Implied Terms

• Author: Franklin G. Snyder, Mark Edwin Burge
• Pages: 399-422

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UNIT 20: IMPLIED TERMS 399

Unit 20

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TERMS AND INTERPRETATION

Part Four

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Implied Terms

FOCUS OF THIS UNIT

By now you should understand the concept that what most non-lawyers think

of as “the contract”—the written document—is only part of the larger “agreement”

between the parties. Furthermore, this agreement is only part of that total web of

obligations that lawyers call “the contract.” As you saw in the discussion of the parol

evidence rule, oral terms agreed to by the parties may be part of the deal alongside

the written contract document. But can terms become part of a contract if the parties

have never addressed them at all? The answer, perhaps surprisingly, is yes. Two

broad categories of “implied” terms exist that courts will insert into contracts even

when the parties have not expressly agreed to them.

Terms Implied from the Parties’ Deal. It is axiomatic in modern contracts law

that all contracts are, in some fashion, “incomplete.” That is, it would be extremely

time-consuming and probably impossible to address, in advance, every possible issue

that might someday come up under the contract. Certain things that the parties did

not bother to discuss would almost certainly have been included in their contract if

they had been asked about it. If, to take a simple example, a buyer in Manhattan

purchases something from a seller in Brooklyn for “$5,000,” the “$” almost certainly

is intended to refer to United States dollars, and not those of, say, Canada or

Singapore. Although the parties never specified United States dollars, courts and

other readers of the contract infer from the circumstances that this is what they

meant. A contract for a restaurant meal likewise almost certainly implies a promise

by the restaurant that its food is not poisonous; a contract for a new computer implies

a promise that the item will actually work when it is delivered. Here is a classic

formulation of implied terms by one British judge:

Prima facie that which in any contract is left to be implied and need not

be expressed is something so obvious that it goes without saying; so that,

if, while the parties were making their bargain, an officious bystander

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400 CHAPTER VI: TERMS AND INTERPRETATION

were to suggest some express provision for it in their agreement, they

would testily suppress him with a common “Oh, of course!”

Southern Foundries (1926) Ltd v Shirlaw, [1939] 2 K.B. 206, 227. This definition is

an unusually narrow one, as you may notice upon reading the materials below, but

the basic idea is clear enough. If the parties would reasonably have expected an

unstated term to be part of their agreement, that term will be part of the contract.

Terms Implied from Trade Custom. Many times parties to a contract are part

of a trade or business culture where the members share certain understandings and

have particular ways of doing things. Members of the building trades, for example,

understand that when they specify “2 x 4 lumber” they actually mean lumber that is

1.5 inches by 3.5 inches; members of the precious metals trade know that when they

specify “one ounce” of gold they mean one troy ounce, which is smaller than the

everyday English system’s avoirdupois ounce of sixteen to a pound used outside the

arena of precious metals and gemstones. Parties in a particular trade are assumed to

operate again the background of all this trade usage and thus can be assumed to

understand that their contract includes the ordinary terms that are usual in the

trade. If parties wish to avoid trade usage terms, they must do so explicitly.

Default Terms Implied by Law. In many situations, the parties have not

addressed an issue, but we do not know what terms these two parties would obviously

have chosen. For example, suppose A contracts to buy B’s car. The parties have not

specified whether the buyer is supposed to pick it up or the seller is supposed to

deliver it. We cannot infer what they each actually intended, and they may now even

disagree about what they intended. Nonetheless, if the seller fails to deliver the car

and the buyer sues, a tribunal will have to decide the issue. In this situation, contract

law has developed what are variously called “background” terms, “gap-filler” terms,

or “default” terms. A default term in contract law—analogous to the default setting

on a computer program—is a term that applies unless the parties elect otherwise.

Thus, in the hypothetical above, the default rule is that when the parties have not

specified otherwise in a sale of goods, the buyer would be responsible for picking up

the car, and thus the seller has no obligation to deliver it. See UCC § 2-308(a) (“Unless

otherwise agreed . . . the place for delivery of the goods is the seller’s place . . . .”).

Scores of these type of default terms exist in contract law.

Default terms in American law are generally set to mimic what most

contracting parties would presumably want in most transactions. There is

considerable scholarly debate about whether this is a good approach to the problem,

and your professor may want to explore the issue with you in more detail. Assuming,

however, that the defaults are set correctly, this system has the advantage of being

more likely (though not certain) to carry out the intent of the particular parties to the

dispute. If you consider the way purchasers usually buy things, for example, you will

probably notice that most of the time the buyer picks thing s up from the seller.

Getting things delivered is less common, and therefore a rule that specifies buyer