Statutes AND Rules OF LAW AS Implied Contract Terms: THE Divergent Approaches AND A Proposed Solution
Statutes AND Rules OF LAW AS Implied Contract Terms: THE Divergent Approaches AND A Proposed Solution
Steven W. Feldman*
— “Th[e] principle is itself one of commonsense; even a person with
little legal knowledge would be loathe to think that a contract is not subject
to existing laws unless they are expressly incorporated.”1
— [The implied incorporation of laws] “can not be accepted as correct,”
[because the implied use of statutes and rules of law] “is not a rule of
[contract] Interpretation and the statutes and rules of law are certainly not
incorporated into the contract.”2
*Attorney Advisor, U.S. Army Engineering and Support Center, Huntsville, Alabama. I
express great appreciation to David Horton, David Friedman, Christopher Drahozal, and
David Hoffman for their careful reviews and helpful suggestions. I especially thank my
wife, Gayla Feldman, for her steadfast love and devotion.
1. Wickman v. Kane, 766 A.2d 241, 248 (Md. Ct. Spec. App. 2011).
2. 3 ARTHUR L. CORBIN, CORBIN ON CONTRACTS § 551 at 197 (rev. ed. 1960).
809
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INTRODUCTION
The great majority of state and federal courts accept the general
common law rule that courts in construing contracts shall incorporate
relevant, unmentioned laws as implied contract terms.3 A common
formulation is “the laws which subsist at the time and place of the making of
a contract, and where it is to be performed, enter into and form a part of it,
as if they were expressly referred to or incorporated in its terms.”4 Dating
back to the early nineteenth century,5 this principle of contract construction
is a “basic legal concept of longstanding and accepted use.”6
Despite the doctrine’s pervasive theoretical and practical importance as
3. See Armstrong v. Accrediting Council for Continuing Educ. and Training, Inc., 168
F.3d 1362, 1368 (D.C. Cir. 1999) (deeming rule a “common law” concept); 11 SAMUEL L.
WILLISTON & RICHARD A. LORD, A TREATISE ON THE LAW OF CONTRACTS § 30:19 (4th ed.
1999) (collecting authorities).
4. Von Hoffman v. City of Quincy, 71 U.S. 535, 550 (1866) (stating also that “[t]his
principle embraces alike those [laws] which affect its validity, construction, discharge, and
enforcement.”). Von Hoffman is still a leading decision. See, e.g., Acosta v. Tyson Foods,
800 F.3d 468, 474 (8th Cir. 2016) (noting the standard that current laws of the time and place
where a contract is made are incorporated into the contract). Other statements of the principle
use different terminology but rest upon the same substantive grounds; Pan Am. Comput. Corp.
v. Data Gen. Corp., 562 F. Supp. 693, 696 (D.P.R. 1983) (“State laws in existence at the time
a contractual obligation is entered into become an integral part of the contract to the same
extent as if literally incorporated therein.”).
5. See Camfranque v. Burnell, 4 F. Cas. 1130, 1131 (D. Pa. 1806) (stating that laws are
“essentially incorporated with the contract”).
6. Doe v. Ronan, 937 N.E.2d 556, 562 n.5 (Ohio 2010). The United States Supreme
Court, twelve federal circuits and forty-one states accept the doctrine. See 11 SAMUEL L.
WILLISTON & RICHARD A. LORD, A TREATISE ON THE LAW OF CONTRACTS § 30:19 (4th ed.
1999) (collecting cases).
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A. Basic Concepts
The Article will address some concrete examples from the case law
showing the actual process of incorporation of rights and remedies, the effect
of after-enacted laws, and the definitions of key terms such as “relevant” or
“applicable” laws.10
10. See infra Part III. The implied doctrine does not apply when the contract expressly
includes the law(s) in question because in that situation implication is not necessary. See,
e.g., Pete Lien & Sons, Inc. v. Ellsworth Peck Const. Co., 896 P.2d 761, 763 (Wyo. 1995)
(declining to presumptively incorporate Wyoming law into a bond because the bond expressly
incorporated it).
11. Stoller v. State, 105 N.W.2d 852, 858 (Neb. 1960); Cobbs v. Home Ins. Co., 91 So.
627, 629 (Ala. Ct. App. 1920) (stating principle).
12. 383 P.3d 1220 (Idaho 2016).
13. Path to Health, 383 P.3d at 1227.
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that absent the parties’ agreement to the contrary, contracts are governed by
applicable law.20
The underlying policy for the after-enacted statute component of the
implied incorporation doctrine is that unless they elect otherwise, “[p]eople
rely upon the stability of the law when ordering their affairs.”21 “Elementary
considerations of fairness further dictate that individuals should have an
opportunity to know what the law is and to conform their conduct
accordingly; settled expectations should not be lightly disrupted.”22 In this
respect, if the contract makes the parties automatically bound by after-
enacted laws but with no time limit for doing so, the promisor could incur
extensive and unforeseeable liabilities because “[i]t would be difficult to say
at what point [the new laws] must stop [being part of the contract].”23 An
important qualification to all the above is that the state’s police power is an
inherent element of every contract, which means to this extent, the laws
effectuating the state’s authority in this area are not governed by the after-
enacted limiting principle.24
The implied incorporation doctrine has some key terms, some more
well-defined than others. Applicable “laws” in this sense are valid, settled
and relevant common law doctrines, federal and state constitutional
provisions, treaties and international agreements, federal and state statutes,
interstate compacts, and federal, state, and local regulations, ordinances, and
codes having the force of law.25 The notion of a “settled law” is a legal
principle no longer open to reasonable dispute.26 Other basic concepts in the
(Mo. Ct. App. 1993) (imposing the more stringent requirement of the laws being not just
“settled” but being “well-settled”).
27. For a number of cases giving little attention to this issue, See, e.g., Fisher v. State,
52 N.E.3d 871, 873 (Ind. Ct. App. 2016) (stating that “[A] contract must be construed as
having been made in contemplation of applicable law.”); Morgan Stanley & Co., Inc. v.
Archer Daniels Midland Co., 570 F. Supp. 1529, 1542 (S.D.N.Y. 1983) (stating that “It is
presumed that the parties had [the relevant] law in contemplation when the contract was
made, and the contract must be construed in that light.”) (citing cases) (brackets in original).
The dictionary definition of “applicable” is “directly relevant.” Applicable, BLACK’S LAW
DICTIONARY (10th ed. 2014). Therefore, little, if any, difference should exist between laws
that are “relevant” and those that are “applicable.” Generally, however, courts require a
higher standard for relevancy to the implication of criminal statutes. See also United States
v. One 1962 Ford Thunderbird, 232 F. Supp. 1019, 1022 (N.D. Ill. 1964).
28. Wood v. Lovett, 313 U.S. 362, 382 (1941) (Black. J., dissenting) (analyzing Home
Bldg. & Loan Ass’n v. Blaisdell, 290 U.S. 398 (1934)).
29. See Hicks Rd. Corp. v. Marathon Oil Co., 1995 U.S. Dist. LEXIS 10795 at *10 (N.D.
Ill. July 28, 1995) (stating that a statute does not create an implied contractual term unless the
plaintiff can demonstrate an “adequate connection” between the contract and the law).
30. See, e.g., Home Building & Loan Ass’n v. Blaisdell, 290 U.S. 398, 438 (1934)
(examining whether state action that impairs a private contract is valid).
31. AMFAC Resorts, LLC v. U.S. Dep’t of Interior, 142 F. Supp. 2d 54, 73-74 (D.D.C.
2001) (quoting Gen. Motors Corp. v. Romein, 503 U.S. 181, 188-91 (1992)).
32. See, e.g., State ex rel. Udall v. Colonial Penn Ins. Co., 812 P.2d 777, 784 (N.M.
1991) (citing Montoya v. Postal Credit Union, 630 F.2d 745 (10th Cir. 1980)).
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contract,”33 (2) the statutes “touching upon the subject matter” of the
contract,34 and (3) every law “affecting” the contract is read into the
contract.35
The notion of relatedness is an unsatisfactory premise for implying
absent laws as contract terms. The decisions focusing on the degree these
laws relate to the contract have overlooked the analogous issue in
constitutional contract clause cases for when laws “relate” to a contract. The
Michigan Supreme Court has observed, “‘[f]or so nearly universal are
contractual relationships that it is difficult if not impossible to conceive of
laws which do not have either direct or indirect bearing upon contractual
obligations.’”36 Accordingly, when courts consider issues of relatedness
they should not get too deep into such abstract comparisons.
Some cases do not even mention a relevancy or applicability
component. For example, the Florida Supreme Court briefly commented,
“[t]he law is a part of every contract made in this State.”37 Similarly, the
Supreme Court of Virginia merely stated, “[s]tatutory or ordinance
provisions in effect at the time a contract is executed become as much a part
of the contract as if incorporated therein.”38 Literally construed, the Florida
and Virginia cases stand for the proposition that the entire state code is part
of every contract. This statement cannot be the law and it is doubtful that
these courts intended a literal understanding. These all-encompassing
decisions ducking the relevancy concept are also inconsistent with the vast
majority of decisions that at least attempt to narrow to some manageable
level the laws that can impact a contract.
The major challenge in identifying “relevant” laws is the sheer volume
of potential choices that can await the parties or a reviewing court, which is
essentially the same problem that exists for deciding the class of “applicable”
laws. The U.S. Court of Federal Claims has said:
[P]laintiffs contend that regulations not referenced in the contract
may be “applicable regulations.” This proposed interpretation,
39. Nat’l Leased Hous. Ass’n v. United States, 32 Fed. Cl. 762, 766 (1999) (adding that
it would have been valid for the contract to have specified a methodology for determining
applicability). Compare Union Pac. Res. Co. v. Texaco, Inc., 882 P.2d 212, 222 (Wyo. 1994)
(deeming sufficient for purposes of the implied incorporation doctrine a provision that stated,
“[t]his agreement shall be subject to all valid and applicable State and Federal laws, rules,
regulations and orders, and the operations conducted hereunder shall be performed in
accordance with said laws, rules, regulations and orders.”), with Dillard & Sons Const., Inc.
v. Burnup & Sims Comtec, Inc., 51 F.3d 910, 913 (10th Cir. 1995) (approving language that
a clause “[r]equired compliance with ‘all applicable federal, state, and local safety and
electrical codes, and all applicable safety regulations.’”).
40. See supra notes 25-39 and accompanying text (collecting cases). A line of
precedents in the Federal Circuit mention this same concern regarding over-incorporation.
See infra Part V.
41. 290 U.S. 398 (1934).
42. Id. at 438. (“The question is not whether the legislative action affects contracts
incidentally, or directly or indirectly, but whether the legislation is addressed to a legitimate
end and the measures taken are reasonable and appropriate to that end.”)
43. Id.
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44. Home Fed. Bank of Tenn. v. United States, 62 Fed. Cl. 54, 61 (2004) (quoting Cal.
Fed. Bank, F.S.B. v. United States, 39 Fed. Cl. 753, 773 (1997)), aff’d, 245 F.3d 1342 (Fed.
Cir. 2001).
45. Norfolk & W. Ry. Co. v. Train Dispatchers, 499 U.S. 117, 129-30 (1991).
46. E.g., Romein, 503 U.S. at 189 (requiring the law be applicable to the contract to be
implied into it); see also Am. Exp. Travel Related Servs. Co. v. Sidamon-Eristoff, 755 F.
Supp. 2d 556, 585 (D.N.J. 2010) (finding the state laws to be unrelated to the contract).
47. 18 F. Supp. 2d 704, 705 n.2 (W.D. Ky. 1998).
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48. United States v. Robeson, 34 U.S. 319, 327 (1835). See also United States v. Lennox
Metal Mfg. Co., 225 F.2d 302,313 n.32 (2d Cir. 1955) (Frank, J.) (stating that “A contract has
often been regarded as a private statute, made by the parties, governing their relations.”).
49. See U.C.C. § 2-102 (“Unless the context otherwise requires, this Article applies to
transactions in goods; . . . .”).
50. See In re Doctors Hosp. of Hyde Park, Inc., 337 F.3d at 955 (concluding that it is
reasonably clear that the Illinois legislature did mean for the Comptroller Act to trump the
U.C.C. in a case like this).
51. See U.C.C. § 1-102(3); DAVID FRISCH, LAWRENCE’S ANDERSON ON THE UNIFORM
COMMERCIAL CODE § 1-103:209 (2009) (noting the continuing role of the common law except
as displaced by the U.C.C. itself).
