Implied terms

3 key takeaways

• Implied terms fill in gaps in contracts to reflect the intentions of the parties and ensure fairness.
• They can arise from common law, statutes, or customary practices.
• Implied terms help in interpreting and enforcing contracts in a manner consistent with legal standards and the reasonable expectations of the parties involved.

What are implied terms

Implied terms are those that, while not explicitly stated in a written contract, are assumed to be part of the agreement. These terms are inferred by the courts to give effect to what is considered to be the intentions of the parties or to ensure fairness and practicality in the contractual relationship. Implied terms can originate from various sources, including common law, statutory requirements, and customary business practices.

Importance of implied terms

Implied terms play a crucial role in contract law for several reasons:

• Filling Gaps: They provide essential provisions that might have been overlooked or omitted, ensuring the contract functions as intended.
• Ensuring Fairness: They help maintain a balance in the contractual relationship, preventing one party from taking unfair advantage of another.
• Reflecting Intentions: They align the contract with the presumed intentions of the parties based on the context and nature of the agreement.

How implied terms work

Implied terms work by integrating necessary provisions into a contract, even if they are not explicitly stated. There are several ways terms can be implied:

1. By Law: Some terms are automatically implied by statute. For example, the Sale of Goods Act implies that goods sold are of satisfactory quality and fit for purpose.
2. By Custom: In certain industries or trades, customary practices can imply terms. For example, in some professions, there may be an implied term that work will be performed to a reasonable standard.
3. By Common Law: Courts can imply terms to reflect what a reasonable person would have understood to be the intention of the parties. This is often based on the principle of business efficacy or the “officious bystander” test, where a term is implied if it is so obvious that it goes without saying.

Example of implied terms

In an employment contract, even if it is not explicitly stated, there is often an implied term that the employer will provide a safe working environment. This is inferred from common law principles and statutory requirements under health and safety regulations.

Another example is a lease agreement, where there is typically an implied term that the landlord will maintain the property in a habitable condition, even if this is not specifically stated in the contract.

Real world application

Implied terms are relevant in various contexts to ensure contracts are fair and functional:

• Employment Contracts: Employers and employees often rely on implied terms regarding duties, confidentiality, and workplace safety, ensuring that employment relationships are fair and reasonable.
• Commercial Contracts: Businesses frequently encounter implied terms in supply agreements, service contracts, and sales transactions, providing additional assurances regarding quality, timeliness, and performance.
• Consumer Contracts: In consumer transactions, implied terms protect buyers by ensuring products are of acceptable quality and fit for their intended purpose, reflecting statutory protections like those found in consumer rights legislation.

Understanding implied terms is essential for both parties in a contract to recognize their rights and obligations, promoting fair dealings and reducing the likelihood of disputes.