SW Legal studies in Business

Implied Contract Exists Once Original Contract Expired and Parties Continued to Deal
Description

Appeals court held that upon the expiration of a contract between a city and a company that supplied water services, the company could not deny that an implied contract now governed the relationship since it continued to provide services for financial benefit.

Topic Contracts
Key Words

Implied Contract; Franchise; Mutual Benefit; Cancelation

C A S E   S U M M A R Y
Facts

In 1988, the City of Las Cruces granted a franchise to Moongate to operate a water distribution system in the city. The contract specified Moongate’s rights and obligations. Moongate paid a fee to the city based on the number of customers served. The franchise expired in 2002. Before the contract came to an end, the city told Moongate that because of uncertainty created by litigation with another water company over the water service area to be served, it would delay negotiating a new contract until the litigation was settled so the city would know for sure the boundaries of water operations. The city told Moongate the parties would continue to operate on a month-by-month basis until a new long-term franchise agreement could be drafted. Moongate filed a motion for a declaratory judgment that the contract had expired and it no longer had an obligation to continue water operations. The district court agreed with Moongate, ruling that the contract had expired. The city appealed.

Decision

Reversed and remanded. The franchise contract had expired, but since Moongate continued to operate after it expired, and the city continued to allow it to operate, there existed an implied contract. The terms of the expired agreement would continue to govern the relationship between the parties. Both parties received a financial benefit from the continued existence of the relationship. Hence, the agreement will continue in effect until the parties negotiate a new agreement or agree to cancel the existing implied contract. The relationship is impacted by the obligations of the parties in the provision of an essential utility to the city residents.

Citation Moongate Water Co. v. City of Las Cruses, ---P.3d--- (2009 WL 3444780, Ct. App., N.M., 2009)

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