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Implied Terms in a Contract: Definition & Explanation

Lesson Transcript

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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 di erent 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 de nition of those terms without de ning 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.

Express Terms
Of course, implied terms aren't the only contract terms that courts encounter. Courts must also explore express terms. Express terms are those words,
provisions, and conditions that are speci cally written or de ned in the contract.

In fact, sometimes implied terms can trump express terms. For example, an implied warranty of merchantability is a fairly broad doctrine that applies to all
products or services sold by the merchant of goods. A merchant is legally de ned as someone who is in the regular business of selling these particular goods.

At my garden store, I am in the regular business of selling all sorts of lawn equipment. I am considered to be a merchant of these goods. But I don't want to be
responsible for anything that happens after the goods are sold. So, let's say that I put a sign on my door that says, 'No returns or refunds.'

When you buy that broken lawnmower, and we end up in court, I argue that I expressly denied any guarantee on the lawnmower. Even though I expressly
denied the guarantee, I'll lose anyway. The only way I could have avoided the implied warranty of merchantability is to mark that particular lawnmower 'as is' or
'defective'. That way you would know there was a chance that lawnmower wasn't merchantable, or t for use.

Lesson Summary
Let's review. It's common for a court to examine a contract and give meaning to the terms of a contract. Contracts are made up of di erent types of terms.
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. In a business contract, it's usually not possible to cover every detail.
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4/19/2020 Implied Terms in a Contract: Definition & Explanation - Video & Lesson Transcript | Study.com

A court will often assume that some contract terms are implied. This allows the court to enforce the contract and follow through with the parties' intent and
protect parties from fraud by omission or misrepresentation. One common example is an implied warranty of merchantability. This means that there is an
implied guarantee that goods or services will serve the expected purpose. This implied warranty is used in all sales transactions by a merchant of goods or
services. A court will normally use the implied warranty of merchantability against merchants, even when the merchant used express terms to the contrary.

Learning Outcomes
After viewing this video lesson, you should be able to:

Recognize that contracts can be made up of implied terms

Explain how courts assume the implied terms of contracts

De ne implied warranty of merchantability

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