by the courts, with only certain types of contracts required to be reduced to writing in order to be enforced. States differ on the kinds of contracts they require to be put in writing, however it is generally accepted that the following types of contracts be made in writing, rather than oral contracts:

  • Contracts pertaining to the sale of real estate or land
  • Contracts related to the repayment of a substantial debt
  • Activities or services that cannot be completed within one year (such as construction)
  • Services that exceed a certain dollar amount
  • The sales of certain types of goods

However, even in a situation where a written contract is not necessary, it is still a good idea to create one. A written contract will have more weight than an oral contract later on, should a dispute arise over a service rendered, or the sale of a product. Often, oral contracts run into difficulties – not as a dispute over whether a contract exists, but about the specific details of the agreement.

Implied Contract Example Involving a Successful Television Show

An example of an implied contract in a court of law concerned a case wherein a potential screenwriter believed one of his ideas had been stolen by a major television network. Here, Larry Montz, a parapsychologist, submitted several ideas to NBC network in the hopes at least one would be accepted for production into a television show. NBC responded to Montz, indicating that it was not interested in the ideas he had submitted. However, three years later, the network produced the successful television show Ghost Hunters – the premise of which, Montz claimed, was very similar to his idea.

Montz sued NBC for restitution on a federal copyright claim, alleging that NBC had breached an implied contract with him, and that he was entitled to compensation. Montz lost at the District Court level, with the court ultimately siding with NBC. The Court held that copyright law preempted the claims of breach of implied contract and breach of confidence, which were state law claims. Montz appealed the District Court’s ruling, and was successful, with the 9th Circuit reversing the lower court in a 7-4 decision.

The 9th Circuit referred to the fact that the California Supreme Court had previously ruled that an implied contract is formed between a writer and a producer. Within this contract, an idea is disclosed by the writer to the producer under the premise that the writer will be paid for his idea, should it be used by the producer. The main point noted by the Court is the difference between an individual’s rights that are protected by a state cause of action, compared to those rights that are protected by copyright. Specifically:

“[T]he contractual claim requires that there be an expectation on both sides that use of the idea requires compensation, and that such bilateral understanding of payment constitutes an additional element that transforms a claim from one asserting a right exclusively protected by federal copyright law, to a contractual claim that is not preempted by copyright law.”

To put it simply, Montz had a contract claim (“tort”), as well as a copyright infringement claim. The court explained that, even if the copyright claim is dismissed by a court of law, Montz still has a right to pursue the contract claim.

This decision was monumental in the fact that it broadened the application of the definition of an implied contract. In other words, the decision made here protects what could potentially be thousands of “little guys” who frequently submit their ideas to major studios, in the hopes that one of those ideas will be a success. On a similar note, this ruling served as motivation for studios to be more careful about how they handle submissions from potential screenwriters, as well as to beef up their legal team in the event they are sued for using an idea similar to one that was submitted.

Related Legal Terms and Issues

  • Restitution – The restoration of rights or property previously taken away or surrendered; reparation made by giving compensation for loss or injury caused by wrongdoing.
  • Tort – An intentional or negligent act, a civil wrong, as opposed to a criminal act, which causes harm to another.
  • Trial – A formal presentation of evidence before a judge and jury for the purpose of determining guilt or innocence in a criminal case, or to make a determination in a civil matter.
  • Unjust Enrichment – A legal principle that prohibits one person from profiting, or being enriched, at the expense of another person. In such a case, the unjustly enriched party may be ordered to make restitution for the reasonable value of the services rendered, property transferred or damaged, or other benefits received.