Understanding Implied Terms in Contracts

The agreed terms in a contract are not always the only terms of a contract. There may be other terms that are implied into the contract.” Discuss.

Application and Implication of Implied Terms

Terms are the legal parts of a contract. They could be expressed by parties, required by law and may also include implied terms, which automatically form part of the contract even if they are not written down. Implied terms are cover those terms not clearly agreed between the parties about a particular issue. For instance, an employer is bound to provide a safe working environment, or a legal right of an employee to a minimum of 5.6 weeks’ paid holidays (Gov.UK, 2020).

Circumstances that call for application of implied terms

Terms that are implied are assumed to exist, despite the absence of an express agreement between parties (Nandana, 2010). There are few circumstances where implied terms will come into play:

i. Under law. Some terms are implied by virtue of statutes or rules developed by court. See the case of The Moorcock (1889) 14 PD 64 where court implied a term in the contract that the jetty would be a safe place to dock. Similarly, failure to comply payment and adjudication provisions of a construction contract with the Construction Act 1996 would imply the Scheme for Construction Contracts 1998 on a piecemeal basis or wholesale basis. Similarly, the Defective Premises Act 1972 (DPA) implies a condition in a construction contract for a new dwelling that such dwelling, when completed, will be fit for habitation.

ii. Under custom. Some terms are implied on the basis of rules of customs. Such custom or usage must be generally known about in the industry and has to be “notorious, certain, reasonable and not contrary to law” and “more than a mere trade practice” (Austen-Baker, 2017). In Young & Marten Ltd v McManus Childs Ltd (1968) 3 W.L.R. 360, custom was imported to ensure contractors must carry out work with proper skill and care. It is not necessary to imply a term in a contract that requires work done, say design or installation of a fire system, should fit for purpose (CMS Cameron McKenna Nabarro Olswang LLP, 2013).

iii. Under industry practice. Terms can be implied due to previous dealings. Same terms may be implied into the contract if parties have done similar business together previously and consistently in the absence of express and non-contradictory terms. In British Crane Hire Corp. Ltd. v Ipswich Plant Hire Ltd. 1973] EWCA Civ 6, [1975] QB 303, it was held that terms that are routinely used in contracts within a particular trade or business may well be implied into other such contracts.

iv. ‘in fact’ or to reflect the parties’ intentions

According to the ‘Officious bystander test’ in Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206, “if, while the parties were making the bargain, an officious bystander were to suggest some express provision for it in the agreement, they would testily suppress him with a common “Oh, of course!” According to the ‘Business efficacy test’ as applied in Trollope & Colls Ltd v North West Metropolitan Regional Hospital [1973] 1 W.L.R. 601, terms will be implied if a contract cannot work without it and it is not sufficient that it makes the contract fairer or more sensible. As held in Spring v National Amalgamated Stevedores & Dockers Society. [1955] 2 Lloyd's Rep. 582, parties have to be aware of the subject matter of the term on which it is based. The term must not go against any other expressed term and must be able to be clearly expressed (Courtney & Carter, 2014).

Under common law. Implied terms under common law sometime cover both implied terms in fact and as a matter of law (Austen-Baker, 2017). For instance, an employee has an implied duty to act in good faith. The idea of good faith and fair dealing should arguably be central to the implication of terms (Collins, 2014). An example of common law implied terms is found in Robinson v Harman (1848) 1 Ex 850, where it was stated that common law requires to place a party, who sustains a loss by reason of a breach of a contract, in the same situation with respect to damages as if the contract had been performed.

Enforceability of implied terms

Not all implied terms are mandatory or default rules. Implied terms by statute are mandatory and cannot be avoided by contradictory express terms (Austen-Baker, 2017 ). Section 12 of the Sale of Goods Act 1979 is an example. Default terms apply if not agreed otherwise (Austen-Baker, 2017 ). A consistent practice is deemed waived if it contradicts express terms. In Scottish Power plc v Kvaemer Construction (Regions) Ltd 1999 SLT 721, implication may be refused if it contradicts express terms, but such implied term could also deal with the same subject matter as covered by express terms. Similarly, in Martin Grant & Co Ltd v Sir Lindsay Parkinson & Co Ltd (1985) 29 BLR 31, implication of terms was refused in a building subcontract. If the term is implied by statute, such statute will naturally state which term precedes which. For example, terms about minimum wage override any contradictory express term. Same is the case with unfair contract terms and practices. Implied terms are employed to construct or interpret contracts. It is easier to use them in circumstance where terms are implied by law, but not where implied under trade practice. Even more is the fact that even mandatory implied terms may not be interpretative in case where parties’ intention are elicited at the time the contract was made (Austen-Baker, 2017 ). On the other hand though, parties may not be aware of current contract law, which may devoid the parties of their achieving binding agreement. With the case of default terms, they are not inconsistent with express terms. This also has stressful understanding of interpretation. The use of implied terms to interpret contract is ridden with difficulties. For instance, in principle-agent relationship, the former is taken to consent to practices unless contrary to the express agreement, which gives rise to the possibility that he is not aware of the practices and their implications (Austen-Baker, 2017 ).

Conclusion

Implication of terms in a contract may prove challenging sometimes. They are mostly left to as a matter for argument regarding their meaning and incorporation, and they are too flexible. Though, implication of terms, which form core of a contract and is intrinsic to the contract, cannot be excluded, but the contract has to be read as a whole and determine whether implication is necessary to validate the contract terms.

Bibliography

Austen-Baker, R., 2017. Implied terms in English contract law. Edward Elgar Publishing.

British Crane Hire Corp. Ltd. v Ipswich Plant Hire Ltd. 1973] EWCA Civ 6, [1975] QB 303

Austen-Baker, R., 2017. Implied Terms in English Contract Law. 2nd ed. Edward Elgar Publishing Limited.

Collins, H., 2014. Implied terms: the foundation in good faith and fair dealing.. Current Legal Problems, 297-331(1), p.67.

Courtney, W.B. & Carter, J., 2014. Implied Terms: What is the Role of Construction? Journal of Contract Law, 31(1), pp.151-167.

Martin Grant & Co Ltd v Sir Lindsay Parkinson & Co Ltd (1985) 29 BLR 31

Nandana, A.M.S.., 2010. The Implied Terms and the Damages of Contracts under Common Law. SLQS Journal, p.35.

Peden, E., 2009. Faith?, 'Implicit Good Faith'-or Do We Still Need an Implied Term of Good. Journal of Contract Law, p.25.

Spring v National Amalgamated Stevedores & Dockers Society. [1955] 2 Lloyd's Rep. 582

Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206Trollope & Colls Ltd v North West

Trollope & Colls Ltd v North West Metropolitan Regional Hospital [1973] 1 W.L.R. 601

The Moorcock (1889) 14 PD 64

Young & Marten Ltd v McManus Childs Ltd (1968) 3 W.L.R. 360