1.4 Implied contracts and promissory estoppel
9 min read•august 20, 2024
Implied contracts and are crucial concepts in employment law. They protect employees from unfair practices and hold employers accountable for their promises, even when not explicitly stated in writing.
These legal principles can create binding agreements based on conduct, circumstances, and reliance. Understanding their elements and applications is essential for both employers and employees to navigate workplace relationships effectively.
Elements of implied contracts
- Implied contracts are agreements that are not explicitly stated but are inferred from the parties' conduct, surrounding circumstances, and the overall context of their relationship
- These contracts are legally binding and enforceable, despite not being formally written or verbally agreed upon
Offer and acceptance
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- An offer is a clear expression of willingness to enter into a contract, which includes essential terms
- Acceptance is the unequivocal agreement to the terms of the offer
- Can be implied through actions or inaction
- Offer and acceptance in implied contracts are determined by the parties' conduct and the surrounding circumstances
Mutual agreement
- Both parties must have a meeting of the minds, meaning they understand and agree to the essential terms of the contract
- Mutual agreement can be inferred from the parties' actions and the context of their relationship
- The terms of the agreement must be clear enough for both parties to understand their obligations
Intent to be bound
- The parties' conduct must demonstrate an intention to create a legally
- Factors considered include the nature of the relationship, the parties' actions, and any relevant industry norms or customs
- The intent to be bound can be implied even if the parties did not explicitly express their desire to create a contract
Implied vs express contracts
- Express contracts are agreements where the terms are explicitly stated, either verbally or in writing
- Implied contracts arise from the parties' conduct and the surrounding circumstances, without an explicit agreement
- Both types of contracts are legally enforceable, but implied contracts may be more difficult to prove due to the lack of clear, express terms
Proving an implied contract exists
- The burden of proof is on the party asserting the existence of an
- Courts consider various factors to determine whether an implied contract has been formed
Conduct of the parties
- The actions and behavior of the parties are crucial in determining the existence of an implied contract
- Consistent patterns of behavior, such as regularly providing services or making payments, can indicate an implied agreement
- The parties' conduct should demonstrate a mutual understanding of their obligations and expectations
Surrounding circumstances
- Courts examine the context in which the parties' relationship exists, including the nature of their business dealings and any prior transactions
- Industry norms, customs, and practices can influence whether an implied contract is found to exist
- The duration and frequency of the parties' interactions may also be considered
Industry norms and customs
- Established practices and expectations within a particular industry can give rise to implied contracts
- If certain behaviors or agreements are common and expected within an industry, they may be considered part of an implied contract
- Example: In the construction industry, it is customary for contractors to provide estimates before starting work, even if not explicitly requested
Reasonable person standard
- Courts apply an objective standard, asking whether a reasonable person in the same circumstances would believe an implied contract exists
- The reasonable person standard helps to ensure that the parties' expectations are based on objective, rather than subjective, factors
- If a reasonable person would understand the parties' conduct to create a binding agreement, an implied contract may be found
Terminating implied contracts
- Implied contracts, like express contracts, can be terminated under certain circumstances
- The specific rules for terminating implied contracts may vary depending on the nature of the agreement and the jurisdiction
At-will employment
- In most U.S. states, employment is presumed to be "at-will," meaning that either the employer or employee can terminate the relationship at any time, for any reason (except for illegal reasons)
- However, an implied contract may limit the at-will nature of employment, providing job security or requiring cause for termination
- If an implied contract is found to exist, the employer may be restricted in their ability to terminate the employee
Good faith and fair dealing
- Implied contracts often include an implied covenant of
- This means that parties must act honestly and fairly towards each other, and not take actions that would deprive the other party of the benefits of the agreement
- Terminating an implied contract in bad faith or without fair dealing may constitute a breach
Constructive discharge
- occurs when an employer creates a hostile or intolerable work environment, forcing the employee to resign
- If an implied contract exists, constructive discharge may be considered a breach of that contract
- Employers must be cautious not to engage in conduct that would make it difficult for employees to continue working
Breach of implied contract
- If one party fails to fulfill their obligations under an implied contract, it may constitute a breach
- The non-breaching party may be entitled to legal remedies, such as damages or specific performance
