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Implied Terms

Understanding implied terms is essential for anyone engaging in contractual agreements. In this article, you will learn about the various aspects of implied terms in contract law and their importance in ensuring a fair and effective contractual relationship. The discussion delves into recognising implied terms' meaning, covering both statutory and common law implied terms, as well as customary and business efficacy implied terms. You will also discover the consequences and remedies for breaching implied terms, notable cases involving such breaches, and the distinction between express and implied terms. Ultimately, this will provide essential knowledge on how implied terms impact the interpretation and enforcement of a contract.

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  • Last Updated: 03.08.2023
  • Published at: 14.08.2023
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    Implied Terms in Contract Law

    When entering into a contract, parties usually express their intentions explicitly through written or verbal agreements. However, certain terms may not be explicitly stated but are still considered part of the agreement. These are known as implied terms. In this section, we will explore implied terms in contract law and various ways these terms can be recognised and enforced.

    Recognising Implied Terms Meaning

    Understanding implied terms is crucial for understanding their role within a contract. Implied terms are not specifically agreed upon by the parties but are, nonetheless, part of the contract, either by operation of law or as a result of the intentions of the parties. These terms ensure fairness, reasonableness, and proper performance of the contractual obligations. To recognise implied terms, consider their origin and application, which can be categorised into statutory, common law, customary, and business efficacy implied terms.

    An implied term is a provision of a contract that is not directly stated in the written or verbal negotiation between the parties, but is considered a part of the agreement by virtue of the intentions of the parties, custom, or law.

    Statutory and Common Law Implied Terms

    Statutory and common law implied terms are imposed by the operation of law. They are incorporated into the contract through statutes or established by case law to ensure the effectiveness and fairness of contractual agreements. Some examples include:
    • Implied terms introduced by statutes, for instance, the Sale of Goods Act 1979, which states that the seller must transfer the ownership of goods to the buyer, and the goods must be of satisfactory quality when entering into a sale contract.
    • Implied terms established by common law, such as the duty of good faith and fair dealing in insurance contracts.
    In cases of statutory and common law implied terms, the parties are legally bound by these terms regardless of whether they are aware of them or not.

    Customary and Business Efficacy Implied Terms

    On the other hand, customary and business efficacy implied terms represent the unspoken intentions of the parties to a contract. These terms arise from the regular practices or expectations of those involved, and serve to uphold the purposes of the contract. Some examples include:
    • Customary implied terms: If a certain practice is widely accepted within a specific industry or community, it may be considered an implied term of the contract. For instance, the payment of a commission to an agent might be a customary practice in a certain industry even if it was not explicitly agreed upon between the parties.
    • Business efficacy implied terms: These terms are necessary for the contract to be effective or to make commercial sense. The classic example is the case of The Moorcock (1889), where it was implied that the wharf owner had an obligation to ensure that the riverbed was safe for a ship to dock, even though this duty was not explicitly mentioned in the contract.

    Suppose you enter a contract to purchase a washing machine. Even if the contract does not mention it, there is an implied term under the Sale of Goods Act 1979 that the seller must have the right to sell the washing machine (statutory implied term). Additionally, if it is a common practice in the industry that the washing machine should come with a user manual, it may be considered a customary implied term.

    Recognising and understanding implied terms in various types of contracts is essential for their proper functioning. Whether arising from statutes, common law, customary practice, or business efficacy, implied terms play a significant role in ensuring the fairness, reasonableness, and effectiveness of contractual relationships.

    Breach of Implied Terms

    A breach of implied terms occurs when a party to a contract fails to perform or comply with a requisite condition, duty, or responsibility imposed by an implied term. Just like a breach of express terms, a breach of implied terms can result in legal consequences for the offending party.

    Consequences and Remedies for Breaching Implied Terms

    When a breach of implied terms occurs, the aggrieved party may be entitled to various remedies under contract law. These remedies serve to either compensate the injured party for losses or restore the contractual balance between the parties. Some of the most common remedies available for breaches of implied terms are:
    • Damages: Monetary compensation for financial losses suffered as a result of the breach. This may include compensation for direct losses and, in some cases, consequential losses (also known as indirect losses).
    • Specific Performance: A court order requiring the defaulting party to fulfil their contractual obligations. This remedy is often granted when damages are insufficient or inappropriate for addressing the breach.
    • Injunction: A court order prohibiting a party from continuing or repeating the breach. Injunctions can be either temporary or permanent and are typically used to prevent future harm to the aggrieved party.
    • Rescission: A process that unwinds the contract and restores both parties to their pre-contractual positions. Rescission is usually available when the breach is so severe that it undermines the entire contract's purpose or when a party has been induced into the contract through misrepresentation or fraud.
    The appropriate remedy for a breach of implied terms will depend on the specific circumstances of the case and the nature of the implied term in question. It may also be subject to the terms of the contract itself, as parties may agree on certain remedies (such as liquidated damages) in advance.