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52. See Fisherman Surgical Instruments, LLC v. Tri-anim Health Servs., Inc., 502 F.
Supp. 2d 1170, 1179-80 (D. Kan. 2007) (applying common law version of the implied
incorporation doctrine to a U.C.C.-covered contract).
53. Dick Broad. Co. of Tenn. v. Oak Ridge FM, Inc., 395 S.W.3d 653, 668 (Tenn. 2013)
(quoting McClain v. Kimbrough Constr. Co., 806 S.W.2d 194, 198 (Tenn. Ct. App. 1990));
Richard A. Posner, The Law and Economics of Contract Interpretation, 83 TEX. L. REV. 1581
(2005) (providing extensive discussion).
54. See Karetsos v. Cheung, 670 F. Supp. 111, 113 (S.D.N.Y. 1987) (“A contract need
not be fixed with complete and perfect certainty in order to have legal effect.”) (citing V’Soske
v. Barwick, 404 F.2d 495, 500 (2d Cir. 1968), cert. denied, 394 U.S. 921 (1969)).
55. See Dorsey v. Clements, 44 S.E.2d 783, 787 (Ga. 1947) (following this principle).
56. See Posner, supra note 53 at 1582 (“[P]erfect foresight is infinitely costly, so that, as
the economic literature on contract interpretation emphasizes, the costs of foreseeing and
providing for every possible contingency that may affect the costs of performance to either
party over the life of the contract are prohibitive.”).
57. Nat’l Union Fire Ins. Co. of Pittsburgh v. Cont’l Ill. Corp., 658 F. Supp. 781, 789
(N.D. Ill. 1987).
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Despite its established place in the legal firmament, and the existence
of some merit especially for U.C.C.-covered contracts, the implied
incorporation doctrine has numerous problematic justifications. As will be
shown below, the most common justifications — the conclusive
presumptions that the parties know the law and the doctrine is an “implied”
contract term — are different facets of the same solution for importing laws
into a contract. A third rationale, less frequently mentioned, is that this
principle precludes contracting parties from abrogating valid laws.
Courts rely heavily on the “legal fiction” that every person is presumed
to know the law.60 The canon also applies in the law of contract. The
58. Davis v. Dykman, 938 P.2d 1002, 1007 (Alaska 1997) (citations omitted).
59. See infra Part III.B (analyzing decisions).
60. See Heller v. District of Columbia, 801 F.3d 264, 285 (D.C. Cir. 2015) (Henderson,
J.) (concurring in part and dissenting part) (“[T]his presumption is a legal fiction, not an
accurate description of the world.”). See also Peter J. Smith, New Legal Fictions, 95 GEO. L.J.
1435, 1459-60, 1478-80 (2007) (citing the maxim that ignorance of the law is no defense as
a prime example of a legal fiction).
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61. E.g., Beckman v. Kan. Dept. of Human Res., 43 P.3d 891, 896 (Kan. Ct. App. 2002)
(“‘[A] person is presumed to know the law and that contracts are made in contemplation of
existing law which becomes a part of the contract.’”); Gibraltar Factors Corp. v. Slapo, 125
A.2d 309, 309 (N.J. Super. A.D 1956) (“[I]t is elementary that all persons are conclusively
presumed to know the law of the land, and ignorance thereof excuses no one. The law is a
silent factor in every contract and the parties are presumed to have contracted with reference
to it.”); Geiger v. Ashley, 193 S.E. 192, 193 (S.C. 1937) (“In addition, every one is presumed
to know the law, and the law becomes a part of every contract.”); Inter-Ocean Cas. Co. v.
Lenear, 95 S.W.2d 1355, 1358 (Tex. Civ. App. 1936) (“It is a fundamental rule that
contracting parties are conclusively presumed to have entered their contract with full
knowledge of all of its terms and existing laws upon the subject which may affect the validity,
formation, operation, discharge, interpretation, or enforcement thereof.”); Adams v.
Spillyards, 61 S.W.2d 686, 687 (Ark. 1933) (“‘[P]arties are conclusively presumed to contract
with reference to existing law.’”).
62. See supra note 61.
63. Hermes Consol., Inc. v. United States, 58 Fed. Cl. 409, 414 n.4 (2003) (citing
authorities), rev’d on other grounds, Tesoro Hawaii Corp. v. United States, 405 F.3d 1339
(Fed. Cir. 2005); see also Van Aalten v. Hurley, 176 F. Supp. 851, 857 (S.D.N.Y. 1959)
(stating that the presumption that every person knows the law is an “inept expression of the
general rule, founded on reasons of public policy, that ignorance of the law excuses no one.”).
64. Fed. Crop Ins. Corp. v. Merrill, 332 U.S. 380, 384 (1947); Neuser v. Hocker, 140 F.
Supp. 2d 787, 801 (W.D. Mich. 1999) (“Without question, the imputation of knowledge by
virtue of publication in the Statutes at Large ‘is something of a fiction . . . [;]’ however, it is a
fiction ‘required in any system of law[.]’”) (quoting United States v. R.L.C., 503 U.S. 291,
308 (1992) (Scalia, J. concurring)).
65. See Louis Leustek & Sons, Inc. v. United States, 41 Fed. Cl. 657, 669 (1999) (citing
44 U.S.C. § 307 (1968) & 44 U.S.C. § 1507 (1968)) (finding that the applicable regulations
were published in the Code of Federal Regulations, and as a result, the plaintiff contractor
received notice of its opportunity to become involved in the discussions).
66. Cheek v. United States, 498 U.S. 192, 199 (1991) (mentioning common law rule).
67. See, e.g., Federal Crop Ins. Corp. v. Merrill, 332 U.S. 380, 384 (1947)
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(acknowledging that Idaho farmers had no actual knowledge about the rules in the Federal
Register on whether crops planted in the spring were insurable under the Federal Crop
Insurance Act).
68. See 29 AM. JUR. 2D Evidence § 201 (2016); see also United Cos. Lending Corp. v.
Autry, 723 So. 2d 617, 621 (Ala. 1998) (“‘[T]he law enters into and defines the obligation of
every contract and . . . [a]ll men are charged as a matter of public policy with a knowledge of
the law pertaining to their transactions.’”).
69. 29 AM. JUR. 2D Evidence § 290 (2014) (citing Provident Bank v. Lewitt, 852 A.2d
852, 856 (Conn. Ct. App. 2004)).
70. E.g., Nw. Nat. Gas Co. v. Chase Garden, Inc., 933 P.2d 370, 376 (Or. Ct. App. 1997)
(describing the rule as “[a] presumption . . . .”).
71. See Snyder v. Zane’s Ind. Sch. Dist., 860 S.W.2d 692, 697 (Tex. Civ. App. 1993)
(“It is conclusively presumed that the parties to a contract knew the law and contracted with
reference to it.”). The asserted reluctance to inquire about a person’s subjective state of mind
in this context is not defendable because courts routinely allow evidence of a party’s state of
mind in contract cases. See infra note 78-79 and accompanying text (citing duress, undue
influence, fraud and mistake of law doctrines).
72. Conclusive Presumption, BLACK’S LAW DICTIONARY (10th ed. 2014); see also LON
L. FULLER, LEGAL FICTIONS 40-41 (1967) (“[C]onclusive presumption[s] are generally applied
in precisely those cases where the fact assumed is false and known to be false.”).
73. In re Estate of Zeno, 672 N.W.2d 574, 577 (Minn. Ct. App. 2003) (citing BLACK’S
LAW DICTIONARY 1204 (7th ed. 1999). See generally Joel S. Hjelmas, Stepping Back from the
Thicket: A Proposal for the Treatment of Rebuttable Presumptions and Inferences, 42 DRAKE
L. REV. 427, 433 (1993) (making this characterization of conclusive presumptions).
74. JOSEPH M. PERILLO, THE LAW OF CONTRACTS, § 9:18, at 314 n.231 (7th ed. 2014)
(quoting Municipal Metallic Bed Mfg. Corp. v. Dobbs, 171 N.E. 75, 76 (N.Y. 1930)).
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75. See Roldan v. Callahan & Blaine, 161 Cal. Rptr. 3d 493, 498 (Cal. Dist. Ct. App.
2013). See also In re Mo. Pac. Ry. Co., 7 F. Supp. 1, 7 (E.D. Mo. 1934) (calling the
“conclusive presumption” a “fiction”).
76. Phx. Iron & Steel Co. v. Wilkoff Co., 253 F. 165, 171 (6th Cir. 1918).
77. See 27 SAMUEL L. WILLISTON & RICHARD A. LORD, A TREATISE ON THE LAW OF
CONTRACTS § 70:125 (4th ed. 1999).
78. Ryles Homes, Inc. v. Briarwood, Inc., 34 Va. Cir. 223, at *1 (1994) (citing
authorities).
79. See Farrell v. Third Nat. Bank, 101 S.W.2d 158, 164 (Tenn. Ct. App. 1936):
If both parties to a contract make an honest mistake of law as to its effect, or are
ignorant of a matter of law and enter into the contract for a particular object, the
result of which would by law be different from what they mutually intended, the
court will interfere to prevent the enforcement of the contract, and relieve the
parties from the unexpected consequences of it. *** And a mistake of law on the
part of both contracting parties, owing to which the object of their contract cannot
be attained, is sufficient ground for setting aside such contract. (citation omitted).
See also RESTATEMENT (SECOND) OF CONTRACTS § 151 cmt. b.; id. at § 155 (1981); 2 E.
ALLAN FARNSWORTH, FARNSWORTH ON CONTRACTS § 9.2 (3d ed. 2004) (stating that most
courts grant relief for mistake of law just as they would for mistake of fact).
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80. See 29 AM. JUR. 2D Evidence § 290 (2016) (quoting Schaffer v. Federal Trust Co.,
28 A.2d 75, 78 (N.J. Ch. 1942)).
81. Hess v. Culver, 41 N.W. 994, 994 (Mich. 1889) (“But it has been held by this court
in repeated instances that, while a man is, for public reasons, held responsible for his conduct,
although ignorant of law, there is no conclusive presumption that he actually knows the law.”);
Hart v. Roper, 41 N.C. 349, 349 (1849) (“The maxim, “ignorantia legis neminem excusat,” is
founded upon the presumption that every one, competent to act for himself, knows the law;
but the presumption that he knows it is not conclusive, but may be rebutted.”). See also Hesbol
v. Bd. of Educ. of Laraway Cmty. Consol. Sch. Dist. 70-C, 14 F. Supp. 3d 1101, 1107 (N.D.
Ill. 2014) (treating presumption as rebuttable in allowing party to present evidence that he was
unaware of applicable law but ruling that the party was aware of the law because the contract
referenced it).
82. See supra note 77 and accompanying text.
83. See infra note 270 and accompanying text.
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Courts have said that the doctrine is an implied contract term under the
rubric of a “hypothetical bargain” and the case law is quite detailed in this
regard. Therefore, this Article will cover the following topics: overview of
the hypothetical bargain; uncommunicated party intent and the hypothetical
bargain; the disfavored nature of implied contract terms; whether the implied
incorporation doctrine is a true implied term; and contracts as private
ordering.
Ordinarily, the four corners of the contract document set the boundary
for the parties’ rights and duties, but the implied incorporation rule is an
exception to this principle.86 As Judge Richard A. Posner commented for the
Seventh Circuit in Selcke v. New England Insurance Co., “a contract is the
sum of its express and implied terms.”87 He also said, “statutes are a source
of implied contractual terms, . . . .”88 Therefore, as Judge Benjamin Cardozo
observed for the New York Court of Appeals, when courts incorporate laws
into the contract by implication, “[t]hey do not change the [contract]
obligation. They make it what it is.”89 Despite their well-deserved place in
the legal pantheon, Judges Posner and Cardozo do not sufficiently
acknowledge that this doctrine is an elaborate legal fiction, what the courts
call a “hypothetical bargain.”90
The argument favoring construing laws as implied contract terms in the
hypothetical bargain is that courts must understand contracts according to
84. Nat’l Leased Housing Ass’n v. United States, 32 Fed. Cl. 762, 766 (1995), aff’d, 105
F.3d 1423 (Fed. Cir. 1997). A line of precedents in the Federal Circuit mention this same
concern regarding over-incorporation. See infra Part V.
85. 15A AM. JUR. 2D Common Law § 13 (2016) (“court[s] should not be bound by an
early common-law rule unless it is supported by reason and logic”) (citing cases).