- To prove a breach of an implied contract, the plaintiff must demonstrate the existence of the contract, the defendant's failure to perform, and resulting damages
Promissory estoppel elements
- Promissory estoppel is a legal principle that can make promises enforceable, even if they would not otherwise be considered a contract
- This doctrine is often applied when one party has relied on a promise to their detriment, and it would be unjust not to enforce the promise
Clear and definite promise
- The promise must be clear and unambiguous, leaving no doubt about the promisor's intentions
- Vague or uncertain promises are not enforceable under promissory estoppel
- The terms of the promise must be specific enough for the promisee to understand what is being promised
Reasonable reliance on the promise
- The promisee must have reasonably relied on the promise
- Reliance is reasonable if a prudent person would have believed the promise and acted accordingly
- The promisor should reasonably expect that their promise would induce the promisee to take action or refrain from acting
Detrimental reliance by the promisee
- The promisee must have taken action or refrained from acting in reliance on the promise
- This reliance must be to the promisee's detriment, meaning they suffered a loss or harm as a result
- Examples of include:
- Incurring expenses
- Foregoing other opportunities
- Changing one's position or status
Injustice without enforcement
- Enforcing the promise must be necessary to prevent injustice
- Courts consider the balance of equities between the parties and the potential harm to the promisee if the promise is not enforced
- If the promisee's reliance was reasonable and they suffered a detriment, it may be unjust not to enforce the promise
Promissory estoppel in employment
- Promissory estoppel can apply in the context of employment relationships
- Employers must be cautious about making promises to employees, as they may be enforceable even if not part of a formal contract
Promises in employee handbooks
- Employee handbooks or manuals may contain promises about job security, benefits, or disciplinary procedures
- If an employee reasonably relies on these promises, they may be enforceable through promissory estoppel
- Employers should ensure that handbooks include clear disclaimers stating that they are not creating contractual obligations
Oral promises by employers
- Verbal promises made by employers, such as assurances of job security or future promotions, may be enforceable under promissory estoppel
- Employees who rely on these promises to their detriment may have a claim if the employer fails to follow through
- Employers should be cautious about making verbal promises and ensure that any such promises are clearly documented
Limitations on at-will doctrine
- Promissory estoppel can serve as an exception to the at-will employment doctrine
- If an employer makes promises that contradict the at-will nature of employment, and an employee reasonably relies on those promises, the employer may be estopped from terminating the employee without cause
- This can provide employees with a measure of job security, even in the absence of a formal employment contract
Implied contract vs promissory estoppel
- Implied contracts and promissory estoppel are distinct legal concepts, although they may overlap in some cases
- Implied contracts arise from the conduct and circumstances of the parties, while promissory estoppel focuses on a specific promise and the reliance on that promise
- Promissory estoppel may be used as an alternative claim when an implied contract is difficult to prove or when the promise falls outside the scope of a contract
Remedies for breach
- When an implied contract or a promise enforced through promissory estoppel is breached, the injured party may be entitled to legal remedies
- The specific remedies available depend on the nature of the breach and the jurisdiction
Reliance damages
- aim to put the injured party in the position they would have been in had they not relied on the promise or implied contract
- This may include compensation for expenses incurred or losses suffered as a result of the reliance
- Reliance damages are often awarded in promissory estoppel cases, as the focus is on the promisee's detrimental reliance
Expectation damages
- seek to put the injured party in the position they would have been in had the contract been fully performed
- This may include lost profits or other benefits the party would have received under the contract
- Expectation damages are more common in breach of contract cases, including implied contracts
Restitution
- aims to restore the injured party to the position they were in before the contract or promise was made
- This may involve returning money or property exchanged under the agreement
- Restitution is often used when the contract is found to be void or when the breach occurs early in the performance of the contract
Equitable remedies
- In some cases, monetary damages may not be sufficient to remedy the breach
- , such as specific performance or injunction, may be granted by the court
- Specific performance requires the breaching party to fulfill their obligations under the contract
- Injunctions prohibit the breaching party from engaging in certain conduct or require them to take specific actions
Defenses to implied contracts and estoppel
- Parties accused of breaching an implied contract or violating promissory estoppel may raise various defenses
- These defenses can challenge the existence of the contract or promise, the reasonableness of the reliance, or the enforceability of the agreement
