Implied Contracts in Real Estate

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As we have discussed, there are numerous types of contracts in real estate. These contracts must be legally binding and are typically a written agreement. Every day, implied contracts are made in little ways. Throughout this article, we will help you understand what goes into an implied contract and the difference between implied-in-fact and implied-in-law.

What is an Implied Contract?

An implied contract is a legally enforceable obligation that arises from one or more parties due to the parties actions, conduct, or circumstances. It has the same legal effect as an express contract, a contract between two or more parties that is willingly entered into and agreed upon verbally or in writing. An implied contract is presumed to exist but does not require written or verbal confirmation.

The concepts behind an implied contract are that no one should enjoy unjust benefits at the expense of another and that fair play does not require a written or spoken agreement. An implied contract might be difficult to enforce because proving the claim’s validity is a question of argument rather than simply showing a signed document. Furthermore, some governments impose restrictions on implied contracts. In some courts, a contract for a real estate transaction, for example, must be backed up by a written contract.

Implied Contract Requirements

The defining element of an implied contract is that it may be properly inferred from the parties’ behavior or surrounding circumstances that they have established an agreement, even if there is no exchange of words – either orally or in writing – that specifies the agreement. A typical example is when one party benefits from another, knowing that the supplying party expects to be compensated for the benefit supplied.

Implied contracts are legally binding and enforceable in the same way that express contracts are. Enforcing these type of contracts might be problematic because the contract’s particular terms are not defined. States utilize the statutes of fraud to regulate when contracts must be written, but ultimately these laws differ from state to state. In many jurisdictions, certain agreements such as property sales contracts require an enforceable written contract and thus cannot be implied. Written agreements are required in most cases for:

  • Sales of land or real estate
  • Promissory notes issued by the state for debts exceeding a certain amount
  • Agreements that take more than a year to complete, such as a mortgage agreement or a longer-than-one-year automobile or real estate lease

Implied Contract Examples

Let’s take a look at how an implied contract exists in different situations. Services offered by a company or individual with the promise of payment upon completion of the task are examples of implied contracts in the real estate process.

Here is an example of an implied contract applied to everyday life. An implied contract is formed when a customer enters a restaurant and orders food, for example. The restaurant owner has a legal obligation to serve the meal, and the consumer has a legal obligation to pay the prices on the menu.

Here’s another example. Lets say you have your own dog walking services. Lets say you come across someone in your neighborhood who is no longer able to walk their dog. You offer to walk the dog, and in return, the owner gives you $30 as payment. You continue to walk the dog for the next couple weeks, receiving $30 each time. Then one week the owner forgets to pay, and says they’ll pay you double next time. Then the following week arrives, you walk the dog again, and this time the owner refuses to pay and had no intention of paying you for that week or the one before.

If you bring a lawsuit in small claims court to recover money for your services, the court will indeed find that you are entitled to compensation. The court would conclude that your and the owner’s acts amounted to an agreement to trade dog walking services for a fee. You and the dog owner established an implied-in-fact contract because you walked the dog and got paid for those services provided for the first couple weeks. The facts reveal that the agreement was open-ended, as no one said your services would be terminated after a week. Should you go to small claims court for $60? More than likely not, but this is a perfect example of how an implied contract functions in a daily setting.

What is an Implied-in-Fact Contract of an Implied-in-Law Contract?

Implied-in-fact and implied-in-law contracts are the two types of implied contracts. 

Implied-in-Fact

An implied-in-fact contract is created when two parties act as if they have reached an agreement. So, it’s a type of implied contract made through nonverbal behavior rather than exact words, as seen in the example above with dog walking.

Implied-in-fact contracts have the same properties as express contracts. There is an offer from one party that the other party accepts, consideration exists, and both parties desire to enter into a contract. The provisions of an implied-in-fact agreement are inferred from the conduct of the parties rather than being stated explicitly or in writing.

In most cases, an implied contract has the same legal force as a written contract. However, proving the existence and conditions of an implied contract may be more challenging in the event of a disagreement. In some jurisdictions, real estate contracts may not be formed on an implied-in-fact basis, necessitating a written agreement.

Implied-in-Law

Implied-in-law contracts, sometimes known as quasi-contracts, are the final option for judges faced with a scenario in which one party is using the other. This approach is used by courts to reward someone for services rendered, not because one party offered and even if neither party meant to enter into a contract, but because the person who got the products or services would be unfairly enriched if they were not compensated.

In plain terms, an implied-in-law contract is a legally enforceable agreement that neither party intended to make. Courts accept an implied-in-law contract in cases where one party would otherwise be unfairly enriched at the expense of another party, even though the parties involved did not intend to make it.

What is the Difference Between Implied-in-Fact and Implied-in-Law Contracts?

An implied-in-fact contract occurs when the parties act in a way that suggests they desire to agree with one another, even if no oral agreement or written agreement has been created. An implied-in-fact contract must include an offer, acceptance, consideration, and mutual intent like an express contract. On the other hand, the terms are not specified explicitly and must be understood from the parties’ interactions.

In contrast, an implied-in-law contract is not a contract in the strict sense of the term, hence its other frequent name, quasi-contract. Implied-in-law is different because it is an agreement that a court creates since none existed previously; why? To protect one party from unfairly benefiting at the expense of another.

Both are unwritten contracts but hold a mutual agreement. Because of this, they can be legally binding, allowing for implied contracts enforced through law. If you are unsure about how these apply further in different situations or ones that apply to you, consult with a law firm.

What to Know for the Exam

Come exam day, be sure to know the definition of each type of implied contract and the difference between the two. An implied contract is a legally enforceable obligation that arises from one or more contracting parties’ actions, conduct, or circumstances. It has the same legal impact as an express contract, which is entered into willingly and agreed upon verbally or in writing between two or more parties. An implied-in-fact contract is formed when two parties act as if they have reached an agreement, and implied-in-law contracts, sometimes known as a quasi-contract, are the final option for judges faced with a scenario in which one party uses the other. Remember your contracts, and you will be good to go for your exam!

Author:
Zackary Smigel is a real estate professional with a love for teaching, based out of Pittsburgh, PA. He's had the opportunity to work with some of the brightest minds in real estate and has spent years learning how to become a successful agent.

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