86. Fox v. Heimann, 872 N.E.2d 126, 136 (Ill. Ct. App. 2007).
87. 995 F.2d 688, 689-90 (7th Cir. 1993).
88. Id. at 689.
89. People ex rel. City of New York v. Nixon, 128 N.E. 245, 247 (N.Y. 1920).
90. See Schortman v. United States, 92 Fed. Cl. 154, 164 (2010) (using the terms
“hypothetical bargain” and “hypothetical model of the bargaining process”).
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91. Md. Cas. Co. v. Turner, 403 F. Supp. 907, 912 (W.D. Okla. 1975) (explaining that
a chief purpose of contract law is to effectuate reasonably induced expectations and
understandings).
92. Lockheed Support Servs., Inc. v. United States, 36 Fed. Cl. 424, 428 (1996).
93. See P.R. Dep’t of Labor and Human Res. v. United States, 49 Fed. Cl. 24, 31 (2001)
(claiming that not only are parties presumed to be aware of applicable statutes but are further
presumed that they intend to follow them); accord Ocean View Towers Assocs. v. United
States, 88 Fed. Cl. 169, 176 (2009). See also Resolution Tr. Corp. v. Diamond, 45 F.3d 665,
673 (2d Cir. 1995) (“When parties enter into a contract, they are presumed to accept all the
rights and obligations imposed on their relationship by state (or federal) law.”).
94. In re Doctors Hosp. of Hyde Park, Inc., 337 F.3d at 957 (citing Kansas law);
Resolution Trust Corp. v. Diamond, 45 F.3d 665, 673 (2d Cir. 1995).
95. 11 SAMUEL L. WILLISTON & RICHARD A. LORD, A TREATISE ON THE LAW OF
CONTRACTS § 30:19 (4th ed. 1999) (citing Schiro v. W.E. Gould & Co., 165 N.E.2d 286 (Ill.
1960)).
96. Huang v. BP Amoco Corp., 271 F.3d 560, 564-65 (3d Cir. 2001).
97. See, e.g., Seashore Performing Arts Ctr. v. Town of Old Orchard Beach, 676 A.2d
482, 484 (Me. 1996) (providing that contracts with an integration clause “may include” an
unwritten implied term).
98. See Fox v. Heimann, 872 N.E.2d 126, 136 (Ill. Ct. App. 2007) (“‘The rationale for
this rule is that the parties to the contract would have expressed that which the law implies
had they not supposed that it was unnecessary to speak of it because the law provides for
it.’”).
99. Wickman v. Kane, 766 A.2d 241, 248 (Md. Ct. Spec. App. 2011).
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100. OfficeMax, Inc. v. Sapp, 132 F. Supp. 2d 1079, 1085 (M.D. Ga. 2011) (emphasis
supplied). See generally Robert E. Scott, A Theory of Self-Enforcing Indefinite Agreements,
103 COLUM. L. REV. 1641 (2003) (explaining common law rule).
101. See Linton v. E.C. Cates Agency, Inc., 113 P.3d 26, 30 (Wyo. 2004) (stating that
“[i]ndefiniteness may also be cured by the addition of such implied terms as will be supplied
by law . . . .”). See also Top of the Track Assocs. v. Lewiston Raceways, Inc., 654 A.2d 1293,
1296 (Me. 1995) (“As a matter of contract law, a term that is implied in a contract has the
same legal effect as an express term.”).
102. See, e.g., Emerson v. Treadway, 270 S.W.2d 614, 622 (Mo. Ct. App. 1954) (“We are
confined to interpretation and enforcement of the contract the parties made for themselves,
and we cannot alter or rewrite it under the guise of judicial construction.”); accord In re Yates
Development, 256 F.3d 1285, 1289 (11th Cir. 2001) (“‘[i]t is never the role of a . . . court to
rewrite a contract to make it more reasonable for one of the parties or to relieve a party from
what turned out to be a bad bargain.’”); Sw. E & T Suppliers, Inc. v. Am. Enka Corp., 463
F.2d 1165, 1166 (5th Cir. 1972) (stating “[c]ourts cannot read into a contract that which is not
there.”); In re UNR Industries, Inc., 212 B.R. 295, 305 (Bankr. N.D. Ill. 1997) (explaining
that a “‘strong presumption’” exists against rewriting a contract to include provisions that
could have been, but were not, included).
103. See Giessow Restaurants, Inc. v. Richmond Rests., Inc., 232 S.W.3d 576, 579 (Mo.
Ct. App. 2007); Birdsong v. Bydalek, 953 S.W.2d 103, 118 (Mo. Ct. App. 1997); Weatherly
v. Am. Agr. Chem. Co, 65 S.W.2d 592, 598 (Tenn. Ct. App. 1933) (indicating that there is a
heightened standard to incorporate terms that were not within the contemplation of the parties
at the time the contract was initially negotiated). See also Tiegs v. Boise Cascade Corp., 922
P.2d 115, 123-24 (Wash. Ct. App. 1996) (providing extensive discussion of implied
covenants).
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express it, or the term is necessary to carry out their intentions.104 While
courts have specifically applied this standard to the implied incorporation
doctrine,105 they paint with too broad a brush by saying every relevant law is
“indispensable” to satisfy the parties’ intent.
As can be seen, the implied intent doctrine law relies upon one legal
fiction - parties are presumed to know and follow the law - to justify another
fiction — the contract by necessary implication contains all terms needed to
save the contract from being voided for lack of definitiveness.106 The
question arises, however, by what judicial imperative must every dispute
have a contractual solution and why is that approach superior to leaving the
parties where the court finds them? Many years ago, Corbin pointed out that
the mere fact that a contract does not address every potential dispute does
not dictate that a court must construe the contract to do so:
Only the least thought is necessary to realize that a “gap” in an
agreement should not be filled merely because a gap exists. No
promise, or condition of a promise, should be added by either
implication or judicial construction, merely because the parties did
not put it in their words of agreement . . . A promise that is not
there in language, or an unexpressed condition of an expressed
promise, should be put in by process of implication only when the
conduct of the parties reasonably interpreted already has expressed
it. It should be put in by construction of law, in the absence of
justified implication, only when justice imperiously demands it
under the circumstances that have arisen.107
Therefore, extrapolating from Corbin’s position on implied terms, a
court may incorporate a law into a contract on a case-by-case basis where
the particular parties by their conduct previously expressed a desire to
104. Sacramento Nav. Co. v. Salz, 273 U.S. 326, 329 (1927); Refinery Emps. Union of
Lake Charles Area v. Cont. Oil Co., 160 F. Supp. 723, 731 (W.D. La. 1958); Foley v. Euless,
6 P.2d 956, 958 (Cal. 1931); 11 SAMUEL L. WILLISTON & RICHARD A. LORD, A TREATISE ON
THE LAW OF CONTRACTS § 31:7 (4th ed. 1999). Consistent with the rule that courts do not
rewrite contracts, some cases say implied terms are proper only when “absolutely necessary”
to effectuate the parties’ intent. E.g., Bishop’s Prop. & Investments, LLC v. Protective Life
Ins. Co., 255 F.R.D. 619, 625-26 (M.D. Ga. 2009) (explaining that “courts are ‘generally
reluctant to make contracts for the parties’ but may imply promises ‘when . . . absolutely
necessary to introduce the term to effectuate the intention of the parties.’”). See also Top of
the Track Assocs. v. Lewiston Raceways, Inc., 654 A.2d 1293, 1296 (Me. 1995) (approving
absolute necessity rule).
105. E.g., Schiro v. W.E. Gould & Co., 165 N.E.2d 286, 290 (Ill. 1960); Fox v. Heimann,
872 N.E.2d 126, 136 (Ill. Ct. App. 2007).
106. See Linton v. E.C. Cates Agency, Inc., 113 P.3d 26, 30 (Wyo. 2004). See also Randy
E. Barnett, The Sound of Silence: Default Rules and Contractual Consent, 78 VA. L. REV.
821, 823 (1992) (“That such implied-in-law terms are based on the parties’ consent has long
been thought to be pure fiction.”).
107. 3 ARTHUR L. CORBIN, CORBIN ON CONTRACTS § 569 at 341 (rev. ed. 1960).
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108. See supra note 96 and accompanying text. Query whether Corbin himself was being
consistent on the validity of the implied incorporation doctrine. In one section of his treatise,
he argued that laws are not part of a contract unless agreed to by the parties, 3 ARTHUR L.
CORBIN, CORBIN ON CONTRACTS § 551 at 202 (rev. ed. 1960), but in another place he accepts
promises supplied by law when justice “imperiously demands it under the circumstances,” 3
ARTHUR L. CORBIN, CORBIN ON CONTRACTS § 569 at 341 (rev. ed. 1960).
109. SR Int’l Bus. Ins. v. World Trade Ctr., 222 F. Supp. 2d 385, 391 (S.D.N.Y. 2002)
(rejecting expert testimony on the terms the parties ultimately would have selected upon the
close of negotiations).
110. See Martin v. Schumaker, 417 N.E.2d 541, 543-44 (N.Y. 1981) (recommending, in
construing a contract, “a court, in intervening, [should not] impos[e] its own conception of
what the parties should or might have undertaken, [but should instead] confin[e] itself to the
implementation of a bargain to which they have mutually committed themselves.”). See also
St. Paul Ins. Co. v. Duke Univ., 849 F.2d 133, 135 (4th Cir. 1988) (“Were courts free to refuse
to enforce contracts as written on the basis of their own conceptions of the public good, the
parties to contracts would be left to guess at the content of their bargains, and the stability of
commercial relations would be jeopardized.”).
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parties.”111
The hypothetical bargain rationale fails insofar as it places the court in
the realm of speculation versus the world of the parties’ actual agreement.
As Judge Frank Easterbrook commented in an opinion for the Seventh
Circuit, the goal of achieving certainty in commercial relationships could be
defeated if courts prefer hypothetical bargains “over real ones.”112 Because
the implied incorporation doctrine has been around since at least 1806, this
principle and its reliance on a hypothetical bargain will not be carted off the
legal landscape any time soon. To confine the doctrine to the extent that it
makes sense for the commercial system, the succeeding sections of this part
will further analyze this flawed doctrine with the hope that courts and
lawmakers will accept a more modest version of it (which proposal is found
in Part VI).113
111. See Jean Braucher, Contract Versus Contractarianism: The Regulatory Role of
Contract Law, 47 WASH. & LEE L. REV. 697, 733 (1990) (observing that supplying a term on
a court’s judgment of what the parties agreed to is a “fictitious” exercise of ascertaining party
consent and that “[t]he parties cannot control in advance what they do not even
contemplate.”). Notably, the U.C.C. does not fill in a gap on a missing quantity merely
because it exists. A good example of where the U.C.C. directs that courts should leave parties
where it finds them is under U.C.C. § 2-201, which requires a stated quantity for an
enforceable contract. U.C.C. § 2-201 cmt. 1 (AM. LAW INST. 2011-2012) (“The only term
which must appear is the quantity term which need not be accurately stated but recovery is
limited to the amount stated.”).
112. See Cont’l Bank v. Everett, 964 F.2d 701, 705 (7th Cir. 1992) (stating that there is
no implied duty for a bank secured creditor to disclose the riskiness of collateral to a
guarantor).
113. See Part VI (providing a proposal for reforming the implied incorporation doctrine).
114. See supra Part III.B.1.
115. W.W.W. Assocs. v. Giacontieri, 566 N.E.2d 639, 642 (N.Y. 1990). As stated in Part
IV.E, contract interpretation is related to, but different from, contract construction, and the
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(quoting Azalea Park Utils., Inc. v. Knox-Florida Dev. Corp., 127 So. 2d 121, 123 (Fla. Dist.
Ct. App. 1961)).
123. Fox v. Heimann, 872 N.E.2d 126, 136 (Ill. Ct. App. 2007).
124. See Thornock v. Pacific Corp, 379 P.3d 175, 180 (Wyo. 2016) (stating that a party’s
subjective intent is not relevant or admissible); Kozy v. Werle, 902 S.W.2d 404, 411 (Tenn.
Ct. App. 1995) (finding uncommunicated intent non-probative). See also Ivison, 762 So. 2d
at 335 (“We are ‘concerned with what the contracting parties have said to each other, not
some secret thought of one [that was] not communicated to the other.’”). For a variation in
fraud, duress, and the like, see supra note 79-80 and accompanying text.
125. Foley v. Huntington Co., 682 A.2d 1026, 1038 (Conn. Ct. App. 1996).
126. Alta Vista Props., LLC v. Mauer Vision Ctr., PC, 855 N.W.2d 722, 727 (Iowa 2014).
See also Del. & Hudson Canal Co. v. Pa. Coal Co., 75 U.S. 276, 288 (1868) (leading decision).