Statute of frauds
- The requires certain types of contracts to be in writing and signed by the party to be charged
- If an implied contract falls within the statute of frauds and does not meet these requirements, it may be unenforceable
- Common contracts subject to the statute of frauds include:
- Contracts that cannot be performed within one year
- Contracts for the sale of real property
- Contracts for the sale of goods over a certain value (typically $500)
Lack of consideration
- is a fundamental element of a valid contract, representing a bargained-for exchange of value
- If an implied contract lacks consideration, it may be unenforceable
- Promissory estoppel can sometimes be used to enforce promises that lack consideration, as the focus is on the reliance rather than the exchange of value
Promissory estoppel as a shield
- Promissory estoppel is often used as a "shield" to prevent the enforcement of a contract or promise
- This can occur when one party has made a promise, and the other party has relied on it to their detriment, but the promise is not supported by consideration
- In such cases, the party who made the promise may be estopped from denying its enforceability
Disclaimers and integration clauses
- Employers can use to limit the enforceability of implied contracts or promises
- Disclaimers in employee handbooks or other documents can state that the policies and procedures do not create contractual obligations
- Integration clauses in written contracts can state that the written agreement supersedes any prior oral or implied agreements
- These clauses can help protect employers from claims based on implied contracts or promissory estoppel, but they must be clear and conspicuous to be effective
Key Terms to Review (29)
Bilateral Contract: A bilateral contract is an agreement between two parties where each party promises to perform a specific act in exchange for the other party's promise. This type of contract involves mutual obligations and is the most common form of contract, where one party's promise is conditioned on the other party's promise. Understanding bilateral contracts helps clarify how obligations are established and enforced within contractual agreements, making them a key aspect of contract law.
Binding agreement: A binding agreement is a legally enforceable arrangement between parties that creates mutual obligations. Such agreements can arise through explicit consent or implied through conduct, meaning parties are obligated to fulfill the terms as specified. This concept is closely connected to how implied contracts and the principle of promissory estoppel function, which can create enforceable commitments even without formal agreements.
Breach of implied contract: A breach of implied contract occurs when one party fails to fulfill their obligations that are understood to exist based on the conduct or circumstances surrounding the agreement, even if no formal written contract exists. This type of breach emphasizes the importance of mutual understanding and the expectations that arise from a party's actions or communications, even in the absence of explicit terms.
Clear and definite promise: A clear and definite promise is a commitment made by one party to another that is specific and unambiguous, providing a basis for legal enforceability. This type of promise is essential in understanding the principles of implied contracts and promissory estoppel, as it establishes the expectations and reliance of the promisee. When a clear and definite promise is made, it can lead to legal consequences if the promisor fails to fulfill the commitment.
Consideration: Consideration refers to something of value exchanged between parties in a contract, making the agreement binding and enforceable. It can be money, services, or a promise to do something or refrain from doing something. Without consideration, a contract may not be legally enforceable, as it is a critical element that indicates the parties' intention to enter into a mutual obligation.
Constructive Discharge: Constructive discharge occurs when an employee resigns due to a work environment that has become intolerable, effectively forcing them to leave. This situation usually arises from severe harassment, discrimination, or other significant issues that the employer fails to address, making it clear that continuing employment is no longer viable. Understanding this concept is essential in analyzing employment rights and the conditions under which an employee may seek legal recourse for wrongful termination.
Contractual Duty: A contractual duty is a legal obligation that arises from the terms of a contract, requiring one party to perform specific actions or fulfill certain conditions agreed upon with another party. This duty is essential for enforcing contracts and ensuring that parties uphold their commitments. Contractual duties can be explicit, stated clearly in the contract, or implied based on the nature of the agreement or the relationship between the parties involved.
Detrimental Reliance: Detrimental reliance occurs when a party relies on a promise made by another party to their detriment, typically in the absence of a formal contract. This legal principle is often invoked in cases of promissory estoppel, where one party takes action based on the expectation that the promise will be fulfilled, and suffers a loss when it is not. Understanding detrimental reliance is crucial for recognizing how informal agreements can sometimes hold legal weight, especially when one party has made significant decisions based on another's assurances.
