South Carolina businesses and individuals use contracts to establish an agreement between two or more parties. Contracts define each party’s expectations and obligations and provide a legal framework for enforcing those obligations. However, not all contract terms are explicitly stated, and sometimes certain terms are implied.
What are implied contract terms?
Implied contract terms are contractual terms that are not explicitly stated but are understood to be part of the agreement between the parties. These terms may be inferred from the circumstances surrounding the formation of the contract, the conduct of the parties or the general expectations of the industry or market in which the contract operates.
Implied terms can be divided into terms implied by law and terms implied by fact. Terms implied by law are automatically included in a contract under the law. These terms are not subject to negotiation, and the parties cannot opt-out.
Examples of terms implied by law include the obligation to act in good faith, the duty to perform with reasonable care and skill, and the right to terminate for fundamental breach.
On the other hand, terms implied by fact are inferred from the conduct of the parties or from the surrounding circumstances at the time the contract was formed. These terms are subject to negotiation, and the parties can exclude them from the contract.
Examples of terms implied by fact include the obligation to provide services within a reasonable time, the duty to deliver goods free from defects and the requirement to pay a reasonable price.
How are implied terms set?
Implied terms are set in a number of ways. Knowing the potential source of these terms can help those entering a contract solve business disputes.
Some implied terms, such as the Sale of Goods Act, are set out in legislation. This legislation implies terms in contracts for the sale of goods.
Courts may also imply terms into contracts through the common law. The courts will consider the circumstances surrounding the formation of the contract and the reasonable expectations of the parties when determining whether a term should be implied.
Custom and practice
Implied terms may also be based on industry custom and practice. If a particular practice is widely accepted in a particular industry, it may be deemed an implied term in industry contracts.
Previous dealings between the parties may also give rise to implied terms. If the parties have a history of conducting business in a particular way, this may indicate that certain terms should be implied in their current contract.
Finally, terms may be implied based on the requirement of reasonableness. This is particularly relevant in consumer contracts, where terms may be deemed unfair or unreasonable and therefore unenforceable.
Protecting your interests
Implied contract terms are an important aspect of contract law. They help fill contract gaps where terms may not have been explicitly stated or negotiated. Understanding the implications of implied terms is essential for both parties to a contract, as they can significantly affect the rights and obligations of each party.