127. See Rote v. Rayco DS Inc., 148 F.3d 672, 674 (7th Cir. 1998) (observing that most
states disfavor implied terms in lease contracts); Series AGI West Linn of Appian Group
Investors De LLC v. Eves, 158 Cal. Rptr. 3d 193, 203-04 (Cal. Dist. Ct. App. 2013)
(discussing the arguments against implied terms).
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128. Goff v. Jacobs, 145 So. 728, 729 (Miss. 1933) (citations omitted) (emphasis
supplied).
129. See Mem’l Hosp. of Laramie Cty. v. Healthcare Realty Tr. Inc., 509 F.3d 1225, 1236
(10th Cir. 2007) (determining that the duty of good faith requires such treatment of contracts);
United States ex. rel. Norbeck v. Basin Elec., 248 F.3d 781, 796 (8th Cir. 2001) (stating that
good faith should not carry with it new duties); Burger King Corp. v. Weaver, 169 F.3d 1310,
1315-16 (11th Cir. 1999) (finding that courts have been inconsistent in applying the duty of
good faith in the franchise context); Spiegler v. Home Depot U.S.A., Inc., 552 F. Supp. 2d
1036, 1053-54 (C.D. Cal. 2008) (requiring that the duty of good faith be flexible to ensure
compliance with the contract, but it cannot give rise to duties or limits beyond such
compliance). See also Brown v. Mid-Am. Waste Sys., 924 F. Supp. 92, 94–95 (S.D. Ind.
1996) (“The existence of express terms in a valid contract thus precludes the substitution of
Implied terms regarding matters covered by the contract’s express terms.”); R.H. Sanders
Corp. v. Hayes, 541 S.W.2d 262, 265 (Tex. Civ. App. 1976) (existing law is incorporated into
a contract where it can be done “without doing violence to the contract terms”).
130. So Good Potato Chip Co. v. Frito-Lay, Inc., 462 F.2d 239, 241 (8th Cir. 1972) (“A
covenant cannot be implied if the parties have either expressly dealt with the matter in the
contract or have left the agreement intentionally silent on the point.”).
131. See In re Wolfe, 378 B.R. 96, 102-03 (Bankr. W.D. Pa. 2007) (making the connection
explicitly).
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The concept of private ordering draws its strength from the notion that
the parties as free agents must manifest their mutual assent. The California
Supreme Court has said that this voluntary nature of contracting is essential.
In Robinson Helicopter Co., Inc. v. Dana Corp.,138 the court commented that
“‘[W]hen two parties make a contract, they agree upon the rules and
regulations which will govern their relationship; the risks inherent in the
agreement and the likelihood of its breach.’”139 Clearly, the parties under the
implied incorporation doctrine do not voluntarily agree to the inclusion of
unmentioned laws; the courts do that for them based on what are flawed
justifications.140 The Robinson court further observed:
The parties to the contract . . . create a mini-universe for
themselves, in which . . . they define their respective obligations,
rewards and risks. Under such a scenario, it is appropriate to
enforce only such obligations as each party voluntarily assumed,
and to give him only such benefits as he expected to receive; this
is the function of contract law.141
Sensitive to this fundamental aspect of contract law, some courts and
commentators criticize the parties’ “implied intent” rationale as an obvious
legal fiction unmoored to the traditional principles of mutual assent.142 A
court that adds an implied provision in this questionable manner would
“make it impossible” for parties to rely on written contract terms addressing
their duties and responsibilities.143 A pervasive theme of this Article is it can
never be known ex ante which unmentioned law or regulation a party or court
may deem ex post to be included by operation of law. Rational contractors
do not subscribe wholesale to the unknown and frequently unknowable
trapping parties in surprise contractual obligations that they never intended.’”) (quoting
Teachers Ins. & Annuity Ass’n of Am. v. Tribune Co., 670 F. Supp. 491, 497 (S.D.N.Y.
1987)). A line of precedents in the Federal Circuit mention this same concern regarding over-
incorporation. See infra Part V.
138. 102 P.3d 268 (Cal. 2004).
139. Id. at 275 (quoting Applied Equip. Co. v. Litton Saudi Arabia, 869 P.2d 454, 462
(Cal. 1994)).
140. See supra Part III.B (analyzing decisions).
141. Robinson, 102 P.3d at 275.
142. See Lloyd v. Cincinnati Checker Cab Co., 36 N.E.2d 67, 69 (Ohio Dist. Ct. App.
1941) (stating that doctrine is “obviously, therefore, not a contractual liability involving a
meeting of the minds, but a purely statutory obligation. Reading the statute into the contract
involves a pure fiction.”); 11 SAMUEL L. WILLISTON & RICHARD A. LORD, A TREATISE ON THE
LAW OF CONTRACTS § 30:21 (4th ed. 1999) (“rule is obviously artificial” and an “unfortunate
fiction”); Randy E. Barnett, The Sound of Silence: Default Rules and Contractual Consent,
78 VA. L. REV. 821, 822-23 (1992) (“That such implied-in-law terms are based on the parties’
consent has long been thought to be pure fiction.”).
143. Rothe v. Reyco D.S., Inc., 148 F.3d 672, 675 (7th Cir. 1998).
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144. See 3 ARTHUR LINTON CORBIN, CORBIN ON CONTRACTS § 551 at 197-98 (rev. ed.
1960) (observing that “[w]ith respect to any particular contract most of the statutes and rules
are irrelevant; and most of those that are relevant are unknown to the parties.”).
145. Gen. Motors Corp. v. Romein, 503 U.S. 181, 189 (1992).
146. See Church Mut. Ins. Co. v. Klein, 940 P.2d 1001, 1003 (Colo. Ct. App. 1996)
(reasoning that laws crafted to serve the public good cannot be avoided by private contract);
Cary v. Cary, 675 S.W.2d 491, 493 (Tenn. Ct. App. 1984).
147. Southlands Life Ins. Co. v. Hopkins, 219 S.W. 254, 260 (Tex. Civ. App. 1920)
(quoting 1 WILLIAM HERBERT PAGE, PAGE ON CONTRACTS § 355, at 550 (1905)), rev’d on
other grounds, 244 S.W. 989 (Tex. Civ. App. 1922).
148. Hudson Water Co. v. McCarter, 209 U.S. 349, 357 (1908).
149. U.S. Tr. Co. v. New Jersey, 431 U.S. 1, 22 (1977); E. N.Y. Bank v. Hahn, 326 U.S.
230, 232-33 (1945); Home Bldg. & Loan Ass’n v. Blaisdell, 290 U.S. 398, 437 (1934); Smith
v. Commonwealth, 743 S.E.2d 146, 150 (Va. 2013); Storck v. Cities Serv. Gas Co., 575 P.2d
1364 (Okla. 1977) (holding that the right of the legislature to act under the police power is
part of existing law at contract formation).
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150. Blaisdell, 290 U.S. 398 at 437; see also Quatros, Inc. v. State Farm Life Ins. Co., 800
P.2d 184, 191-93 (N.M. 1990) (construing Blaisdell).
151. Sullivan Cty. Harness Racing Ass’n, v. City of Schenectady Off-Track Betting
Comm’n, 351 N.Y.S.2d 56, 60 (N.Y. Sup. Ct. 1973).
152. Williams v. Stone, 109 F.3d 890, 896 (3d Cir. 1997) (emphasis supplied); Path to
Health, LLP v. Long, 383 P.3d 1220, 1227 (Idaho 2016) (“Existing law becomes part of a
contract just as though the contract contains an express provision to that effect, unless a
contrary intent is disclosed.”) (emphasis supplied). See also SAMUEL L. WILLISTON &
RICHARD A. LORD, A TREATISE ON THE LAW OF CONTRACTS § 30:19 (4th ed. 1999) (collecting
cases from numerous jurisdictions).
153. See supra note 148 and accompanying text.
154. Series AGI W. Linn of Appian Group Investors DE LLC v. Eves, 158 Cal. Rptr. 3d
193, 200 (Cal. Dist. Ct. App. 2013) (“‘parties may contract as they please so long as they do
not violate the law or public policy.’”).
155. 15 S.W.3d 462, 464-65 (Tenn. Ct. App. 1999).
156. Heart v. E. Tenn. Brewing Co., 113 S.W. 364, 365 (Tenn. 1908).
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by implication the statute or policy striking down the contract. For example,
the Ledbetter court relied on Freeman v. Thompson,157 which held that an
agreement between a life insurance salesman and the insureds was
unenforceable as violative of Tennessee’s anti-rebate statutes. Nowhere did
the Freeman court say the anti-rebate statutes were contract terms in the
illicit agreement. Instead, the Freeman court applied the independent
statutes as the extra-contractual standard against which the court made a
finding of illegality.
Courts in other jurisdictions in a similar scenario also apply the law as
an independent standard and not as a contract term.158 Therefore, the
statement can be made, if the well-entrenched public policy/illegality rule
requires contract invalidation with laws being independent from the contract,
then the law for purposes of contract validation should not enter the contract
in defining the parties’ legal obligations. Yet, courts do not require the
implied incorporation of statutes and regulations for the public
policy/illegality doctrine. No cases were found addressing this discrepancy.
157. 600 S.W.2d 234, 236 (Tenn. Ct. App.1979) (cited in Ledbetter, 15 S.W.3d at 464).
158. See David A. Friedman, Bringing Order to Contracts Against Public Policy, 39 FLA.
ST. U.L. REV. 563 (2012) (describing the question in-depth with no such finding).
159. 300 DeHaro St. Inv’rs v. Dep’t of Housing and Cmty. Dev., 75 Cal. Rptr. 3d 98, 111
n.12 (Cal. Dist. Ct. App. 2008).
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exist for a prescribed period solely to define and facilitate the relationship in
achieving the contractual objectives.160 Thus, statutes are an imperfect fit to
be incorporated into contracts, because they generally are not devised to
regulate commercial relationships. The same analysis in this subsection
regarding statutes would apply to the other legislative and executive agency
pronouncements within the term ‘applicable laws.’
When a court imports a statute into a contract, the incorporation “makes
the instrument itself express the full agreement of the parties.”161 Notably,
even if the parties had inserted the missing law expressly into the contract,
“it would not have added to the legal force and effect of the contract” because
the implied term has equal status with an express term.162
The process of transforming a statute into a contract term is not a
mechanical or self-evident task. When a court imports a statute into a
contract, the process takes a statute from its legislative roots and replants it
in contract soil. As a result, the complication is that, “[w]hen statutory
language is included in a contract, it assumes a new legal identity: that of
contractual language.”163 The court must go through an often subtle process
of reconfiguring the statute into the contract terms and reasonable
disagreement could exist on the correct process in so doing.164 Even if the
implied law is construed according to the legislative intent, as mandated by
the case law,165 the insertion of a new material term also can have a ripple
effect on the proper interpretation of the existing terms and can cast one or
more of those terms in a new light as part of this integration of terms.166
160. See Pa. Dep’t of Pub. Welfare v. United States, 48 Fed. Cl. 785, 791 (2001) (citing
U.S. Supreme Court decisions); Mark L. Movesian, Are Statutes Really “Legislative
Bargains?” The Failure of the Contract Analogy in Statutory Interpretation, 76 N.C. L. REV.
1145, 1151 (1998) (providing similar comments).
161. Wilcox v. Atkins, 213 So. 2d 879, 882 (Fla. Dist. Ct. App. 1968).
162. Id.
163. 300 DeHaro St. Inv’rs, 75 Cal. Rptr. 3d 98 at 111.
164. See Mark L. Movesian, Are Statutes Really “Legislative Bargains?” The Failure of
the Contract Analogy in Statutory Interpretation, 76 N.C. L. REV. 1145, 1151 (1998) (citing
McNollgast, Positive Canons: The Role of Legislative Bargains in Statutory Interpretation,
80 GEO. L.J. 705, 710-11 (1992)) (stating that statutes differ from contracts in that contracts
reflect a bargain between two or more parties that can have conflicting interests whereas
legislation usually results from bargaining among numerous parties having a wider diversity
of purpose).
165. See infra Part IV.F.
166. See Cocke Cty. Bd. of Highway Comm’rs v. Newport Utils. Bd., 690 S.W.2d 231,
237 (Tenn. 1985) (“It is the universal rule that a contract must be viewed from beginning to
end and all its terms must pass in review, for one clause may modify, limit or illuminate
another.”).