Disclaimers and Integration Clauses: Disclaimers and integration clauses are provisions found in contracts that clarify the limitations of the agreement and assert that it represents the complete understanding between the parties. Disclaimers help to limit liability by specifying what is not included in the contract, while integration clauses state that the written contract supersedes any prior agreements or discussions, preventing reliance on external statements. Together, these provisions help define the scope of the contract and protect parties from potential disputes over interpretations.
Drennan v. Star Paving Co.: Drennan v. Star Paving Co. is a landmark case in contract law that established the principle of promissory estoppel, which protects parties who rely on a promise even in the absence of a formal contract. In this case, a general contractor relied on a subcontractor's bid, leading to reliance that caused the contractor to suffer losses when the subcontractor attempted to withdraw their bid. This case highlights how promises can create binding obligations, even without a traditional contract, when one party reasonably relies on the promise of another.
Employment promises: Employment promises are commitments made by employers to their employees regarding terms of employment, benefits, job security, and other conditions. These promises can be expressed through formal contracts or implied through conduct, policies, and practices within the workplace. Understanding employment promises is essential for recognizing how they interact with implied contracts and the doctrine of promissory estoppel in protecting employee rights.
Equitable Remedies: Equitable remedies are court-ordered actions that require a party to do or refrain from doing something, aiming to achieve fairness when legal remedies (like monetary damages) are insufficient. These remedies come into play especially when dealing with implied contracts and promissory estoppel, where mere monetary compensation may not fully resolve the injustice faced by the aggrieved party. They include injunctions, specific performance, and rescission, which help to enforce the intent of agreements or prevent harm that cannot be adequately addressed through traditional legal measures.
Expectation damages: Expectation damages refer to the monetary compensation awarded to a party in a contract breach case, intended to put them in the position they would have been in if the contract had been fully performed. This type of damage calculation focuses on the loss of the expected benefits from the contract rather than any incidental costs or expenses incurred. In the context of implied contracts and promissory estoppel, expectation damages serve to uphold fairness by enforcing promises that have led a party to rely on them, even when formal contracts may not exist.
Express Contract: An express contract is a type of agreement where the terms are clearly stated, either orally or in writing, making the parties' intentions explicit. This clarity distinguishes express contracts from implied contracts, where the agreement is understood through actions or circumstances rather than stated words. Understanding express contracts helps clarify parties' responsibilities and rights within the legal framework of contracts.
Foreseeability: Foreseeability refers to the ability to predict or anticipate an event or consequence that may arise from a particular action or situation. In the context of implied contracts and promissory estoppel, foreseeability plays a crucial role in determining whether a party can be held liable for failing to fulfill their promises based on what was reasonably predictable at the time. This concept helps assess whether a party's reliance on a promise was justified and if any damages incurred were within the scope of what could have been foreseen.
Good faith and fair dealing: Good faith and fair dealing is a legal doctrine that requires parties to a contract to act honestly and fairly toward each other, ensuring that neither side undermines the right of the other to receive the benefits of the agreement. This principle is deeply embedded in contract law, influencing how implied contracts and promissory estoppel are interpreted and enforced. It promotes trust and cooperation, fostering a balanced relationship between contracting parties while also providing remedies for breaches that may not involve outright dishonesty but still violate the spirit of the agreement.
Implied Contract: An implied contract is an agreement created by the actions, behavior, or circumstances of the parties involved, rather than through explicit verbal or written communication. These contracts often arise in employment situations where an employer's conduct or statements can lead an employee to reasonably believe they have job security or specific terms of employment that are not formally documented.
Injustice without enforcement: Injustice without enforcement refers to situations where legal rights or claims exist, but there is no mechanism to compel compliance or rectify violations. This concept highlights the gap between legal theory and practical application, where individuals may have valid claims that go unaddressed due to a lack of enforcement power. It emphasizes the importance of effective legal remedies and the enforcement of rights to prevent injustice.