    It is essential to note that some breaches of implied terms may also constitute breaches of statutory rights. For example, in consumer contracts, breaching an implied term about the quality of goods may also be considered a breach of consumer law, potentially resulting in additional remedies or consequences for the party in breach.

    Notable Cases Involving Breach of Implied Terms

    Although breaches of implied terms are not uncommon, some cases have been particularly influential in shaping contract law principles. Below are two notable cases that illustrate the significance of implied terms in contractual disputes: 1. The Moorcock (1889): This case is often cited to demonstrate the concept of business efficacy implied terms. The court found that, in a contract for a ship to dock at a wharf, there was an implied term that the wharf owner would ensure sufficient depth at the docking location for the ship's safe passage. The wharf owner breached this implied term and was held liable for the damage to the ship, even though the duty was not expressly stated in the contract. 2. Liverpool City Council v Irwin (1977): In this case, the House of Lords established an important principle regarding the common law implied term of quiet enjoyment in tenancy agreements. The landlord, Liverpool City Council, was found to have breached the implied term by failing to maintain essential communal facilities in a block of flats, causing the tenants significant inconvenience and discomfort. The Council was held responsible for the breach and ordered to remedy the situation. These seminal cases underscore the importance of implied terms in contract law and the potential consequences of breaching them. As a party to a contract, understanding the nature and extent of implied terms is essential to avoid legal disputes and ensure smooth contractual relationships.

    Express and Implied Terms: Understanding the Difference

    In contract law, understanding the difference between express and implied terms is crucial for effectively interpreting and enforcing contractual agreements. Express terms are explicitly agreed upon by the parties, either in writing or verbally, while implied terms are unstated provisions considered part of the contract by operation of law, custom, or as a result of the intentions of the parties. In this section, we will delve into the distinct characteristics of express and implied terms and discuss how they impact their interpretation.

    Examples of Implied and Express Terms in Contracts

    To differentiate between express and implied terms, let's examine some examples from various types of contracts. The following table provides a comparison of express and implied terms in different contractual contexts:
    Type of ContractExpress TermImplied Term
    Sale of goodsPrice of the goodsGoods must be of satisfactory quality (Sale of Goods Act 1979)
    EmploymentSalary of the employeeDuty of mutual trust and confidence between employer and employee
    TenancyRent amountLandlord's implied covenant for quiet enjoyment of the property
    AgencyScope of the agent's authorityAgent's duty to act with reasonable care and skill
    Express terms are typically the core provisions of a contract, outlining the parties' primary rights and obligations. Implied terms, on the other hand, supplement the express terms and ensure that the contract operates smoothly, fairly, and as intended by the parties.

    How Implied Terms Affect the Interpretation of a Contract

    Implied terms play a significant role in the interpretation of a contract, as they influence the parties' contractual obligations, the understanding of their rights, and the process of resolving disputes. When interpreting a contract, the following aspects regarding implied terms should be taken into consideration: 1. Relationship between express and implied terms: Implied terms can coexist with express terms, provided they do not conflict with them. If an implied term contradicts an express term, the express term typically prevails. 2. Consistency with the contractual objectives: Implied terms must align with the overall purpose of the contract. They should be reasonable and necessary for the contract to function effectively. 3. Evidence of custom, practice, or intent: When determining whether a term is implied by custom, practice, or the parties' intent, courts may examine relevant industry practices, the parties' previous dealings, and any other evidence that suggests how the parties intended to allocate risks and responsibilities. 4. Statutory and common law implications: Statutory and common law implied terms bind the parties regardless of their awareness or consent, and thus can play a pivotal role in the interpretation and enforcement of contractual obligations. Parties should be aware of applicable statutes and case law to ensure compliance with the law. 5. Clarity and certainty:In order to successfully imply a term, the term must be capable of clear expression, be precise, and not introduce substantial uncertainty into the contract. By taking into account these factors, the presence of implied terms can significantly impact the overall interpretation and functioning of a contract. Consequently, understanding the role of implied terms is essential to navigating contract law effectively.