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Most of the cases simply state that when courts imply a law as part of a
contract, the analysis centers on whether the missing law is “applicable” or
“relevant” to the contract.167 No case was found, however, where courts
addressed the interplay between the implied incorporation doctrine and the
crucial question of statutory construction — did the legislature intend the
particular statute to reflect a private contractual right and remedy?
When courts endow a statute as being part of a contract, they should be
construing whether the legislative intent was to create a private contractual
right and remedy. Without the legislative intent to create such a right and
remedy, “[a] ‘cause of action does not exist,’ and [courts] ‘may not create
one, no matter how desirable that might be as a policy matter, or how
compatible with the statute.’”168 Thus, the mere fact that the statute creates
a right is an insufficient basis for a private party lawsuit to enforce the
statute.169 The critical question of whether a statute supports a private right
of action is if the legislature has identified individual rights and remedies for
a described “class of beneficiaries.”170
In the last several decades, the Supreme Court has throttled back on the
lower federal courts’ ability to devise private rights from public statutes.171
Under earlier decisions, the Court followed a generous pro-claimant doctrine
that “it is the duty of the courts to be alert to provide such remedies as are
172. Alexander v. Sandoval, 532 U.S. 275, 286-87 (2001) (citing J.I. Case Co. v. Borak,
377 U.S. 426, 433 (1964)).
173. Id. (including accompanying text).
174. Rodriguez v. United States, 480 U.S. 522, 525-26 (1987) (emphasis in original). See
also Holmes Grp., Inc. v. Vornado Air Circulation Sys., Inc., 535 U.S. 826, 833 (2002) (“Our
task here is not to determine what would further Congress’s goal . . . but to determine what
the words of the statute must be fairly understood to mean.”).
175. See Nat’l R.R. Passenger Corp. v. Atchison, Topeka & Santa Fe Ry. Co., 470 U.S.
451, 465–66 (1985) (stating also that “absent some clear indication that the legislature intends
to bind itself contractually, the presumption is that ‘a law is not intended to create private
contractual or vested rights but merely declares a policy to be pursued until the legislature
shall ordain otherwise.’”); Chicago & A. R. Ry. Co v. Tranbarger, 238 U.S. 67, 76 (1915)
(“[N]o person has a vested right in any general law or policy of legislation entitling him to
insist that it shall remain unchanged for his benefit . . . .”); Studier v. Mich. Pub. Sch. Emps’
Retirement Bd., 698 N.W.2d 350, 361 (Mich. 2005).
176. Mallett, supra note 171, at 1250 (7th Cir. 1997) (citing decisions from the First, Fifth,
and Seventh Circuits and stating also that the maxim “expressio unius est exclusion alterius”
can support the exclusion of implied statutory rights of action). Under the expressio unius
principle, “[w]hen a statute limits a thing to be done in a particular mode, it includes the
negative of any other mode.” Nat’l R.R. Passenger Corp. v. Nat’l Ass’n of R.R. Passengers,
414 U.S. 453, 458 (1974) (quoting Botany Worsted Mills v. United States, 278 U.S. 282, 289
(1929)).
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(4) whether the cause of action is traditionally part of state law, such
that it would be inappropriate to create a federal cause of action based solely
on federal law.177
In this vein, the U.S. Supreme Court has said that under federal law,
silence in a statute regarding an implied right and remedy for an aggrieved
party is probative of the absence of such a legislative purpose.178
Nevertheless, courts dealing with the implied incorporation doctrine
routinely imply contract rights from statutes applicable to the contract with
little or no attempt to reconcile the other competing rules of statutory
construction. The prevailing conservative approach restricting the creation
of statutory contract rights cannot be reconciled with the liberal, and even
routine, creation of contract rights under the implied incorporation doctrine.
In a direct contradiction to the current restrictive doctrine on inferring private
rights of action from public laws, most cases loosely indicate that absent the
parties’ contrary intent, the implied incorporation doctrine means that every
“applicable” or “relevant” statute creates an implied contractual duty or
obligation and a potential right of action.179 In effect, where courts imply a
contract right and remedy on the minimal showing that the law is relevant or
applicable, they are reverting to the discarded notion that public policy alone
may justify an implied statutory cause of action.180
To implement a rational policy against over-inclusive incorporation of
existing laws, courts should not routinely construe laws to provide a free
standing contractual right of action or defense. This suggestion takes on
greater strength where the law in question creates a right and provides a
177. Opera Plaza Residential Parcel Homeowners Ass’n v. Hoang, 376 F.3d 831, 834-35
(9th Cir. 2004) (applying Cort v. Ash, 422 U.S. 66 (1975)); Alaji Salahuddin v. Alaji, 232
F.3d 305, 308-10 (2d Cir. 2000) (providing a comprehensive discussion). State courts have
approved the first three Cort factors regarding a state law based cause of action. See, e.g.,
Yedidag v. Roswell Clinic Corp., 346 P.3d 1136, 1146 (N.M. 2015); Shumate v. Drake Univ.,
846 N.W.2d 503, 508 (Iowa 2014). The second factor on legislative intent is the crucial
component. See Sandoval, 532 U.S. at 286 (noting that statutory intent is “determinative”).
178. See Touche Ross & Co. v. Redington, 442 U.S. 560, 571 (1979) (“[I]mplying a
private right of action on the basis of congressional silence is a hazardous enterprise at best.”).
179. See, e.g., Fowler v. State, 977 N.E.2d 464, 468 (Ind. Ct. App. 2012) (deeming all
“applicable” laws as included); Inverness Vill. v. Enlow, 328 P.3d 1248, 1251 (Okla. Ct. App.
2014) (deeming a particular “relevant” statute as being included and noting that mere silence
in the contract does not overcome the doctrine). Special statutes might impact this
determination. See LA. CIV. CODE art. 2054 (1985):
When the parties made no provision for a particular situation, it must be assumed
that they intended to bind themselves not only to the express provisions of the
contract, but also to whatever the law, equity, or usage regards as implied in a
contract of that kind or necessary for the contract to achieve its purpose.
180. See supra note 171 and accompanying text.
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181. See Ky. v. United States, 62 Fed. Cl. 445, 459-60 (2004) (citing United States v.
Babcock, 250 U.S. 328, 331 (1919)). See also Transamerica Mortg. Advisors, Inc. v. Lewis,
444 U.S. 11, 19 (1979) (“[I]t is an elemental canon of statutory construction that where a
statute expressly provides a particular remedy or remedies, a court must be chary of reading
others into it.”).
182. Nat’l R.R. Passenger Corp., supra note 176, at 465-66.
183. N.C. Ass’n of Educators, Inc. v. State, 786 S.E.2d 255, 262-63 (N.C. 2016).
Although the government is precluded from entering a binding agreement that it will not
exercise sovereign power, it can agree contractually that if it does so, the government will pay
the private party damages for a breach. Amino Bros. Co. v. United States, 372 F.2d 485, 491
(Ct. Cl. 1967), cited in United States v. Winstar Corp., 518 U.S. 839, 881-82 (1996).
184. See, e.g., Walls v. Wells Fargo Bank, N.A., 276 F.3d 502, 508-09 (9th Cir. 2002)
(“Congress certainly knows how to create a private right of action when it wants to[.]”).
185. Seaton v. State, 998 P.2d 131, 136 (Kan. Ct. App. 2000).
186. Kierstad v. City of San Antonio, 636 S.W.2d 522, 528 (Tex. Civ. App. 1982), rev’d
on other grounds, 643 S.W.2d 118 (Tex. 1982) (quoting 4 SAMUEL L. WILLISTON, WILLISON
ON CONTRACTS § 615, at 605-06 (3d ed. 1961)). See also T & S Distribs., L.L.C. v. Mich. Bell
Tel. Co., 2008 WL 724084 at *9 (Mich. Ct. App. 2008) (citing 11 SAMUEL L. WILLISTON &
RICHARD A. LORD, A TREATISE ON THE LAW OF CONTRACTS § 30:21 (4th ed. 1999)); Fed. Land
Bank of Omaha v. Houck, 4 N..W.2d 213 (S.D. 1942) (citing 4 SAMUEL L. WILLISTON,
WILLISTON ON CONTRACTS § 615 at 605-06 (3d ed. 1961)).
187. See McQuiddy Printing Co. v. Hirsig, 134 S.W.2d 204, 204 (Tenn. Ct. App. 1939)
(“parties conclusively [are] presumed to understand their contractual obligations and evidence
is inadmissible to show their understanding to have been otherwise”).
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188. See supra note 186. See generally W.E. Shipley, Annotation, Modern Status of the
Rules Against Basing an Inference Upon an Inference or a Presumption Upon a Presumption,
5 A.L.R. 3d 100 (1966 & Supp.) (echoing the principle that case law generally disfavors
basing presumptions on presumptions to support an outcome in a case).
189. United States v. Ross, 92 U.S. 281, 283 (1875).
190. Cf. United States v. Michel, 446 F.3d 1122, 1127-28 (10th Cir. 2006) (outlining rule
in criminal cases).
191. United States v. Coward, 151 F. Supp. 2d 544, 550 (E.D. Pa. 2001) (citing BLACK’S
LAW DICTIONARY 778 (6th ed. 1990)).
192. Id. (citing Lon L. Fuller, Legal Fictions, 25 ILL. L. REV. 323, 331 (1930) (quoting
Oliver R. Mitchell, The Fictions of Law, 7 HARV. L. REV. 249, 253 (1893)).
193. See supra note 77-80 and accompanying text.
194. The theoretical weaknesses of legal fictions are well-documented. See, e.g., LON L.
FULLER, LEGAL FICTIONS viii (1967) (“[Legal] fiction[s] represent[ ] the pathology of the
law.”); id. (“[W]e may liken the [legal] fiction to an awkward patch applied to a rent in the
law’s fabric of theory.”).
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By definition a “default” rule is one that the parties can contract around
by prior agreement and an “immutable rule” is one that “parties cannot
change by contractual agreement.”195 Again, the case law is marked by
conflicting decisions on this crucial element of the implied incorporation
doctrine.
The majority rule is that courts allow an opt out provision to the implied
incorporation principle: “It is well established that ‘unless the contract
provides otherwise, all applicable law in force at the time the agreement is
made implicitly forms a part of the agreement without any statement to that
effect.’”196 Therefore, when they opt out of the implied incorporation
doctrine, the parties under many decisions will not be bound by applicable
laws as being terms of the agreement.197
Another line of decisions, rarely if ever acknowledged by cases
following the majority rule, prohibits an opt-out contract term under all
circumstances. Thus a leading Rhode Island Supreme Court decision holds,
“[t]he statute is as much a part of the contract . . . even though the parties
knew nothing of the statute and did not include the provision or even though
they knew of the legislation and expressly agreed upon the exact
contrary.”198 Some states even go so far to follow both lines of precedent
without comment on the split of authority.199 No cases were found
addressing the discrepant opinions, and some decisions deny that any
disagreement exists on this point.200
This division of authority raises the issue of whether the implied
201. Randy E. Barnett, The Sounds of Silence: Default Rules and Contractual Consent,
78 VA. L. REV. 821, 825 (1992). See also Heaton-Sides v. Snipes, 755 S.E.2d 648, 651 (N.C.
Ct. App. 2014) (“In contract law there are generally two types of rules: default rules and
immutable rules. Default rules are rules that “parties can contract around by prior agreement.
Immutable rules, by comparison, are those rules that “parties cannot change by contractual
agreement.”). The U.C.C. itself is largely a set of default rules that fill gaps left by the parties
in described circumstances. Sundram Fasteners Ltd. v. Flexitech, Inc., No. 08-CV-13103,
2009 WL 2351763, at *6 (E.D. Mich. July 29, 2008). Some examples are the parties agree
to: (1) a “reasonable price” if the price term is left open (U.C.C. § 2-305); (2) “best efforts”
in exclusive dealing contracts unless otherwise agreed (U.C.C. § 2-307); and (3) delivery at
the seller’s place of business unless otherwise agreed (U.C.C. 2-308).
202. See McMahon v. Chi. Mercantile Exch., 582 N.E.2d 1313, 11319 (Ill. Ct. App.
1991). See also supra note 201 and cases cited.
203. Mouch v. Ind. Rolling Mill Co., 151 N.E. 137, 139 (Ind. Ct. App. 1926) (en banc).
204. Selcke v. New England Ins. Co., 995 F.2d 688, 690 (7th Cir. 1995).
205. 2 E. ALLAN FARNSWORTH, FARNSWORTH ON CONTRACTS § 7.16, at 352 (3d ed. 2004).
