Also known as:implied undertakings · implied promise
Written by attorneys — see sources below.
An implied promise arising from the facts and circumstances of a transaction without any express statement. The promise receives the same treatment as an express promise when determining enforcement rights and the allocation of burdens or benefits after a transfer of interests.
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Common Examples
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Landlord Waste Compliance Obligation
East Industries leased a production facility to Elm Precision and for seven years coordinated waste pickup and regulatory filings even though the lease was silent on the topic. East sold the building to Sky Plastics. Sky continued the same services for four months before stopping. Elm sued Sky to enforce the continuing duty. The court treated the longstanding practice as creating an implied undertaking that bound the successor landlord in the same manner as an express covenant.
Exclusive Endorsement Agency Duties
Lucy granted Wood the exclusive right to market her designs for one year. Wood invested time and resources in the arrangement without any written promise from Lucy to use reasonable efforts. When Lucy began placing her own endorsements, Wood sued for breach. The court found an implied undertaking by Lucy to refrain from self-marketing that arose from the grant of exclusivity and the surrounding circumstances.
Nexxus granted Sally Beauty an exclusive distribution contract. Sally Beauty later assigned its rights to a competitor without Nexxus consent. Nexxus refused to continue supplying the assignee. Sally Beauty sued claiming the assignment carried an implied undertaking to maintain performance standards. The court examined whether the assignment altered the nature of the performance Nexxus had bargained for under the original arrangement.
Sally Beauty Co. v. Nexxus Products Co.801 F.2d 1001 (1986)
In 1979 Nexxus Products Company, a California corporation that formulates and markets hair care products, negotiated with Best Barber & Beauty Supply Company, Inc., a Texas corporation in the business of distributing beauty and hair care products to retail stores, barber shops and beauty salons throughout Texas.
Between March and July 1979 Mark Reichek, Best’s president, negotiated with Stephen Redding, Nexxus’ vice-president, over a possible distribution agreement between Best and Nexxus. This resulted in an August 2, 1979 distributorship agreement executed in the form of a July 24, 1979 letter from Reichek to Redding under which Best would serve as the exclusive distributor of Nexxus hair care products to barbers and hair stylists throughout most of Texas except El Paso.
The July 24, 1979 letter set forth pricing terms, Nexxus’s agreement to underwrite training and seminars, payment by letter of credit, and termination provisions allowing cancellation only on the anniversary date with 120 days’ prior notice and requiring Nexxus to buy back inventory at cost if it terminated the relationship.
In July 1981 Sally Beauty Company, Inc., a Delaware corporation with its principal place of business in Texas and a wholly-owned subsidiary of Alberto-Culver Company, acquired Best in a stock purchase transaction and merged Best into Sally Beauty, which succeeded to Best’s rights and interests in all contracts; Alberto-Culver is a major manufacturer of hair care products and a direct competitor of Nexxus.
Shortly after the merger Stephen Redding met with Michael Renzulli, president of Sally Beauty, and wrote a letter stating that Nexxus would not allow Sally Beauty to distribute its products because Sally Beauty was wholly owned by a direct competitor.
In August 1983 Sally Beauty commenced this action by filing a complaint in the Northern District of Illinois, claiming that Nexxus had violated the federal antitrust laws and breached the distribution agreement. Nexxus moved for summary judgment on the breach claim. The district court granted the motion on January 31, 1985. The remaining claims were dismissed by stipulation in May 1985, and final judgment was entered on the breach of contract claim.
Interactive Data hired Foley under an agreement that contained no express promise regarding continued employment. Foley alleged that company statements and practices created an implied undertaking not to terminate without cause. When Foley was fired after reporting misconduct, he sued for breach. The court analyzed whether the surrounding facts and conduct gave rise to an enforceable implied undertaking limiting termination rights.
Foley v. Interactive Data Corp.47 Cal. 3d 654, 254 Cal. Rptr. 211, 765 P.2d 373
Interactive Data Corporation hired John Foley in June 1976 as an assistant product manager at a starting salary of $18,500. As a condition of employment Foley signed a confidential and proprietary information agreement. The company's president told Foley that if he performed his job well he would have a long and rewarding employment with the firm.
Over the next six years and nine months Foley received steady salary increases, promotions, bonuses, awards, and superior performance evaluations, rising to branch manager of the Los Angeles office with an annual salary of $56,164 plus a merit bonus. In January 1983 Foley learned that his new supervisor, Robert Kuhne, was under investigation by the FBI for embezzlement from his former employer, Bank of America. Foley reported the information to Vice President Richard Earnest because he was worried about working for Kuhne in a supervisory position.
Earnest told Foley not to discuss rumors and to forget what he had heard. In early March 1983 Kuhne informed Foley that the company had decided to replace him for performance reasons and offered a transfer to another division. Foley was later told he could continue as branch manager if he agreed to a performance plan, but when Kuhne met with him the next day Kuhne instead gave Foley the choice of resigning or being fired. Foley was discharged on March 13, 1983.
