By Rebecca L. Reed, Attorney We draft contracts for individuals and businesses who often come to us with either a list of their needs and objectives or an existing contract, which they want overhauled so that it strongly reinforces their rights and remedies and prevents or mitigates damages against them.

The importance of a strong contract cannot be overestimated. Individuals or businesses that recognize this well-established principle in the beginning may very likely avoid costly or even catastrophic consequences.

While anyone can write down basic terms of a contract and sign, not anyone can draft a contract which is written in conformity with the applicable state law to protect the validity of the document, to draft it with terms and operative language that avoids disputes or mitigates damages and with the unique experience derived from handling contract disputes. A contract dispute can be very costly and foreseeing the problems that could arise between the parties is key to avoiding future costly disputes.

A. Washington State Courts Disfavor Implied Terms to a Contract

In Washington State, the courts disfavor implied terms to a contract. If a term is not expressly provided for, it is likely not recognized. Negotiations prior to the execution of the contract or other documents, unless incorporated into the contract with triggering language, are not part of the contract. Therefore, it is important that you provide every term in writing in the operative contract. Future disputes concerning the subject matter should be deterred by including terms to address foreseeable problems.

i. Case in Point, Oliver v. Flow International Corporation

For example, in a recent unpublished opinion, Oliver v. Flow International Corporation, No. 57382-9-I, the Court of Appeals Division I considered whether a contract contained an implied “best efforts” term.

In that case, an inventor and developer of a robot entered into a contract for the sale, transfer and assignment of all rights to the robot in favor of Flow International Corporation. The Parties entered into negotiations prior to the execution of the contract and thereafter, wrote a “Term Sheet” stating that Flow International would make a $150,000 up-front payment, but would have to pay nothing else unless it sold Robots. Thereafter, the Parties entered into the written agreement which allowed for various benchmark payments to the inventor and royalties on the sale of Robots and associated gear for 17 years after the date of the final contract. However, if Flow decided to cease manufacturing or marketing the Robot, the contract would terminate, including the inventor’s rights to royalties.

After executing the contract, Flow conducted some marketing but did not attempt to patent the Robot and never sold a Robot.

The inventor sued Flow for breach of contract and for promissory estoppel because he claimed that the contract contemplated and the Parties intended that Flow use its best efforts or reasonable efforts to patent, manufacture and market the Robot.

The “best efforts” or “reasonable efforts”was not an express term provided for in the contract. Therefore, the inventor requested that the Court interpret the term by looking at evidence outside the contract and deducing the intent of the Parties.

The Court rejected the implied term, stating that in Washington State “We do not interpret what was intended to be written but what was written.” There are few instances where an implied term can be interpreted into the contract, for one if it is a legal necessity to uphold a contract which would otherwise be invalid; for example, if the Parties entered into a contract unsupported by consideration. Moreover, the court would not consider the extrinsic evidence, or evidence outside the contract, like the negotiations and Term Sheet entered into by the Parties because the courts will not use extrinsic evidence to show an intention independent of the contract or to vary, contradict or modify the written terms.

Therefore, the inventor’s claim of breach of contract was denied and dismissed.

B. Lesson Learned: If you want a term added into the contract, add it in writing

The ultimate lesson from this case is quite simply, do not assume understandings between you and another party are presumed or included in a contract unless they are expressly written in the contract. Such oral understandings may likely not be upheld. Moreover, negotiations do not represent a binding, valid contract and may not be inserted into a written contract without expressly adding them in.

There are many nuances to contract drafting, particularly when conforming to the applicable state law. This discussion of implied terms is merely one consideration.

DISCLAIMER: This Article is not intended as legal advice. It is merely purposed to provide an overview of a particular legal issue. This information should not be relied upon nor serve as a substitute for legal advice. You should seek competent legal counsel for advisement for any of the issues raised herein.