1.3 Types of Contracts

• Library: Contract Law in Virginia (Virginia CLE) (2019 Ed.)

1.3 TYPES OF CONTRACTS

1.301 Voidable and Void Contracts.

A. Void Contracts. A void contract is no contract at all. It is a complete nullity and has no legal force or binding effect. ¹¹² Since it is not a contract, no action for damages can be maintained for its breach. ¹¹³

Generally, a contract based on an act forbidden by a statute is void and cannot be enforced. ¹¹⁴ This general rule is based upon the proposition that a contract made in violation of a statute enacted to protect the public against fraud or imposition or to safeguard the public health or morals "is illegal and unenforceable by the guilty party." ¹¹⁵

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The contract of a corporation or government that is ultra vires is also void. ¹¹⁶ Virginia courts have also found that some instances of fraud may make a contract void rather than voidable. ¹¹⁷

B. Voidable Contracts. A voidable contract is not void but gives a party the right to either (i) rescind or repudiate the contract or (ii) affirm the contract and sue for damages. ¹¹⁸ Generally, if a party elects to rescind the contract, the party must do so promptly or within a reasonable time. ¹¹⁹ Otherwise, the contract will be deemed ratified by implication. Until a voidable contract is disaffirmed, the contract is valid. ¹²⁰ In Virginia, contracts may be voidable on the grounds of infancy, ¹²¹ fraud, ¹²² misrepresentation, ¹²³ mental incompetence, ¹²⁴ mutual mistake of fact, ¹²⁵ or duress or undue influence. ¹²⁶

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Courts have also found contracts voidable because a contract was procured by a real estate broker representing both parties without informed consent, ¹²⁷ or where a condition precedent was not satisfied. ¹²⁸ These grounds of contract avoidance are discussed in Chapter 5.

1.302 Express and Implied Contracts.

A. Express Contracts. An express contract, whether written or oral, is simply one in which all of the terms and conditions are expressed between the parties. An express contract precludes the existence of an implied contract covering the same subject. ¹²⁹

B. Contracts Implied in Fact. Absent an express contract, an implied contract may exist. Two types of implied contracts are recognized in Virginia: implied-in-fact contracts and implied-in-law contracts. ¹³⁰ A contract implied in fact is a true contract containing all the necessary elements for a binding agreement, except that the contract is not committed to writing or stated orally in expressed terms but is inferred from the parties' conduct. ¹³¹ A contract implied in fact is similar to an express contract. The only difference is that in an express contract all of the terms and conditions are expressed between the parties as a written or oral agreement, while in a contract

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implied in fact some terms and conditions are implied in law from the conduct of the parties. ¹³²

A contract implied in fact takes for granted a mutual agreement and an intent to promise that have simply not been expressed in words. A contract implied in fact requires the intent to contract. While a course of dealing may be used to interpret an ambiguous contract, it will not establish the existence of a contract where one does not otherwise exist. ¹³³

C. Contracts Implied in Law (Quasi-Contracts). By contrast to a contract implied in fact, a contract implied in law (or quasi-contract) is not a contract but an equitable remedy imposed by the court to prevent unjust enrichment. ¹³⁴

A contract implied in law is based upon the equitable principle that the law will impose a promise to pay to prevent someone from being unjustly enriched at another's expense. ¹³⁵ A quasi-contract is not really a contract, but a remedy imposed by the court where the court finds that, in good conscience, the law should impose a duty and imply the necessary promises to create a contractual relationship between the parties where none actually exists. ¹³⁶

In Nossen v. Hoy, ¹³⁷ the court explained that a quasi-contract is a plaintiff's remedy at law when the facts demonstrate that a defendant has

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been "unjustly enriched at the expense of the plaintiff, but where facts fail to establish that the parties established any form of agreement." ¹³⁸ The court found three elements that must generally be shown to establish a quasi-contract: (i) a benefit conferred on the defendant by the plaintiff; (ii) knowledge by the defendant of the conferring of the benefit; and (iii) acceptance or retention of the benefit by the defendant in circumstances that render it inequitable for the defendant to retain the benefit without paying the value. ¹³⁹

In Nossen, the court noted that "the modern trend is to recognize actions for quasi-contract based on a 'reasonable expectation theory.'" ¹⁴⁰ Under this theory, to recover in quasi-contract, one of three additional things must be true: (i) the plaintiff must have had a reasonable expectation of payment; (ii) the defendant should reasonably have expected to pay the plaintiff; or (iii) society's reasonable expectations of security of person and property would be defeated by nonpayment. ¹⁴¹