Foley filed suit against Interactive Data Corporation alleging three causes of action: tortious discharge in violation of public policy, breach of an implied-in-fact contract to terminate only for good cause, and tortious breach of the implied covenant of good faith and fair dealing. The superior court sustained the company's demurrer without leave to amend and dismissed the action. The Court of Appeal affirmed the judgment. The Supreme Court granted review.
Mrs. Beman devised property to her husband on the condition that he pay a sum to her niece. The will contained no express promise by the husband to the niece. After the husband accepted the devise but refused payment, the niece sued. The court held that the facts surrounding the devise created an implied undertaking enforceable by the intended beneficiary.
Seaver v. Ransom224 N.Y. 233, 120 N.E. 639 (1918)
Judge Beman and his wife were advanced in years. Mrs. Beman was about to die. She had a small estate consisting of a house and lot in Malone and little else. Judge Beman drew his wife’s will according to her instructions. It gave $1,000 to plaintiff, $500 to one sister, plaintiff’s mother, and $100 each to another sister and her son, the use of the house to her husband for life, remainder to the American Society for the Prevention of Cruelty to Animals. She named her husband as residuary legatee and executor. Plaintiff was her niece, thirty-four years old, in ill health, sometimes a member of the Beman household.
When the will was read to Mrs. Beman she said that it was not as she wanted it; she wanted to leave the house to plaintiff. She had no other objection to the will, but her strength was waning and although the judge offered to write another will for her, she said she was afraid she would not hold out long enough to enable her to sign it. So the judge said if she would sign the will he would leave plaintiff enough in his will to make up the difference. He avouched the promise by his uplifted hand with all solemnity and his wife then executed the will.
When he came to die it was found that his will made no provision for the plaintiff.
This action was brought and plaintiff recovered judgment in the trial court on the theory that Beman had obtained property from his wife and induced her to execute the will in the form prepared by him by his promise to give plaintiff $6,000, the value of the house.
The Appellate Division affirmed the judgment by a return to the general doctrine laid down in Lawrence v. Fox. The Court of Appeals of New York granted review and affirmed the judgment.
Ford sold a Bronco II marketed for both off-road and everyday driving. Denny purchased the vehicle and later suffered a rollover on a paved road. Denny sued alleging the vehicle was unfit for ordinary highway use. The court considered whether the marketing and design created an implied undertaking regarding fitness for the ordinary purposes for which the vehicle was sold.
Denny v. Ford Motor Co.87 N.Y.2d 248, 639 N.Y.S.2d 250, 662 N.E.2d 730, 736 (1995)
Nancy Denny was severely injured when the Ford Bronco II that she was driving rolled over on June 9, 1986. The rollover occurred after Denny slammed on her brakes to avoid a deer that had walked directly into the vehicle's path.
The Bronco II was a downsized small utility vehicle designed for off-road use on unpaved and rugged terrain. Ford marketed the vehicle as suitable for commuting, suburban and city driving, and family use in snow and ice.
Denny and her spouse sued Ford Motor Co. asserting claims for negligence, strict products liability and breach of implied warranty of merchantability under UCC 2-314(2)(c) and 2-318. The case went to trial in the District Court for the Northern District of New York in October of 1992.
Plaintiffs introduced evidence that the Bronco II had a high center of gravity, narrow track width and short wheel base that made it prone to rollover on paved roads. Ford introduced evidence that those design features were necessary to the vehicle's off-road capabilities and that it had not been designed primarily as a passenger car.
The jury found that the Bronco II was not defective under the strict products liability claim but that Ford had breached the implied warranty of merchantability and that the breach proximately caused Nancy Denny's injuries. Following apportionment the plaintiff was awarded judgment in the amount of $1.2 million.
Ford moved for a new trial under Federal Rule of Civil Procedure 59(a) arguing that the verdicts were irreconcilable. The trial court rejected the motion. On appeal the Second Circuit certified three questions of New York law to this Court.
How does an implied undertaking arise in a lease transaction?
An implied undertaking arises when the facts and circumstances of the lease transaction demonstrate that the parties understood a particular obligation to be part of their bargain even though the lease document contains no express promise on the subject. The Restatement treats that implied undertaking identically to an express promise when determining whether the burden or benefit passes to a successor in interest.
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Does an implied undertaking require a writing to be enforceable?
No. An implied undertaking is inferred from conduct and surrounding circumstances rather than from any written statement. Courts enforce it on the same terms as an express promise once the facts establish that the parties reasonably understood the obligation to be part of the transaction.
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What happens to an implied undertaking after a transfer of the leased property?
The burden and benefit of an implied undertaking pass to the transferee in the same manner as an express promise. The Restatement directs courts to allocate the obligation after transfer in the way that best furthers the purposes for which the obligation was originally imposed.
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Can an implied undertaking be created by beginning performance under an offer?
Yes. When an offer invites acceptance by beginning performance, the offeree's commencement of the invited work both forms the contract and carries with it an implied undertaking to complete the performance. The law treats the resulting agreement as bilateral with a duty to finish.
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implied promise
, the transaction cannot have such business “efficacy as both parties must have intended that at all events it should have” (Bowen, L. J., in The Moorcock , 14 P. D. 64, 68). But the…