What Is an Implied Contract?

Behaviors, actions, and even circumstances can establish an implied contract that a judge can enforce, just like a written one.

An implied contract is a legal obligation created by words, actions, or circumstances. Implied contracts are formed in small ways every day. When you order a meal in a restaurant, or reach across a table for a manicure, you don't sign a contract—you might not even exchange words--but you are agreeing to receive goods or services in exchange for payment all the same. Would it be right to enjoy the meal or receive the manicure and then refuse to pay because you didn't sign a contract? Of course not. To prevent someone from getting something for nothing, or, as it's called in legal terms, unjust enrichment, a judge would decide that there existed an "implied contract" between you and the restaurant or manicurist and order you to pay up.

Kinds of Implied Contracts

When the stakes are the price of a meal or a manicure, it's unlikely that the person who didn't get paid will go to court. But for larger transactions that have no written agreement between two parties, the person seeking compensation for goods or services is likely to sue. That person would ask the court to determine whether an implied contract exists, and if it does, to order the other side to pay for what it received.

The law defines two types of implied contracts: those implied-in-fact and those implied-in-law. They differ based on how the agreement came about. Basically, an implied-in-fact contract is one that can be proved by looking at the parties' behavior—if it looks like they were intentionally acting pursuant to a contract, it's a contract. By contrast, an implied-in-law contract involves an ethical determination by a judge that one party should not get something for nothing.

Implied-in-Fact Contracts

A contract that's implied in fact is formed when two parties conduct themselves as if an agreement were in place.

Let's say you own a dog walking service, and you run into a dog-owner in your neighborhood who tells you she's had difficulty walking her dog because she sprained her ankle. The next day you knock on her door and offer to walk her dog. When you return, the owner pays you $20. You return daily for the next five days, and each time you bring the dog back, the owner pays you $20. You continue walking the dog for two more weeks, but the owner doesn't pay you for those two weeks. When you ask for your money, the owner says she thought you were just being kind, and she never intended to pay you for each walk.

If you file a lawsuit in small claims court to recoup payment for your service, the court would likely determine that you were, indeed, entitled to be paid for the two weeks of dog walking services.

The court would reason that your and the owner's actions constituted an understanding to exchange dog walking services for compensation. You and the dog owner established an implied-in-fact contract because the fact is, you walked her dog and she paid you for those services for the first five days. The facts would show that the understanding was open-ended—no one specified that your services would stop after five days.

Implied-in-Law Contracts

Implied-in-law contracts, also called quasi-contracts, are the last resort for judges who are faced with a situation where one party is taking advantage of the other. Courts use this doctrine to compensate someone for services performed, not because one party offered and even if neither party intended to enter into a contract, but because the person who received goods or services would be unfairly enriched by not paying. In other words, as the late Chief Justice Warren once said, "You just can't do that."

Here's an example of how a judge might make things right by concluding that an implied-in-law contract existed. Suppose you're a roofer and have been hired by a homeowner to re-roof his house. The property also includes a barn, but the barn was not mentioned in the contract. You replace the roof on both the house and barn, and the owner silently watches as you work. But then the owner refuses to pay you for the barn, arguing that your written contract mentioned only the house.

If you go to court to ask a judge to order payment for the barn, you'd argue that the owner had every chance to correct your mistake, but remained silent. A judge would likely agree and conclude that fairness requires that the owner pay for what he got. The result might be different, however, if the owner had been absent the entire time the roofer was working, and returned home to see an unwanted new roof on his barn. A judge might not order the owner to pay, or might order less than the cost of the barn roof, on the theory that the owner shouldn't be forced to pay for something he didn't want and had no opportunity to avoid.

How Are Implied Contracts Enforced?

When you believe an implied contract has been breached –that is, one party failed to perform—you can seek to recover the payment you are owed by using the same methods you would use if you had a written contract. You can use a mediator, participate in binding arbitration, or file a lawsuit.

When you have a written contract, it spells out the responsibilities of each party to fulfill the agreement. With an implied-in-fact contract, you'll have to establish the terms that both parties apparently agreed to, as evidenced by their behavior. And with an implied-in-law contract, you'll need to show how one side stands to be unjustly enriched by the other's labors or delivery of goods.

In the dog walker example above, which involves an implied-in-fact contract, a mediator, arbitrator, or judge might consider these points:

  • Did the actions of the dog walker and the dog owner (the walker offering to walk the dog, and the owner turning the dog over to the walker) constitute a contract?
  • Did the dog walker uphold her part of the contract (did she walk the dog)?
  • Was the owner's breach "material," affecting an important right of the walker (getting paid)?
  • Did the dog owner have a legal defense for not paying the dog walker?
  • Finally, if all of the above comes down in favor of the walker, how much money does the dog owner owe the dog walker?

Some Contracts Must Be Written

When you are providing goods or services in exchange for payment, it's always best to have a written contract that spells out the responsibilities of each party to the agreement, in case misunderstandings arise later. Some contracts, however, must always be put in writing if the parties expect to have a court uphold them. States use laws, known as statute of frauds, to define when contracts must be written, and these laws vary by state. In general, written contracts are required for:

  • land or real estate sales
  • promissory notes for debts over an amount established by the state
  • agreements that take longer than one year to complete, such as a mortgage agreement or a car or real estate lease that's longer than one year, and
  • some sales of goods above a specified amount determined by the state.

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