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are in a recurring fact pattern, and where the legal principle accords with the
expectation of the parties, the parties may rely on the doctrine by implication
in making their agreement.206
The better view is that this judicial device for supplementing the
contract is a mandatory or immutable rule. The U.S. Supreme Court’s
decisions indicate support for the immutable version. In construing the
relation of the Constitution’s Contract Clause and an amended statute that
impaired pre-existing implied statutory rights, the Court stated in General
Motors Corp. v. Romein, “[f]or the most part, state laws are implied into
private contracts regardless of the assent of the parties . . . when those laws
affect the validity, construction, and enforcement of contracts.”207 Notably,
no case was found where the Court expressly endorsed or mentioned the
version of the implied incorporation doctrine that allows opt out provisions.
Furthermore, valid required clauses are a mandatory part of the contract even
if omitted or if the parties agree otherwise in federal public contracts
involving federal statutory obligations and their implementing regulations.208
The choice is clear that the doctrine is an immutable rule (as under the
minority view) because each premise of the implied incorporation doctrine
is itself mandatory. As for those elements, the cases recognize that every
person is conclusively presumed to know the law,209 the doctrine is a
mandatory implied term,210 and parties cannot abrogate existing law.211 If all
the elements are mandatory then the only logical conclusion is that the
doctrine itself is mandatory but with one qualification —where the statute
itself says parties can vary the effect of the statute by agreement. The best
example in this second category comes from the U.C.C., which states that
with very few exceptions, such as the non-waivable rule of good faith and
fair dealing, parties may waive or modify nearly all of the U.C.C. default
rules.212 Otherwise, where courts accept the premises of the implied
incorporation doctrine, they should deem it an immutable principle unless
206. Id.; see also Moreau v. Harris Cty., 158 F.3d 241, 247 (5th Cir. 1998) (“In many
situations, an ‘untailored default,’ a ‘single, off-the-rack standard’ that provides a satisfactory
contractual solution in the run of cases may be preferable” to tailoring a default just for the
parties at hand).
207. 503 U.S. at 189 (emphasis supplied).
208. See United States v. Bills, 822 F.2d 373, 377 (3d Cir. 1987) (citing G.L. Christian &
Assoc. v. United States, 320 F.2d 345 (Ct. Cl. 1963)) (analyzed in Part V).
209. See supra Part III.A.1.
210. See supra Part III.A.2.
211. Prof’l Prop. Servs., Inc. v. Agler Green Townhouses, Inc., 998 F. Supp. 831, 833
(S.D. Ohio 1998) (citing Ohio decisions). See also Paradissiotis v. United States, 49 Fed. Cl.
16, 20 (2001) (explaining how a contract will not defeat a lawfully promulgated statute or
regulation).
212. See U.C.C. § 1-301 (stating general rule that parties may waive most U.C.C. rules
by agreement).
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Under the implied incorporation doctrine, parties are also bound by the
principles associated with choice of law.213 Citing the area of conflict of
laws, Corbin noted how the implied incorporation doctrine is a poor fit for
understanding a contract:
Very difficult problems in the conflict of laws arise, so that the
most learned of jurists do not agree as to the law which should be
applied. In choosing the applicable law and in determining the
results of its application, the court is always doing much more than
mere interpretation of the terms of the contract.214
Where the contract lacks a valid choice of law provision for deciding
which state’s substantive law shall govern, American jurisdictions are
divided on the proper approach to choice of law. Some states follow the rule
of “lex loci contractus” —
[T]he validity, nature, construction, and interpretation of a contract
are governed by the substantive law of the state where the contract
was made, except that where the contract is made in one state and
is to be performed in another state, the substantive law of the state
where the contract is performed will apply.215
By contrast, most states follow the multi-factor balancing test of the
Restatement (Second) of Conflicts.216 When courts as a matter of the parties’
purported intent determine the choice of law and bind a party from one state
to the laws and decisions of another state, the case law stretches the implied
incorporation legal fiction to the breaking point. The ordinary person lacks
this knowledge and would likely consider it a waste of time to acquire it.
Another logical consequence of the doctrine is the resolution of another
choice of law problem, viz., conflicts between federal and state laws on the
same subject matter. Under the U.S. Constitution’s Supremacy clause,
213. Dick Broad. Co., Inc. v. Oak Ridge FM Inc., 395 S.W3 653, 668-69 (Tenn. 2013).
214. 3 ARTHUR L. CORBIN, CORBIN ON CONTRACTS § 551 at 198 (rev ed. 1960).
215. E.g., Fed. Ins. Co. v. Nat’l Distrib. Co., 417 S.E.2d 671, 673 (Ga. Ct. App. 1992)
(endorsing lex loci contractus).
216. E.g., Shannon-Vail Five Inc. v. Bunch, 270 F.3d 1207, 1210-11 (9th Cir. 2001)
(endorsing RESTATEMENT (SECOND) OF CONFLICTS). See also RESTATEMENT (SECOND) OF
CONFLICT OF LAWS § 188 (1971) (providing that the rights and duties of the parties with
respect to an issue in contract are determined by the local law of the state which, with respect
to that issue, has the most significant relationship to the transaction and the parties under the
principles stated in § 6 of the RESTATEMENT (SECOND) OF CONFLICT OF LAWS). For additional
discussion of choice of law and the implied incorporation doctrine, see 17A C.J.S. Contracts
§ 348 (2012).
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217. See Crosby v. Nat’l Foreign Trade Council, 530 U.S. 363, 372-73 (2000) (stating
that Congress has authority to pre-empt, or displace, state law, expressly or impliedly); Fid.
Fed. Sav. and Loan Ass’n v. de la Cuesta, 458 U.S. 141, 157 (1982) (discussing federal pre-
emption).
218. Cornick v. Sw. Iowa Broad. Co., 107 N.W.2d 920, 921-22 (Iowa 1991).
219. See Fidelity Federal Sav. and Loan Ass’n v. de la Cuesta, 458 U.S. 141, 157 (1982)
(noting the incorporation of all federal law into the laws of each individual state). See also
Sosa v. Alvarez-Machain, 542 U.S. 2739, 2764 (2004) (describing how international law is
part of domestic law); Kane v. Winn, 319 F. Supp. 2d 162, 196 (D. Mass. 2004) (providing a
relevant discussion of treaties).
220. 3 ARTHUR L. CORBIN, CORBIN ON CONTRACTS § 551 at 198 n.34 (rev ed. 1960).
221. Ram Const. Co., Inc. v. Am. State Ins. Co., 749 F.2d 1049, 1053 (3d Cir. 1984)
(engaging in extensive relevant discussion); Peak v. Adams, 799 N.W.2d 535, 543 (Iowa
2011); Rios v. Jennie-O Turkey Store, Inc., 793 N.W.2d 309, 316 (Minn. Ct. App. 2011)
(citing Deerhurst, 165 A.2d at 552-53); In re A.H. Robins Co., Inc., 197 B.R. 590, 595 (Bankr.
E.D. Va. 1994); 3 ARTHUR L. CORBIN, CORBIN ON CONTRACTS § 551 at 200 (rev. ed. 1960).
222. See Rental Unif. Serv. of Florence, Inc. v. Dudley, 301 S.E.2d 142, 143 (S.C. 1983)
(“Restrictive covenants not to compete are generally disfavored and will be strictly construed
against the employer.”).
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223. Moore v. Life & Cas. Ins. Co., 40 S.W.2d 403, 403 (Tenn. 1931).
224. 3 ARTHUR L. CORBIN, CORBIN ON CONTRACTS § 551 at 200 (rev. ed. 1960).
225. Id.; see also RESTATEMENT (SECOND) OF CONTRACTS § 204 cmt. a. (1981) (“The
supplying of an omitted term is not technically interpretation[.]”); Ram Constr. Co., 749 F.3d
at 1053 (“Construction, which may be usefully distinguished from interpretation, is a process
by which legal consequences are made to follow from the terms of the contract and its more
or less immediate context, and from a legal policy or policies that are applicable to the
situation.”); Rios v. Jennie-O Turkey Store, Inc., 793 N.W.2d 309, 316 (Minn. Ct. App. 2011)
(explaining that doctrine is one of contract construction and not interpretation).
226. See 3 ARTHUR L. CORBIN, CORBIN ON CONTRACTS § 551 at 197-98, 200 (rev. ed.
1960) (indicating that confusion may be understandable because “[t]he processes of
interpretation [and construction] are almost always carried on together.”).
227. See Deerhurst Estates, 165 A.2d at 552-53 (N.J. Super. A.D. 1960) (citing the Corbin
and Williston treatises). Actually, Williston was more equivocal than Corbin on this issue.
In an earlier edition of his treatise, Williston wrote, “[d]oubtless, law frequently is adopted by
the parties as a portion of their agreement. [Whether it is in] any particular case should be
determined by the same standard of interpretation as is applied to their expressions in other
respects.” Caroline N. Brown, North Carolina Common Law Parol Evidence Rule, 87 N.C.
L. Rev. 1699, 1737 (2009) (emphasis supplied) (citing 2 Samuel L. Williston, WILLISTON ON
CONTRACTS § 615, at 605-06 (3d ed. 1961). Thus, whether he meant it or not, by using the
term “interpretation” Williston undermined his own idea that the doctrine is a principle of
construction.
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228. See Brown, supra note 227, at 1737 (quoting James H. Chadbourn & Charles T.
McCormick, The Parol Evidence Rule in North Carolina, 9 N.C. L. REV. 151, 166 (1931)).
One issue that cuts across the contract interpretation/statutory construction divide is the
applicability of the parol evidence rule, i.e., the principle excluding the admissibility of
extrinsic evidence to supplement or contradict terms of a complete and unambiguous contract,
absent exceptional circumstances such as ambiguity, fraud or mistake. See Harris v. Allstate
Ins. Co., 300 F.3d 1183 (10th Cir. 2002) (stating this rule); Berg v. Hudesman, 801 P.2d 222,
229 (Wash. 1990) (stating this rule); Deerhurst, 165 A.2d at 152-53 (stating this rule). If one
accepts the premise that the implied incorporation doctrine is an issue of contract construction
rather than contract interpretation, then it would be clear that the parol evidence rule does not
exclude contract terms supplied by law. Ervco v. Texaco Refining and Mktg., Inc., 422 F.
Supp. 2d 1084, 1087-88 (D. Ariz. 2006) (explaining that the process of construing contracts
means that the parol evidence rule does not preclude references to statutes included by
reference); Helen Hadjiyannakis, The Parol Evidence Rule and Implied Terms: The Sounds
of Silence, 54 Fordham L. Rev. 35, 44 (1985) (noting that “authorities agree that the parol
evidence rule does not exclude obligations imposed by law.”).
229. See, e.g., Ohio, Pa. & W. Va. Coal Co. v. PanEnergy Corp., 120 F.3d 607, 610-11
(6th Cir. 2007) (applying incorrectly the concept of implied incorporation); Unihealth v. U.S.
Healthcare, Inc. 14 F. Supp. 2d 623, 633 (D.N.J. 1998) (applying incorrectly the concept of
implied incorporation).
230. E.g., Morrell v. Wellstar Health System, Inc., 633 S.E.2d 68, 71 (Ga. Ct. App. 2006)
(“The cardinal rule of contract construction is to ascertain the intention of the parties. . . .”).
231. See Edwin W. Patterson, The Interpretation and Construction of Contracts, 64
COLUM. L. REV. 833, 837 (1964).
232. Rendleman v. Brown, 860 F.2d 1537, 1541-42 (9th Cir. 1988).
233. Lloyd v. Cincinnati Checker Cab Co., 36 N.E.2d 67, 69 (Ohio 1941). Corbin cites
the Lloyd case for the proposition that when the legislature prescribes the use of a contract
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provision, the legislature’s intention controls irrespective of how the contractors understood
it or even if the parties agree to the contrary. 3 ARTHUR L. CORBIN, CORBIN ON CONTRACTS
§ 551 at 197, 200 (rev. ed. 1960). See also Kolbe v. BAC Home Loans Servicing, LP, 738
F.3d 432, 443 (1st Cir. 2013) (describing the same).
234. Dalles Irrigation Dist. v. United States, 82 Fed. Cl. 346, 355 (2008). See also Gaudet
v. Safeco Ins. Co., 593 A.2d 1362, 1365 (Conn. 1991) (noting that where the legislature has
dictated the inclusion of terms in a contract, it is appropriate to consider the legislative intent
to interpret those terms).
