Implied Terms in a Contract: Definition & Explanation

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  • 0:06 Implied Terms
  • 1:01 Use of Implied Terms
  • 2:56 Defining Implied Terms
  • 4:09 Express Terms
  • 5:39 Lesson Summary
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Lesson Transcript
Instructor: Ashley Dugger

Ashley is an attorney. She has taught and written various introductory law courses.

Sometimes a contract dispute will end up in court. A court must examine and interpret the contract. Often, a court will imply certain terms in order to clarify the contract. This lesson explores the use of implied terms.

Implied Terms

Business contracts are often very lengthy. A contract drafter normally attempts to cover all of the terms and provisions of the agreement. Implied terms are words or provisions that a court assumes were intended to be included in a contract. This means that the terms aren't expressly stated in the contract.

Generally, the drafter of the contract wants to avoid the use of implied terms. Most parties don't want to rely on a court's interpretation of the contract terms. However, it's usually not possible to cover every detail of an agreement. In these cases, the court will assume that some terms are implied. This allows the court to enforce the contract and follow through with the parties' intent. It also protects parties from fraud by omission and misrepresentation.

Use of Implied Terms

The use of implied terms is fairly common, because there are several different ways that courts use implied terms. Each of the uses is based on public policy. For instance, sometimes a court will imply a term if the court decides that it's necessary in order to enable the intentions of the contracting parties. Also, terms can be implied by law when there is a statute that directly addresses the issue. This is true in several areas of the law, including state laws that cover commercial transactions.

For example, it's common for courts to imply terms in a sales contract. These are contracts that involve the purchase of goods or services. Sales contracts include an implied warranty of merchantability. This means that a court will imply usability. In other words, there is an implied guarantee that the goods or services will serve the reasonable and expected purpose.

An implied warranty of merchantability is used even when there isn't a written or oral sales contract. Let's say that you come into my garden store and purchase a new lawnmower. We don't have a written contract. You simply pick out the one you want, pay me, and wheel it out the door. Once you get home, the lawnmower won't start. You can't mow your lawn. You return to the store for a refund or replacement.

I refuse to refund your money or replace the lawnmower. I say that I never guaranteed that the mower would work. We end up in court and the court orders me to refund your money, or replace your mower with one that works. This is because of the implied warranty of merchantability. I never guaranteed the mower, but the guarantee is implied.

Defining Implied Terms

Guarantees are not the only type of term to be commonly implied. Many contract terms can be implied, but the practice of using implied terms is dependent on the court's ability to give the proper and intended meaning to those terms. The court often assumes that certain terms are common knowledge, and that both parties understood the definition of those terms without defining the terms in detail.

For example, if I said the mower was four-wheeled, then the court will imply that the mower has four wheels on which to travel. I won't be successful in arguing that it's a two-wheeled mower, but it comes with two extra, or replacement, wheels.

Sometimes a court will have to interpret contract terms that have more than one meaning. In these cases, courts will imply the term as it is most reasonably used, considering the context. For example, if I say the mower is suitable for mowing a yard, then the court will imply that I mean a residential lawn area. My argument that I meant the English measurement of only one yard, as in three feet, will fail.

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