    Implied Terms - Key takeaways

    • Implied Terms - provisions of a contract not explicitly stated but considered part of the agreement due to intentions of parties, custom, or law.

    • Implied terms meaning: Ensuring fairness, reasonableness, and proper performance within a contract, can be statutory, common law, customary, or business efficacy implied terms.

    • Breach of implied terms: Occurs when a party fails to meet an implied term, leading to legal consequences and potential remedies such as damages, specific performance, injunction, or rescission.

    • Common law implied terms: Examples include the duty of good faith and fair dealing in insurance contracts; established through case law, parties are legally bound to these terms.

    • Difference between express and implied terms: Express terms are explicitly agreed upon (written or verbally), while implied terms are unstated provisions considered part of the contract due to law, custom, or intentions of parties.

    Flashcards in Implied Terms

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    What is the significance of the case of The Moorcock (1889)?

    The Moorcock case (1889) is a classic example of business efficacy implied term, where the court implied that the wharf owner had an obligation to ensure the riverbed was safe for a ship to dock, even though this duty was not explicitly mentioned in the contract.

    What are implied terms in contract law?

    Implied terms are not specifically agreed upon by the parties but are part of the contract, either by operation of law or as a result of the intentions of the parties, ensuring fairness, reasonableness, and proper performance of contractual obligations.

    What is the significance of The Moorcock case in relation to implied terms?

    The Moorcock case is significant as it demonstrated the concept of business efficacy implied terms. The court found that an implied term existed for the wharf owner to ensure sufficient depth for the ship's safe passage, even though not expressly stated in the contract.

    How do implied terms affect the interpretation of a contract?

    Implied terms influence the parties' contractual obligations, their understanding of rights, and the process of resolving disputes, as they must coexist with express terms and align with the overall contract's purpose.

    How did the Liverpool City Council v Irwin case impact tenancy agreements and implied terms?

    The case established the principle of the common law implied term of quiet enjoyment in tenancy agreements, holding the landlord responsible for maintaining essential communal facilities and causing a breach by not doing so.

    What are statutory and common law implied terms?

    Statutory and common law implied terms are imposed by the operation of law, incorporated into the contract through statutes or established by case law to ensure effectiveness and fairness of contractual agreements, binding parties regardless of their awareness.

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    Frequently Asked Questions about Implied Terms

    What is an example of an implied term?
    An example of an implied term is the implied term of fitness for purpose. This term suggests that when a buyer makes their intention for using a product known to the seller, it is expected that the product delivered will be suitable for that specific purpose. Consequently, the seller is obliged to ensure the product meets the buyer's disclosed requirements. This is a concept established under the Sale of Goods Act 1979 and the Supply of Goods and Services Act 1982 in the UK.
    Can implied terms be excluded from a contract?
    Yes, implied terms can be excluded from a contract, provided that the exclusion is expressly stated and does not contradict any statutory provisions. The exclusion clause must be reasonable and clear, and the parties must have been aware of it at the time the contract was formed. However, certain implied terms cannot be excluded, such as those related to title in the sale of goods, or where excluding them would lead to an unreasonable result.
    What are implied terms?
    Implied terms are provisions that, although not expressly stated, are implicitly included in a contract due to their necessity, custom, or the intention of the parties involved. They are intended to ensure that contracts are fair and reasonable, and can be established through legislation, common law, or industry practice. Implied terms promote efficiency and fairness by filling gaps in the contract where the parties may have overlooked or failed to address certain issues.
    What happens if you breach an implied term?
    If you breach an implied term, it is treated as a breach of contract. The injured party may be entitled to claim remedies such as damages, specific performance, or termination of the contract. The specific remedy will depend on the nature and severity of the breach, as well as the impact on the parties involved. In some cases, a court may determine the appropriate remedy if the parties cannot reach an agreement.
    Can an implied term be a condition?
    Yes, an implied term can be a condition in a contract. Implied terms are terms that are not expressly stated within the contract but are recognised as essential by courts, and they can hold the same importance as express terms. When an implied term is deemed so essential to the contract that its breach would render the contract fundamentally unfulfilled, it is considered a condition.
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