235. Honeywell Inc. v. United States, 661 F.2d 182, 186 (Ct. Cl. 1982).
236. Kolbe, 738 F.3d at 442 (Lynch, C.J., separate opinion) (citing 5 MARGARET N.
KNIFFIN, CORBIN ON CONTRACTS § 24.26 at 278 (Joseph M. Perillo ed., rev. ed. 1998); Ramos
v. SimplexGrinnell LP, 21 N.E.3d 237, 239 (N.Y. 2014).
237. See Spear, Leeds & Kellogg v. Cent. Life Assurance Co., 85 F.3d 21, 28 (2d Cir.
1996) (reasoning that courts ascertain and implement the reasonable expectations of the
parties who undertake to be bound by its provisions); Norville v. Carr-Gottstein Foods Co.,
84 P.3d 996, 1004 (Alaska 2004) (finding also that courts use the parties’ expectations when
considering a contract). Some courts take a third course and state that the parties’ reasonable
expectation is that courts will enforce the relevant laws and regulations based on the
lawgiver’s intent as part of the agreement. E.g., Madison Ave. Leasehold, LLC v. Madison
Bentley Assocs. LLC, 811 N.Y.S.2d 47, 53 (N.Y. App. Div. 2006) (ruling that “[w]ith respect
to reasonable expectations, it is axiomatic that the parties to an agreement will interpret the
instrument governing their relationship in accordance with existing law . . . .”). Cf. B.F.
Goodrich Co. v. United States, 94 F.3d 1545, 1549 (Fed. Cir. 1996) (stating that, as a court,
“we are unaware of any authority or rule of statutory construction which would permit us to
give effect to [a party’s] ‘reasonable expectations,’ in contravention of statutory language.”).
238. Pers. Indus. Bankers v. Citizens Budget Co. of Dayton, Ohio, 80 F.2d 327, 328 (6th
Cir. 1935) (citation omitted).
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contract the intention of the parties may be the controlling element, and their
own acts may give meaning to their words, in interpreting statutes ‘the only
intent which judicial construction can make certain is the intent of the
legislative power.’239
239. But see supra note 237 (indicating the reasonable expectation of the parties is to
enforce the reasonable expectations of the legislature).
240. Esparza v. Commonwealth, 513 S.E.2d 885, 888 (Va. Ct. App. 1999) (citations
omitted).
241. Connolly v. Pension Ben. Guar. Corp., 475 U.S. 211, 224 (1986) (ruling no reputable
court will use its authority to approve an illegal contract). See also Thrifty Oil Co. v. Bank of
Am, Nat’l Tr. & Sav. Ass’n, 322 F.3d 1039, 1059 (9th Cir. 2003) (holding that the
applicability of relevant laws to contract is not a matter of the enforceability of the contract
but of statutory construction). At least one court has held (incorrectly) that it should avoid
the legislature’s intent. See Farouki v. Petra Int’l Banking Corp., 63 F. Supp. 3d 84, 88
(D.D.C. 2014), aff’d, 608 Fed. Appx. 8 (D.C. Cir. 2015) (per curiam) (ruling that where the
case involves only the individual rights of private parties, “‘a court ought to struggle greatly
to avoid a construction of the law which would affect the rights of the parties.’”).
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statute.242
Indeed, “‘[i]t is elementary that no valid contract may be made contrary
to statute . . .’”243 which principle finds expression in the equitable maxim,
privatorum conventio juri public non derogat (the agreements of private
individuals will not be allowed to operate as to diminish the effect of a public
law).244 As Corbin observes, irrespective of whether the parties include a
statute in a contract, they are bound to the law even if ignorant of the law or
whether they know it and expressly agree to the contrary.245 Simply put,
entering a contract is not a safe harbor to violate the law.
Despite the rule that contracts cannot override laws, most authorities
have seemingly ignored this rule and hold that parties have the ability to
express a contrary intention that the parties are not bound by relevant
statutory requirements. A common statement is “parties to a contract are
presumed to [be] mindful of the existing law and that all applicable or
relevant laws must be read into the agreement . . . except where a contrary
intention is evident.”246 Literally construed, parties by contract may decide
when a party is exempt from the law. Importantly, these cases hold to the
doctrine even when no evidence exists in the court’s opinion that a party
made a valid waiver of her statutory or regulatory rights.247 These holdings
without any satisfactory explanation directly contradict Corbin’s above
argument and conclusion that parties remain bound by the law.248 Therefore,
the rules allowing parties contractual exemptions from the law should be
reconstituted as suggested above.
249. Wright v. Universal Mar. Serv. Corp., 525 U.S. 70, 80 (1992); Reservation Ranch v.
United States, 39 Fed. Cl. 696, 711 (1997), aff’d, 217 F.3d 850 (Fed. Cir. 1999); Selzer v.
Baker, 65 N.E.2d 752, 753 (N.Y. 1946).
250. Cycle Dealers Ins., Inc. v. Bankers Ins. Co., 394 So. 2d 1123. 1124 (Fla. Dist. Ct.
App. 1981).
251. Sterling Eng’g & Const. Co. v. Town of Burrillville Hous. Auth., 279 A.2d 445, 447
(R.I. 1971) (citing decisions).
252. Wilkes v. Allegan Fruit & Produce Co., 206 N.W. 483, 484 (Mich. 1925).
253. Cf. Ballsteadt v. Amoco Oil Co., 509 F. Supp. 1095, 1096 (N.D. Iowa 1981) (noting
that the Due Process Clause of the Fifth Amendment protects freedom of contract, which is a
“matter of great public concern”); E. Cent. Okla. Elec. Co-op., Inc. v. Pub. Serv. Co., 469
P.2d 662, 664 (Okla. 1970) (reasoning that “[i]t is well settled that freedom to contract, or the
right to enter a contract, is protected from arbitrary restraint or interference by the due process
clauses of [the] state and federal constitutions.”).
254. Reservation Ranch v. United States, 39 Fed. Cl. 696, 711 (1997) (citing U.S.
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waive a statute applicable to a contract, but the statute affects the public
interest or the institutional concerns of the legislature, the waiver will be
ineffective.255 An example is that in the federal procurement system, a party
may not waive the rights established in the Contract Disputes Act256 for the
resolution of contract disputes between the United States and its
contractors.257 Another example is that a worker protected by the Fair Labor
Standards Act (which covers such matters as the federal minimum wage,
overtime compensation, and safe working conditions) cannot waive its
protections.258
The problem with the above canon barring waiver is the difficulty in
knowing when the legislative intent forbids a waiver. The standard is
whether the state affects the public interest or the institutional concerns of
the legislature but all statues to a greater or lesser degree reflect these
concerns. If they did not, the legislature has no business enacting them.
Another point of potential confusion is that if the standard is that a court may
deem a statute to be non-waivable based on the legislative intent or an
affirmative prohibition to this effect, relatively few statutes will self-identify
in these categories. As a prominent treatise points out, “[t]he line between
statutes which may be waived and those which may not be waived is not
clearly defined, and judicial opinions on this matter are inconsistent.”259
As shown above, the imprecise standards that characterize much of the
implied incorporation doctrine also exist on whether parties have the ability
to waive a particular law. When parties are unable to predict with confidence
if the implied incorporation doctrine will impact their ability to waive a
particular law, the doctrine undermines the established goals for stable
contracting relationships in the commercial law system.
Not all state and federal courts embrace the traditional implied
260. See Stahl v. U.S. Dept. of Agric., 327 F.3d 697, 701 (8th Cir. 2003) (interpreting a
contract “in light of” the relevant statutes and regulations); Patterson v. Dep’t of Interior, 899
F.2d 799, 807 (9th Cir. 1990) (ruling that interpretation of government contracts is to be made
against the backdrop of relevant legislation); Pioneer Reserve, LLC v. United States, 125 Fed.
Cl. 112, 118 (Fed. Cl. 2016) (ruling that a statute mentioned in passing in the contract was
merely “background” information). See also 3 ARTHUR L. CORBIN, CORBIN ON CONTRACTS §
551 at 198 (rev. ed. 1960) (arguing that the principle should be limited to laws being part of
the surrounding circumstances).
If he meant it in a factual sense, Corbin (and courts following him) overstate the law when
they say that “the existing laws are always among [the surrounding] circumstances.” 5
ARTHUR L. CORBIN, CORBIN ON CONTRACTS § 24.26 at 271 (Joseph M. Perillo rev. ed. 1998).
Many parties negotiating a contract may never reference a statute in the contract or during
negotiations and might not even recognize a statute from the books if they saw one. Even if
the parties did discuss a law during pre-contract negotiations, evidence of their past probable
intent is inadmissible. See Deerhurst Estates, 165 A.2d at 550-51 (ruling that the parties,
before signing the contract, were “fully aware” of a particular statute because it was a
“repeated subject of discussion before the contract was executed,” and excluding evidence of
how the parties thought the contract language incorporating the statute was intended to be
construed).
Corbin also offered a more accurate, refined statement of the “surrounding circumstances”
view when he said that “[r]emedies and ‘obligation’ are created by the law, not the parties;
and the interpretation involved is constitutional and statutory interpretation.” 3 ARTHUR L.
CORBIN, CORBIN ON CONTRACTS § 551 at 200 (rev. ed. 1960). Corbin’s view here tracks one
of the dissenting opinions in Ogden v. Saunders, 25 U.S. 313, 325 (1827), where Justice
Trimble argued that the law is not part of the contract but is the standard by which courts
consider the parties’ contractual rights and obligations. See infra note 273 and accompanying
text.
261. P.R. Dep’t of Labor and Human Res. v. United States, 49 Fed. Cl. 24, 31 (2001). See
also Dart Advantage Warehousing, Inc. v. United States, 52 Fed. Cl. 694, 702 (2002)
(emphasizing the ultimate importance of the words and responsibilities laid out in a contract
agreement). But see Barker v. Palmer, 8 S.E.2d 610, 612 (N.C. 1940) (noting that a difference
exists between statutes being read into a contract versus the contract being entered into in
contemplation of applicable law).
262. Dean Witter Reynolds Inc. v. Variable Annuity Life Ins. Co., 373 F.3d 1100, 1108
(10th Cir. 2004).
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matters of normal interest to contracting parties that they would not have
thought it would affect the terms of their contract.”263
(5) Statutes become an implied contractual term only when the statute
is “self-implementing,” i.e., it contains detailed criteria for when a particular
contract is covered by the statute264 and does not require the issuance of
regulations to make it fully effective.265
(6) “While contracts may incorporate particular laws as contract terms,
it must do so with specificity; general choice of law provisions do not
accomplish this task.”266
(7) “This rule . . . should be limited to those laws which are ‘applicable’
and which affect ‘the validity, construction, discharge, or enforcement of the
contract’ and care should be taken that its application is not extended to
lengths which approach absurdity.”267
(8) “[N]ot all ‘state regulations are implied terms of every contract
entered into while they are effective, especially when the regulations
themselves cannot be fairly interpreted to require such incorporation.’”268
Some other decisions disavow or severely limit the doctrine (even as
other cases from the same jurisdiction follow the prevailing rule). A
263. In re Doctors Hosp. of Hyde Park, Inc., 337 F.3d at 958-61 (citations omitted)
(deeming “artificial” the presumption that parties contract with knowledge of the law and that
when courts imply laws as contract terms they are “merely construing the contract in
accordance with the intent of the parties.”).
264. See Univs. Research Ass’n, Inc., v. Coutu, 450 U.S. 754, 784 (1981) (holding that
the Davis Bacon Act setting wage rates for federal agency construction projects does not
support a private right of action for workers to sue employers for back wages); Niagara
Mohawk Power Corp. v. F.E.R.C., 162 F. Supp. 2d 101, 107 (N.D.N.Y. 2001) (describing
that when a statute is not self-implementing, it is a “regulatory statute” that takes meaning and
authority from its attendant regulations); Success Against All Odds v. Dept. of Pub. Welfare,
700 A.2d 1340, 1351 (Pa. Cmwlth. 1997) (explaining that a statute is self-executing if it is
“mandatory in nature and require[s] no further legislative action in order to become
effective.”).
RESTATEMENT (SECOND) OF CONTRACTS § 5 cmt. c (Am. Law. Inst. 1981), calls this category
of contract terms “statutory contract terms” and proffers the U.C.C. as the most prominent
example of statutes mandating these terms. The Restatement here correctly notes that these
statutory terms do not require the obligor’s manifested agreement to this type of obligation.