Investment Agreements: Investment agreements are legally binding contracts between parties that outline the terms and conditions under which investments will be made, managed, and protected. These agreements typically detail the rights and obligations of each party, including aspects like profit sharing, investment return expectations, and dispute resolution mechanisms. They play a critical role in establishing trust and clarity in financial transactions, often influencing implied contracts and the application of promissory estoppel when one party relies on the promises made by another.
Lack of Consideration: Lack of consideration refers to the absence of something of value exchanged between parties in a contract, which is essential for the formation of a legally binding agreement. When consideration is missing, it can render a contract unenforceable, as both parties must typically provide something tangible or intangible that benefits the other. This concept is crucial in understanding the enforceability of implied contracts and the application of promissory estoppel, as it raises questions about the legitimacy of agreements that may rely on promises without reciprocal value.
Mutual assent: Mutual assent refers to the agreement between parties in a contract that signifies their intention to be bound by its terms. This concept is foundational in contract law, as it establishes that both parties have a shared understanding and acceptance of the agreement's obligations, either expressed through words or implied through actions. It is essential for the formation of valid contracts, including implied contracts and situations involving promissory estoppel.
Promissory Estoppel: Promissory estoppel is a legal doctrine that prevents a party from going back on a promise, even if a formal contract does not exist, when the other party has relied on that promise to their detriment. This principle is crucial in employment law as it provides a safeguard against unjust treatment, particularly in situations where an employee has taken action based on the employer's assurances or representations. It serves as an exception to the at-will employment doctrine and can create enforceable rights based on implied contracts.
Promissory Estoppel as a Shield: Promissory estoppel as a shield is a legal principle that prevents a party from withdrawing a promise made to another party when that promise has been relied upon, resulting in detriment to the promisee. This principle protects individuals who take action based on a promise, even if a formal contract does not exist, ensuring fairness and justice in situations where reliance is reasonable. It often serves as a defense against claims that would otherwise allow the promisor to back out of their commitment after the other party has acted in reliance on that promise.
Reasonable Reliance: Reasonable reliance refers to the expectation that a party will act on a promise or representation made by another party, leading to a change in their position based on that belief. This concept is central to situations where one party may not have a formal contract but reasonably depends on the assurances given by another, often leading to legal implications when those promises are not fulfilled. It highlights the importance of trust and good faith in relationships, particularly in contractual contexts.
Reliance Damages: Reliance damages are a type of monetary compensation awarded to a party who has relied on a promise made by another party, only to find that the promise was not fulfilled. This legal remedy aims to reimburse the injured party for costs incurred in reliance on the promise, preventing the promisor from benefiting at the expense of the promisee. This concept is closely tied to implied contracts and promissory estoppel, where parties may not have a formal agreement but rely on the assurances or expectations created by one another.
Restitution: Restitution is a legal remedy aimed at restoring a party to the position they were in before a contract was breached or before they conferred a benefit on another party without compensation. This concept emphasizes fairness by requiring the party who benefited at the expense of another to return that benefit or its value. Restitution helps prevent unjust enrichment, ensuring that no party gains unfairly from the actions of another, particularly in cases involving breach of contract or situations where implied contracts and promissory estoppel apply.
Ricketts v. Scothorn: Ricketts v. Scothorn is a landmark case that established the principle of promissory estoppel in contract law. In this case, a grandfather promised his granddaughter financial support for her to stop working, which she relied upon, leading to her detrimental reliance when the promise was not fulfilled. This case connects to implied contracts as it highlights how promises can create enforceable obligations, even in the absence of a formal contract.
Statute of Frauds: The Statute of Frauds is a legal principle that requires certain types of contracts to be in writing in order to be enforceable. This rule was established to prevent fraud and misunderstandings in contractual agreements, ensuring that there is clear evidence of the terms agreed upon. It applies primarily to contracts involving the sale of real estate, agreements that cannot be performed within one year, and contracts for the sale of goods valued over a certain amount.
Unilateral contract: A unilateral contract is a type of agreement in which one party makes a promise in exchange for the performance of an act by another party. This means that only one party is obligated to fulfill their promise, while the other party's acceptance is through their actions rather than a verbal or written agreement. This concept relates closely to the principles of implied contracts and promissory estoppel, where the actions or reliance of one party can create enforceable obligations even in the absence of a formal contract.