Definition
In the law of contracts, "understood" — particularly as it appears in the phrase "it is understood" within a written agreement — carries the force of a binding contractual term. Courts treat this phrasing as equivalent to "it is agreed," giving it operative legal effect rather than treating it as mere recital or prefatory language. The phrase signals mutual assent to a specific term or condition of the agreement.
Importantly, however, "it is understood" falls short of alleging a distinct express contract. It occupies a middle ground: stronger than a recital or statement of background fact, but not as forceful as a direct, express contractual promise. The distinction matters when a party seeks to enforce the term independently or to characterize the agreement as wholly express.
Common Language
Modern common usage (Wiktionary): Having been comprehended.
Historical common usage (Webster's 1913): Past tense and past participle of "understand" — to grasp mentally, to know.
The gap between common and legal meaning is narrow but consequential. In ordinary speech, "understood" describes a cognitive state — something has been grasped or accepted without further question. In legal drafting, "it is understood" does more than describe a state of mind: it creates or evidences mutual assent. A reader approaching contract language with the common meaning in mind may underestimate the operative force of the phrase, reading it as explanatory when courts will read it as contractual.
Common Confusion
"It is understood" is sometimes conflated with purely recitative language — preamble-style clauses that describe context without creating obligations. Courts distinguish the two. A recital typically uses language like "whereas" or describes facts and background; "it is understood" introduces a term the parties have agreed to. Researchers should also resist conflating this phrase with a distinct express contract: Bouvier's expressly flags that "it is understood" falls short of alleging a separate, fully express agreement, a distinction that surfaces in cases where one party tries to enforce the "understood" term as a standalone promise.
Why It Matters in Research
This term presents a classic drafting-interpretation trap. Historical sources treat it efficiently — Black's both editions and Bouvier's align on the core rule — but the nuance embedded in Bouvier's (that it falls short of a distinct express contract) is easy to miss when reading the sources quickly. Researchers working with 19th- and early 20th-century contracts will encounter this phrase frequently, especially in commercial agreements, leases, and settlement documents where parties used "it is understood" to introduce side terms or qualifications without restating the entire agreement.
The corpus distinction to watch: the rule announced in the historical dictionaries emerges from Massachusetts case law (Higginson v. Weld). Researchers should be alert to whether courts in other jurisdictions applied the same interpretive rule uniformly or required stronger language to establish contractual force. The South Carolina citation in Bouvier's (19 S.C. 419) signals that at least one other jurisdiction engaged with the distinction between "understood" and a fully express contract — a hint that the rule was not universally settled.
For researchers parsing disputed contract terms in historical documents, the operative question is whether the "it is understood" clause appears in the body of a signed written agreement or in surrounding correspondence. Courts were more willing to give it contractual weight in the former context.
Historical Dictionary Support
All three source dictionaries converge on the core principle: "it is understood," when used in a written contract, equals "it is agreed." Black's 1st and 2nd editions state this directly, with Black's 2nd supplying the full citation to Higginson v. Weld. Bouvier's restates the equivalence in compressed form ("Agreed. 14 Gray 165.") and then adds the qualifying observation — absent from both Black's editions — that the phrase falls short of alleging a distinct express contract, citing 19 S.C. 419.
This is a meaningful divergence. Black's presents the rule as a straightforward equivalence. Bouvier's introduces a limitation that complicates that equivalence in specific procedural contexts, particularly when a party must plead or prove the existence of an express contract. Researchers relying solely on Black's may overstate the strength of the phrase; Bouvier's caveat is the more complete account.
None of the historical sources address the phrase in the context of implied terms, parol evidence, or merger clauses — later doctrinal developments that affect how courts evaluate language of this kind in modern contract disputes.
Jurisdictional Note
The primary authority underlying all three dictionary entries is Massachusetts case law. South Carolina case law (cited in Bouvier's) applied a limiting principle. Researchers should not assume the equivalence rule or its limitation is uniform across jurisdictions without checking local authority, particularly for contracts predating widespread adoption of the Uniform Commercial Code.