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Tennessee Law Regarding Implied Contracts

In Tennessee, as in many other states, the law is not so technical as to deny a party a right to recover on a breach of contract claim just because the party’s contract was not expressed adequately either in writing or verbally. Where the facts make it clear that parties had an agreement (which is supported by mutual consideration and sufficiently definite), a party to that agreement might be able to recover– even without an express contract.

It is always best to have an express written contract. If you don’t have an express written contract, the next best thing to have is an express oral contract with someone who is truthful, and who will not deny the terms of your agreement. If you have neither an express oral nor a written contract, your only chance of recovery, in a breach of contract case, may depend on Tennessee common law regarding implied contracts.

Tennessee law recognizes two types of implied contracts: contracts implied in fact, and contracts implied in law. What is the difference? Contracts implied in fact arise when the court determines that the parties’ conduct shows mutual assent to a contract even though they never expressly agreed (either verbally, or in writing). Contracts implied in law can be created by a court to avoid an injustice even where there was neither an express agreement between the parties, nor conduct of the parties upon which the court can base an implied contract.

A recent case from the Tennessee Court of Appeals provides an example of a contract implied in fact. In that case, the plaintiff and defendant had discussions about forming a business to collect and to haul garbage. According to the plaintiff, the defendant agreed to transfer the ownership of three garbage trucks to the business operated by Plaintiff in exchange for an ownership interest in the business. The plaintiff testified that he agreed to make the loan payments on the garbage trucks, which were financed.

The defendant transferred possession of the garbage trucks to the plaintiff, but never transferred title. The plaintiff used the trucks, and made loan payments on the trucks in the total amount of $39,000.00. The defendant retook possession of the trucks. The plaintiff then filed suit for breach of contract.

In affirming the trial court’s judgment for the plaintiff and against the defendant in the amount of $39,000.00, the Tennessee Court of Appeals relied on the Tennessee law of implied contract. The court found that there was not sufficient proof of an express contract between the plaintiff and defendant to establish an express contract, but that the conduct of the parties allowed for it to find an implied in fact contract. The conduct upon which the court based the implied contract included the defendant’s transfer of the possession of the trucks, and the plaintiff’s making $39,000.00 in loan payments.

Viewed in light of the above facts, the ability of courts in Tennessee (both federal courts and state courts) to make an enforceable contract out of conduct alone seems imminently fair. The conduct of the parties to an alleged agreement must be clear in order for the plaintiff in a breach of contract case to prevail on an implied contract theory.

For a breach of contract case where a plaintiff’s argument for a contract implied in fact did not succeed, take a look at Ferguson v. Nationwide, et. al. In that case, which was an insurance case involving an apartment fire, the plaintiff was an apartment manager who lived onsite in an apartment building in Ashland City, Cheatham County, Tennessee. Part of the plaintiff’s apartment was used as the main office for the apartments.

A fire burned the contents of the plaintiff’s apartment. She filed a breach of contract suit against her employer, the apartment management company, and Nationwide Insurance (which had issued a fire insurance policy to her employer). The plaintiff alleged that her employer’s, and Nationwide’s, breach of contract resulted from their failure to provide her coverage for the damage to the contents of her apartment.

The plaintiff argued that there was an implied in fact contract between her and her employer, and Nationwide, that the contents of her apartment would be covered by the fire insurance policy. She also argued that the court should find a contract implied by law between her and her employer and Nationwide. On both positions (implied in fact contract and implied in law contract), the plaintiff lost. The Tennessee Court of Appeals (as well as the Circuit Court of Cheatham County, Tennessee) could not find any conduct that indicated any agreement between the plaintiff and her employer, or Nationwide, that her contents were covered.

The ability of a litigant in Tennessee to argue for an implied contract in a breach of contract case is a tool no Tennessee lawyer should overlook in any breach of contract case. Likewise, any party who is reluctant to pursue a breach of contract case because it doesn’t believe that it covered itself on the front end with an adequate contract, should be mindful of the possibilities presented by Tennessee implied contracts law.