A contract will only be implied in law absent an express contract or a contract implied in fact. ¹⁴² The statute of frauds does not apply to an action on an implied contract. The very nature of the action acknowledges that there is no promise, contract, or agreement between the parties capable of being reduced to writing. Instead, the action seeks ex contractu relief based on the

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fiction that the law should supply the necessary promises, by implication, to create the obligation. ¹⁴³

In Virginia, the law will imply a promise to return unjustly obtained monies. ¹⁴⁴ This legal principle will support (i) an action for money paid by mistake; (ii) failure of consideration; (iii) money obtained through expressed or implied imposition; (iv) extortion; (v) oppression; or (vi) the taking of undue advantage. ¹⁴⁵ Where no repayment date is provided under the implied contract, the monies are deemed payable on demand. ¹⁴⁶ Virginia law will also imply a promise to pay for goods received. ¹⁴⁷

Several cases also recognize the related theory of quantum meruit, which requires someone who accepts and receives the services of another to reasonably compensate for those services. ¹⁴⁸

Courts have also found that where a contract is unenforceable because it is illegal by statute, there is no basis to find an implied or quasicontract. In Urban Protective Services v. Great Latin Restaurants, LLC, ¹⁴⁹ the court refused to apply the theories of quantum meruit or unjust enrichment where the contract was illegal because the private security firm that provided services was not licensed as required by statute.

Absent an express contract, a child cannot recover for services rendered a parent since there is a presumption that the services were performed

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because of a filial duty. ¹⁵⁰ Where compensation is claimed for services rendered to near relatives, especially with a child rendering care to a parent, the law will not imply a promise. An actual promise must be proved, or facts and circumstances shown from which a promise or clear understanding about compensation can be reasonably inferred. ¹⁵¹ The legal obligation imposed upon a spouse by the necessaries doctrine, however, is an implied contract. ¹⁵² In Chippenham Hospital, Inc. v. Shelton ¹⁵³ and Mihalcoe v. Holub, ¹⁵⁴ the courts found that a spouse makes "an implied promise, presumed by law, to pay for services rendered to [the other spouse]." ¹⁵⁵ As the Chippenham Hospital court noted, "A presumed promise . . . is similar enough to an implied contract to characterize it as such." ¹⁵⁶

Like a contract implied in fact, a contract implied in law is subject to a three-year statute of limitations. ¹⁵⁷

If under the facts of a case a court cannot find a meeting of the minds and thus a contract, a court may apply the equitable concept of unjust enrichment and find a quasi-contract instead to enforce payment. ¹⁵⁸

1.303 Unilateral and Bilateral Contracts. Virginia contracts are also classified sometimes as either bilateral or unilateral. A bilateral contract is one in which each party promises some performance. ¹⁵⁹ In a unilateral

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contract, one party makes an offer in the form of a promise to perform an act or forbear upon the fulfillment of certain conditions by the other party. ¹⁶⁰ If the conditions precedent are not satisfied, the contract offer becomes void. ¹⁶¹

Several Virginia cases recognize the concept of a unilateral contract where one party makes a promissory offer and the other accepts by performing an act. ¹⁶²

In Nicely v. Bank of Virginia Trust Co., ¹⁶³ the Virginia Supreme Court held that a profit-sharing plan to which only the company made contributions is in the nature of a unilateral contract. The company made an offer to its salaried employees by promising to pay benefits upon the fulfillment of certain conditions by them or upon the happening of certain events, such as retirement after a specified term of service or sustaining a permanent disability. The full performance by the employee constitutes acceptance of the offer, and his or her previously inchoate rights to receive payments under the plan vest and become legally enforceable. ¹⁶⁴

Real estate listing agreements have been held to be bilateral or unilateral depending on the agreement. A listing agreement that provided that "in consideration of the services of [realtor] . . . to be rendered to the . . . 'owner' . . . and of the promise of realtor to make reasonable efforts to obtain a purchaser therefore, owner hereby lists with realtor the real estate and all improvements thereon" was held to be a bilateral contract. ¹⁶⁵ However, the

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Virginia Supreme Court, in Hummer v. Engeman, ¹⁶⁶ held that the listing agreement was merely an offer of a unilateral contract, and the seller was not bound until the real estate broker accepted the offer by performance under the contract. The court noted that, since...