If you ask a businessperson to visualize a contract, they will probably think of a paper document with a lot of legal language and space at the bottom for signatures. Legally, a contract that is expressed in words is known as an express contract. Certain types of contracts are required by law to be written, but most express contracts can be either oral or written.
It’s important to note that an express contract is one important way to establish legally enforceable obligations, but it is not the only way.
In addition to express contracts, California law also recognizes implied contracts. These are contracts that are not written, nor necessarily even spoken out loud, but are implied by behavior. In some cases, a court may determine that an implied contract exists in the interest of justice.
Generally, implied contracts can be either implied-in-fact or implied-in-law. Implied-in-fact means that the parties behaved as though they had a contract, even if they never said so out loud or wrote it down. For instance, imagine an alfalfa farmer who regularly brings some of his crop to a neighboring ranch so that the rancher can use it for animal feed. In exchange, the rancher pays the farmer. This has been going on for years, but the two have never discussed their arrangement. One year the rancher decides he won’t pay the farmer anymore. When the farmer complains, the rancher dares him to take his case to court. The court reviews the situation and finds that the two parties had a legally enforceable implied-in-fact contract. The court orders the rancher to pay the farmer.
Implied-in-law contracts, also known as quasi contracts, present another way for a court to find that a contract exists without oral or written expression. A court may find that a quasi contract exists in a case where one party appears to be gaining unjust enrichment at the expense of another party. For example, if, in the example above the court cannot find evidence for an implied-in-fact contract but it feels that the rancher is unjustly enriching himself at the expense of the farmer, it may determine that a quasi contract exists in the interest of justice.
All this talk of farmers and ranchers may make the ideas of express and implied contracts seem very distant from the high-tech world, but in fact the same concepts can apply to almost any industry. Businesses, whether they are selling microchips or alfalfa, should be aware of the risks and rewards of contract law.