What are implied contracts?

A reader asked the following question: What are implied contracts? What rules are applicable to them?

Any discussion of implied contracts must start with the idea of an express contract. An express contract is any binding agreement between two parties, both of whom understand and intend to enter into it, under which the parties promise to perform certain obligations. At its simplest, one party to the contract agrees to provide goods or services to the other, who agrees to pay for them at an established price.

Legally, the elements of an express contract are: (1) an offer by one party and an acceptance by the other, (2) consideration, in particular something of value contributed by each party and (3) a mutuality of intent— specifically, a meeting of the minds regarding the provisions of the agreement. An express contract may be written or oral. [See Restatement of the Law (Second) of Contracts, & Sect; 3, 4.]

By comparison, there are two kinds of implied contracts: contracts implied in fact and contracts implied at law. An implied-in-fact contract is one that must be inferred from the conduct of the parties. Often such contracts involve a course of dealing between the parties or a common trade usage. For example, a manufacturer may tell a supplier to send a number of units without asking the current price. In such circumstances, a contract to pay the current price for the items is implied, even though the parties have not entered into an express contract. The legal elements of an implied-in-fact contract are the same as an express contract: offer and acceptance, consideration and mutuality of intent. However, some of the terms must be deduced from the parties' actions. (See Restatement & Sect; 4, and Comments thereto.)

An implied-at-law contract, by contrast, is a legal fiction used by courts to prevent a person's unjust enrichment at the expense of another. In such cases, the courts use quasi-contract theories to assure a just result. For example, a person who stands silently by while another confers on him a benefit, knowing that the second person mistakenly expects to be compensated, may be required to pay a just amount for the value conferred. (See Restatement & Sect; 4, Comment b.)

Most contracts with the government are express contracts. Indeed, most are written. (See Federal Acquisition Regulation 2.101.) But oral express contracts with federal agencies also can be found. Even implied-in-fact contracts are more common than one might think. All these contracts, with minor exceptions, are subject to the Contract Disputes Act of 1978, which establishes procedures for the enforcement of contractual rights and gives courts and agency boards of contract appeals jurisdiction to hear contractual disputes.

Contracts implied-at-law, by contrast, are not subject to the Contract Disputes Act. As a consequence, a person may have a difficult time convincing a court or agency board of contract appeals to grant relief on quasi-contract grounds. But such relief may be obtained in some cases from the agency itself or from the General Accounting Office.

The most common example of this is ratification of an unauthorized commitment. In a ratification, an authorized contracting official approves, or ratifies, a contractual commitment that was unauthorized, and therefore unenforceable, when it was made. (See FAR 1.602-3.)

If an agency will not, or cannot, ratify an unauthorized transaction, relief still may be available on a quantum meruit basis. Quantum meruit is an equitable doctrine under which a party who confers a benefit on another can be awarded the reasonable value of the benefit conferred.

Four elements must be established in support of a quantum meruit claim: (1) The goods or services would have been a permissible procurement if correct procedures had been followed, (2) the government must have received and accepted a benefit, (3) the contractor or other performing party must have acted in good faith, and (4) the amount claimed must represent the reasonable value of the benefit received.

In practice, of course, it often is difficult to apply these complex rules to the facts of particular cases. Furthermore, because these cases often involve such harsh results, with remedies totally denied to apparently innocent persons, the courts frequently seem to bend the rules somewhat. Accordingly, it is especially important that each case in this area be evaluated on its own merits.

-- Peckinpaugh is a member of the government contracts section of the law firm of Winston & Strawn, Washington, D.C.