Implication of Contract terms Flashcards
Why do we need to imply terms into the contract?
- to fill gaps
- the parties cold not forsee every possible circumstance that might occur
- it might not have been possible to provide for every possible circumstance
- parties might have a common understanding or an unexpressed agreement about how they would settle particular situations
Why do the courts imply terms?
-to give effect to the parties’ presumed intention
Test of necessity (general rule for term implied in fact)
- courts will not imply a term into contract unless it is necessary to do so
- to restrict judicial interference and protect the sovereignty of the parties
Terms implied in law
where the courts will not only imply terms into a parties’ specific contract but into an entire class of contracts
How do courts determine whether a term is implied in law?
-courts consider wider policy considerations such as reasonableness and fairness
What are statutory implied terms?
- terms implied by statute created to reflect certain policy considerations
- will apply regardless of parties’ intention (unless parties expressly say no)
Two key factors for terms implied in fact
- must be necessary for business efficacy
- must be obvious (parties obviously meant to include it to their contract)
The Moorcock (1889)
- shipowners contracted with D to discharge ship at their jetty
- jetty extended to thames where the ship had to ground at low water
- D had no control over river-bed
- D had taken no steps to determine whether the space was safe for the ship and it got damages because of the uneven river bed nect to the jetty
- P claimed for breach
- D stated they had no contractual duty to determine the state of the river bed and there was no implied assurance that it was safe for the ship
- P argued it must have been an implied term of the contract that the river-bed was safe because unless the jetty couldn’t be used
- held that when jetty owners take out their jetty for use they imply that they have taken reasonable care to see whether river bed was safe
- essential for business efficacy
- jetty owners failed to take care and were liable for damage to the vessel
Reigate v Union Manufacturing (1918)
- if it can be confidently said that at the time of contractual negotiations both parties would have responded in a particular was to a certain scenario courts should imply it
- “of course” requirement
Lord Simon’s summary of conditions for implied terms in BP refinery v Shire of Hastings (1978)
- must be reasonable/equitable
- necessary for business efficacy
- so obvious it goes without saying
- capable of close expression
- must not contradict any express term of the contract
Barrett v Lounova (1982)
- tenancy agreement
- tenant was obliged to do all the inside repairs of rented place
- contract was silent on external/structural repairs
- house was in disrepair
- tenant alleged there was an implied term for landlord to repair outside of house and they were in breach
- tenants obligation to keep the inside in good repair would eventually be impossible to perform without a correlative obligation for landlord to repair exterior
- obligation on landlord was implied because it was necessary to enforce the tenant’s obligation
- it was necessary to give business efficacy to the agreement
New application of test of necessity in Marks and Spencer v BNP (2015)
- test is not of ‘absolute necessity’
- can only be applied if without the term the contract would lack commercial or practical coherence
- if the term is required to ‘make the contract work’
Is reasonableness sufficient to imply a term?
NO
-it cannot just be reasonable it needs to be also necessary
In what given circumstances are courts reluctant to imply a term according to Meditterrarean Salbage v Seamar Trading
- if it conflicts with an express term of the contract
- courts will be reluctant to imply
Lister v Romford Ice and Cold Storage (1957)
- considered implied term in contract between a master/servant
- viscount simmons made clear distinction between difference of the tests for terms implied in fact (necessity) and in law (wider policy considerations)
Liverpool city council v Irwin (1977)
- D were tenants and refused to pay rent in protest to apalling conditions of the common areas of their building (lifts, staircases)
- D claimed council was in breach of their duty to repair/maintain common parts of the building
- council denied that such an implied duty existed
- ‘conditions’ of tenancy’ did not contain any of the council’s obligations as landlords
- HoL held that council was under this implied duty but it wasn’t absolute
- council just had to take reasonable care and so HoL found they weren’t in breach
- held the obligation of the council should be read into the contract as the nature of the contract that it implicitly requires
What are courts doing when they lay down an implied term in law?
- laying down a general rule for all contracts of a certain type which will apply unless its expressly excluded
- look at broader implications from the general rule they lay down
Test for implied terms in law
- test of necessity
- wider policy considerations like reasonableness/fairness
Scally v Southern Health and Services board (1992)
- P were doctors employed by D
- P brought action for breach of contract
- D employer failed to inform them of benefits under a scheme that gave them full pension that expired in 12 months and 12 months passed so they lost it
- implied obligation on employer to notify cannot be justified by necessity for business efficacy
- informing the employees was not necessary for the efficacy of employment contract
- held that basis for implications lies on wider considerations
- if the contract hadn’t been negotiated with the individual employee, term confers valuable right cntingent upon action taken by employer, employee cannot reasonably be expected to be aware of term unless they are made aware
Implied term in s12, sales of goods act 1979
-seller has the right to sell the goods
Implied term in s13, sales of goods act 1979
-the goods must correspond with the description and if they do not there will be a breach of this section which entails sellers liability
Test for implied terms in law
- test of necessity
- wider policy considerations like reasonableness/fairness
Scally v Southern Health and Services board (1992)
- P were doctors employed by D
- P brought action for breach of contract
- D employer failed to inform them of benefits under a scheme that gave them full pension that expired in 12 months and 12 months passed so they lost it
- implied obligation on employer to notify cannot be justified by necessity for business efficacy
- informing the employees was not necessary for the efficacy of employment contract
- held that basis for implications lies on wider considerations
- if the contract hadn’t been negotiated with the individual employee, term confers valuable right cntingent upon action taken by employer, employee cannot reasonably be expected to be aware of term unless they are made aware
Implied term in s12, sales of goods act 1979
-seller has the right to sell the goods
