Short Video: Contract Defenses for Lack of Mutual Assent: Mistake, Misunderstanding and Misrepresentation
Implied in Fact Contract:
Implied in Law Contract:
At the heart of any contract issue is the question of whether or not a contract was actually formed. This usually requires a determination of whether there was valid consideration, as we discussed in Chapter I, and whether there was a valid offer and acceptance which we will discuss in this chapter.
In order for a contract to be formed, there must be mutual assent, which is simply the agreement by both parties to enter into a contract. In deciding whether or not there is mutual assent, courts use an objective “reasonable man” test in which the court examines the exchange between the parties that led to the establishment of the contract and then determines what reasonable people in the place of the parties would have understood the exchange to mean.
Please note that the court is not interested in what the parties actually thought. It is only interested in what a reasonable person in the same circumstances would have thought. For example:
Tommy offers to buy Pam’s farm for $100,000. Pam does not wish to sell her farm but she jokingly accepts the offer because she does not believe that Tommy has the $100,000. Tommy and Pam work out the terms of the contract and Pam, still joking, writes out the contract on a sheet of paper and signs it. Tommy takes the writing and tries to enforce it. In this situation, the contract is binding even if Pamela didn’t intend to sell her farm because Tommy actually believed this to be a serious transaction and his belief was reasonable. See
Lucy v. Zehmer, 84 S.E.2d 516 (Va. 1954).
If mutual assent is explicitly expressed, either verbally or in writing, the resulting contract is an express contract.
If mutual assent is present but not explicitly expressed, the resulting contract is an implied contract. There are two types of implied contracts: "implied in fact" contracts and "implied in law contracts".
An implied in fact contract is a contract in which each party’s promise is inferred from their act or conduct, or from words that are not explicitly words of agreement. For example:
Michelangelo asks Picasso to paint his house. Picasso paints Michelangelo’s house. In this situation, there is an implied in fact contract which obligates Michelangelo to pay Picasso his usual rate for painting a house as long as the rate is reasonable. Although there were no explicit words of agreement, Michelangelo’s request and Picasso’s act created an implied in fact contract.
An implied in law contract is a contract where, in order to avoid unjust enrichment, one party is required to compensate the other party for a benefit he received.
Marsha is walking down the street one winter day when an icicle falls off of the building she is walking past and strikes her on the head. Marsha is knocked unconscious. Jan, a licensed physician, sees the icicle hit Marsha and rushes over to help her. When Marsha recovers, Jan sends her a bill for her medical services. In this situation, Marsha is obligated to pay Jan the reasonable value of her services under an implied in law contract. Even though Jan and Marsha are not actually contractually bound to each other, an implied in law contract will be established to avoid Marsha’s unjust enrichment.
Please note that while an implied in fact contract is a real contract, an implied in law contract is not a real contract. Rather, it is a legal fiction created to prevent unjust enrichment.