Implied Terms Flashcards
What is an implied term? Purpose?
They are default rules for contracts on points where the terms which contracting parties expressly choose are silent, or mandatory rules which operate to override terms that the parties may have themselves chosen.
The purpose of implied terms is often to supplement a contractual agreement in the interest of making the deal effective for the purpose of business, to achieve fairness between the parties or to relieve hardship.
There is a general presumption that the parties have expressed, orally or in writing, every material term which they intend should govern their contract.
But there are circumstances where terms which have not been expressed by the parties are inferred by the courts. An implied term is binding to the same extent as an express term.
How are terms implied?
A term may be implied in a contract on the basis of fact or law.
A term is implied in fact to give effect to the presumed but unexpressed intentions of the parties.
A term is implied in law because the courts or statute require this, regardless of the intention of the parties.
Terms implied in fact
In order to discover the unexpressed intention of the parties, the courts may take notice of trade customs and the need to give ‘business efficacy’ to a contract.
It must be emphasised that, where the parties have made an unambiguous express provision in their contract, the court will not imply a term to the contrary. Where may a term be implied?
- Trade or professional customs
- A course of dealing between the parties
- Business efficacy
How is a term implied on trade or professional customs?
Where a term is implied on the grounds of a custom, the implication is based on the assumption that it was the intention of the parties to be bound by well-known customs of a particular trade (British Crane Hire v Ipswich Plant [1975] QB 303).
How is A term implied through a course of dealing between the parties?
A term may be implied into an agreement on the basis that the parties have dealt with each other on many occasions over a long period of time.
A term will only be implied in these circumstances where the dealings of the parties have followed a consistent and regular pattern (see McCutcheon v MacBrayne [1964] 1 WLR 125 and Hollier v Rambler Motors [1972] 2 QB 71).
How may a term be implied to give ‘business efficacy’?
A term may be implied to give ‘business efficacy’ to a contract – ie to make the contract produce its intended objective (The Moorcock (1889) 14 PD 64).
A term will not be implied merely on the grounds that such an implication will transform the agreement into a business-like arrangement.
A term will only be implied on this ground if, without the implied term, the arrangement would be so unworkable that sensible people could not be supposed to have entered into it. Something so obvious that if suggested to the parties, they would respond. ‘Oh, of course’ (Shirlaw v Southern Foundries [1939] 2 KB 206 CA).
When implying terms in fact, one must ask what the reasonable person would understand the contract to mean rather than enquiring as to the subjective intentions of the parties.
How are terms implied as a matter of law?
Terms implied at common law
Terms can also be implied by the courts at common law in order to give effect to legal duties which arise, as a matter of policy, out of certain common types of contractual relationships, for example in the context of a landlord and tenant relationship (see Liverpool City Council v Irwin [1976] 2 WLR 562). These are often referred to as terms implied in law.
Terms implied by statute
Certain statutes indicate that stipulated terms will be implied into contracts. Statutory implied terms will also operate irrespective of the intention of the parties, unless there is a valid exemption clause. Examples of statutory implied terms are to be found, most notably, in the Sale of Goods Act 1979, the Consumer Rights Act 2015 and the Supply of Goods and Services Act 1982 (as amended).
These acts provide for the implication of certain very important obligations on the seller in contracts for the sale of goods and the supplier in contracts for the supply of goods and services. The detail of these acts is not considered in this element.
Describe the tree diagram regarding implied terms.
Following a tree structure. It starts with ‘implied terms’. Then it branches in two. The two branches are ‘terms implied in fact’ and ‘terms implied in law’.
‘Terms implied in fact’ branches into ‘trade or professional customs’, ‘a course of dealing between the parties’ and ‘business efficacy’.
‘Terms implied in law’ branches into ‘at common law’ and ‘by statute’. ‘By statute’ branches into ‘Sale of Goods Act 1979’ and ‘Supply of Goods and Services Act 1982’.
Terms can be implied on the basis of…
…fact or law
Terms can be implied in fact on the basis…
…of a custom or on the basis of a course of dealing between the parties.
Terms can be implied at law as a result of statutes which indicate that they will be implied, such as…
…the Sale of Goods Act 1979, the Supply of Goods and Services Act 1982 and the Consumer Rights Act 2015.
