Limiting Implied Duties and Terms in Commercial Contracts: Key Cases and Strategies to Minimize Risk

November 25, 2019
Strafford Publications

Many legal battles revolve around contract interpretation disputes. Business, contract, intellectual property, employment, and real estate litigation often result from poor drafting. Skilled and informed contract drafting is one of the essential tools available to savvy counsel.

A fundamental principle of contract interpretation is to ascertain and give effect to the parties' objectively expressed intent. But most federal and state jurisdictions accept thata court may incorporate laws and duties as implied terms in commercial contracts, even if they are unmentioned in the agreement. This implied incorporation creates a material risk of not only unexpected costs but also "trapping parties in surprise contractual obligations that they never intended." Arcadian Phosphates Inc. v. Arcadian Corp. (2d Cir. 1989).

Counsel must consider practical strategies for limiting or negating the invisible terms implied in every contract. Parties to a commercial agreement can significantly reduce the risk of misunderstandings and costly litigation by taking the time to make sure the contract is both unambiguous and complete. And a careful analysis of judicial decisions from varying jurisdictions provides strategic insights into tailored clauses and provisions that can effectively limit implied duties and terms.

Listen as our seasoned panel of attorneys provides their perspectives on mitigating the problems associated with implied rules of law serving as traps for the unwary drafter. The panel will discuss entire agreement, incorporation and merger clauses, offer practical guidance on additional enforceable provisions to exclude implied terms, duties or pre-contractual representations effectively, examine the UCC and Restatement (Second) of Contracts approaches, and highlight recent cases interpreting these provisions.

The panel will review these and other key issues:

  • What are the most common implied duties and terms in commercial agreements?
  • How can a drafter avoid contractual incompleteness?
  • How have courts employed the conclusive presumption that every party knows the law?
  • What have courts said regarding implied contract terms and the "hypothetical bargain"?
  • Is the implied incorporation doctrine a rule of interpretation or construction?
  • What are best practices for limiting or negating invisible terms?
  • What are the critical evidentiary issues upon which courts often rely?
  • What roles do choice of law and conflict of laws play?
  • What are the critical lessons from cases that have limited or rejected the inclusion of implied duties and terms?
  • How can contract drafters exploit the line of federal cases that reject the implied incorporation doctrine?