265. In re Methyl Tertiary Butyl Ether (“MTBE”) Prods. Liab. Litig., 559 F. Supp. 2d
424, 429 (S.D.N.Y. 2008); Cal. Forestry Ass’n v. Cal. Fish & Game Comm’n, 68 Cal. Rptr.
3d 391, 404 (Cal. Dist. Ct. App. 2007).
266. Yonkers Sav. and Loan Ass’n, 396 F.3d 178, 186 (2d Cir. 2005) (citations omitted).
267. Wing v. Forest Lawn Cemetery Ass’n, 101 P.2d 1099, 1101 (Cal. 1940) (citations
omitted). But see FutureSource LLC v. Reuters Ltd., 312 F.3d 281, 284-85 (7th Cir. 2002)
(“Nonsensical interpretations of contracts . . . are disfavored . . . because people are unlikely
to make contracts . . . they believe will have absurd consequences.”).
268. Am. Exp. Travel Related Servs., supra note 46, at 370 (quoting Romein, supra note
46, at 189) (stating that the principle goes no further than the laws affecting the validity,
construction, enforcement or discharge of the contract). Query what elements of a contract
are left uncovered by the laundry list in the prior sentence.
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269. See Wing, supra, note 267, at 1101 (interpreting a statute regarding the incorporation
of rural cemetery associations). But see Rice v. Downs, 203 Cal. Rptr. 3d 565, 565-66 (Cal.
Dist. Ct. App. 2016) (following the usual implied incorporation principle).
270. See T & S Distribs., supra note 18, at *9 (stating that “Michigan courts [reject] such
a principle, and will not read into an agreement terms that have not been placed there by the
parties” and also that such laws are only part of the surrounding circumstances). But see
LaFontaine Saline, Inc. v. Chrysler Grp., 852 N.W.2d 78, 84 (Mich. 2014): “‘[Statutes] are
necessarily referred to in all contracts, and form a part of them, as the measure of obligation
to perform them by the one party and right acquired by the other.’”
271. Cronin v Pace, 73 A. 137, 138 (Conn. 1909); contra Russo v. City of Waterbury, 41
A.3d 1043, 1047 (Conn. 2012) (“[A] contract must be interpreted in light of the laws that
existed at the time the parties entered into the agreement.”).
272. Meneice v. Camp Kadimah Co., 43 A.2d 621, 622 (Pa. Super. 1945) (reasoning that
implied incorporation doctrine for a private contract depends on the intent of the parties);
contra Petty v. Hosp. Serv. Ass’n of Ne. Pa., 23 A.3d 1004, 1012 (Pa. 2011) (“[T]he laws in
place at the time of a contract’s execution are incorporated into the contract and become
contractual obligations.”).
273. In Ogden, writing for himself, Story, and another justice, Justice Marshall observed
in a lengthy dissenting opinion,
We have, then, no hesitation in saying that, however law may act upon contracts,
it does not enter into them, and become a part of the agreement. The effect of
such a principle would be a mischievous abridgment of legislative power over
subjects within the proper jurisdiction of States, by arresting their power to repeal
or modify such laws with respect to existing contracts.
Ogden v. Saunders, 25 U.S. 313, 344 (1827) (Marshall J., dissenting). Another justice in the
same decision objected that the obligation of contract “consists not in the contract itself, but
in a superior external force, controlling the conduct of the parties in relation to the contract;
and . . . [i]t is this superior external force, existing potentially, or actually applied, ‘which
binds a man to perform his engagements’ . . . .”). Id. at 325 (Trimble, J., dissenting) (citations
omitted).
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incorporation doctrine.274
The jurisdiction with the most confusing lines of authority is the United
States Court of Appeals for the Federal Circuit and its subordinate tribunals,
where some decisions come quite close to repudiating the implied
incorporation doctrine, especially when the contract has open-ended
language. The Federal Circuit and the subordinate United States Court of
Federal Claims have rejected the argument that a contractual term simply
providing that a party shall abide by “applicable regulations” — which
obligation differs little from the implied incorporation doctrine — would fail
to bind a party to every regulation conceivably relevant to the contract.275
Another Federal Circuit case says that it will be insufficient in this respect
for a contract to say that the agreement “is subject to the present regulations
of the [agency] and to its future regulations not inconsistent with the express
provisions hereof.”276 The Federal Circuit has emphasized that construing a
contract as written in this fashion would create an unfair scenario by which
the plaintiff could pick and choose among an undue number of regulations,
thereby creating extensive exposure to risk and liability “summarily created
by mere implication.”277
The Federal Circuit’s concern is that mere passing references to the
statute or regulation as a whole are insufficient to achieve “wholesale
278. Precision Pine & Timber, Inc. v. United States, 596 F.3d 817, 826 (Fed. Cir. 2010);
Northrop Grumman Info. Tech., Inc., supra note 276, at 1344-45. See also Earman v. United
States, 114 Fed. Cl. 81, 103-04 (2013), aff’d, 589 Fed. Appx. 991 (Fed. Cir. 2015) (concluding
that the parties did not adequately incorporate the statute in question by reference, as they did
not explicitly identify the written material being incorporated; nor did the parties clearly
communicate that the reason why they made the reference to the statute was to incorporate it
into the contract).
279. St. Christopher Assocs., supra note 276, at 1384 (“This court has been reluctant to
find that statutory or regulatory provisions are incorporated into a contract with the
government unless the contract explicitly provides for their incorporation.”) (citations
omitted).
280. See Tex. v. United States, 537 F.2d 466, 471 (Ct. Cl. 1976). See also Earman, supra
note 278, at 103 (construed in Tex. v. United States and noting that a statement that a contract
shall be “‘carried out in accordance with all applicable Federal statutes and regulations’” does
not incorporate wholesale sections of federal statutory and regulatory law).
281. Beta Sys., Inc. v. United States, 838 F.2d 1179, 1185 (Fed. Cir. 1988) (quoting Chris
Berg, Inc. v. United States, 426 F.2d 313, 314 (Ct. Cl. 1970)).
282. Todd Constr. v. United States, 94 Fed. Cl. 100, 106-113 (2010). See 52 Gov’t
Contractor 288 (Aug. 25, 2010) for further analysis.
283. See supra notes 276-79 and accompanying text.
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284. Mann v. United States, 53 Fed. Cl. 562, 565 (2002) (upholding a contract
incorporating “‘all terms, conditions, and requirements of . . . all regulations promulgated by
the Secretary of the Interior including, but not limited to, 43 C.F.R. Parts 3000 and
3200 . . . .’”), rev’d on other grounds, 334 F.3d 1048 (Fed. Cir. 2003). Notably, the Federal
Circuit here expressly agreed with the Court of Federal Claims that the plaintiff had sufficient
constructive notification of the regulatory statute at issue. Mann, 334 F.3d at 1050-51.
285. P.R. Dep’t of Labor and Human Res. v. United States, 49 Fed. Cl. 24, 31 (2001). See
also Dart Advantage Warehousing, Inc. v. United States, 52 Fed. Cl. 694, 702 (2002).
286. Nilson Van & Storage v. United States, 99 Fed. Cl. 408, 410 (2011) (citing 48 C.F.R.
§ 52.212-4(q)).
287. Compare E. Bldg. Corp. v. United States, 96 Ct. Cl. 399, 406 (1942) (“‘Laws which
subsist at the time and place of the making of a contract enter into and form a part of it, as
fully as if they had been explicitly referred to or incorporated in its terms.’”), with Gen. Eng’g
& Mach. Works v. O’Keefe, 991 F.2d 775, 779 (Fed. Cir. 1993) (“[T]he Christian doctrine
does not permit the automatic incorporation of every required contract clause.”).
288. S.J. Amoroso Const. Co., Inc. v. United States, 12 F.3d 1072, 1075 (Fed. Cir. 1993).
See also O’Keefe, 991 F.2d at 779 (analyzing G.L. Christian & Assocs. v. United States, 312
F.2d 418 (Ct. Cl. 1963)); but see Brian A. Darst, The Christian Doctrine at 50: Unraveling
the Federal Procurement System’s Gordian Knot, 13-11 Government Contractor Briefing
Papers 1 (Oct. 2013) (noting that “the Christian doctrine is not tied to the intent of the parties”
and that the “Christian doctrine . . . carries with it a great deal of unpredictability, even where
a clause or provision may be mandated by statute or regulation.”).
An example of such a clause that the Government relying on Christian may invoke is the
standard termination for convenience clause which allows the government in its interests to
conclude the contractor’s performance short of contract completion. See e.g., Todd Constr.,
supra note 282, at 108 (2010). A contractor may invoke the Christian doctrine, however,
only where the missing clause was written to benefit the private contractor or both the
government and the contractor. Id. at 108-12 (stating also that a contractor’s status as
incidental beneficiary of the statute is insufficient).
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295. See generally Media Techs. Licensing, LLC v. Upper Deck Co., 334 F.3d 1366, 1370
(Fed. Cir. 2003) (discussing standing).
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tracks with the essential role of courts in disputes about this aspect of
contract construction – to effectuate the expectations of the legislature but
not the particular commercial expectations of the individual parties.
Accordingly, this proposal has strong support from the principles of
construction because it recognizes that a party can have no reasonable or
settled expectation that a law grants a contract right or remedy absent
language clearly permitting this benefit.
Lastly, the doctrine eliminates the unfair aspects of the doctrine where
a party fails to incorporate a clause, the other party relies on that omission,
and a court unforeseeably raises the statute as a defense to liability. In Part
II.A, this Article cited an Indiana case dealing with the implied requirement
for restitution in a criminal plea agreement. It was sufficiently clear that the
plea agreement had no provision for restitution and the defendant was
entitled to rely on the case law rule that unless included in the agreement, the
defendant had no restitutionary obligation. Nonetheless, the court unjustly
held the statute overrode the contrary case law.
In sum, the proposed solution eliminates the problems associated with
implied rules of law serving as traps for the unwary. Instead, the proposal
contains the clear rule that the statute must direct the inclusion of a particular
term, thereby giving parties fair notice of the role of legislative intent for
inclusion of statutory terms.
What are some possible objections to the suggestion that courts fully
exercise their common law authority in revising the doctrine? The first
objection might be that courts are “‘particularly loath to indulge in the abrupt
abandonment of settled principles and distinctions that have been carefully
developed over the years.’”296 The response would be courts may “abandon
[an] outmoded and unjust common law doctrine[.]”297 In the words of the
Indiana Supreme Court, “[j]udicial devotion to the doctrine of stare decisis
is indeed a justifiable concept to be followed by our courts. However, it
cannot and must not be so strictly pursued to the point where our view is
opaqued and reality disregarded.”298 A second objection might be that
current law is based on the simpler test of “relevancy” or “applicability” of
the statute whereas the proposed test could plunge courts into the
complexities of statutory construction. The response would be that this
Article has shown that courts have been engulfed with numerous doctrinal
deficiencies, gaps, and contradictions and that the “relevancy” standard is a
296. State v. Lead Indus. Ass’n, 951 A.2d 428, 446 (R.I. 2008). See also Anson v.
Schroeder, 671 A.2d 1023, 1027 (N.H. 1995) (stating that changes should be made
“sparingly” and “deliberately”); Falcone v. Middlesex Cty. Med. Soc., 170 A.2d 791, 796
(N.J. 1961) (arguing that changes should be “gradual”).
297. McIntyre v. Balentine, 833 S.W.2d 52, 56 (Tenn. 1992).
298. Brooks v. Robinson, 284 N.E.2d 794, 797 (Ind. 1972).
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CONCLUSION
Although nearly 1,200 state and federal decisions have considered the
implied incorporation doctrine, which has been extant at least since 1806,
this Article is the first to perform a comprehensive doctrinal, theoretical and
policy discussion of this “basic legal concept of longstanding and accepted
use.”299
After reviewing the numerous strands to the doctrine, and the divergent
approaches and unresolved issues, and suggesting new answers to all these
thorny problems, my assessment is that an unsuccessful melding of statutory
and contractual construction in deducing contract terms is the main reason
for the current flawed state of the law.
My proposal retains the doctrine as a useful tool for the efficient
operation of applicable agreements only where the parties expressly agree to
the particular term or where the enacting body intended that a provision
should be part of the bargain. This streamlined version of the common law
doctrine comports with the courts’ current outlook in general about distilling
private rights from public statutes. Therefore, it should attract the interest of
courts and legislatures willing to examine this maxim of construction in a
manner consistent with long-held legal policies.