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Westminster International University in Tashkent BA Commercial Law

2010 - 2011

Implied Terms (Word count: 1987)

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00001313 Introduction to Business Law 1UZB406 Usmon Kuchimov 05.04.2011 For Academic Registrar use only

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In the modern world commercial contracts have gained increasing importance. All kinds of businesses, ranging from sole proprietor to large public companies, make contracts while dealing with their stakeholders. Contracts have become a reliable instrument in conducting businesses nowadays. However, one should keep in mind that while contracting, it is almost impossible to include all the terms. Therefore, (ergo) there are certain terms which are implied in the contracts. Terms can be implied either by statute or by the courts. It is possible to leave out certain terms which are covered by statutes or terms which have been consistent in past dealings, however there are certain cases where the courts are reluctant to write the contract for the parties. Therefore, one should be careful while contracting and relying on implied terms. Terms can be incorporated into a contract either by the parties themselves (express) or by the court/statutes (implied terms). Originally the English courts were reluctant to imply terms because it was considered as a violation of the doctrine of freedom of contract. However, recently the attitude of the courts has changed and nowadays they have become more liberal in implying the terms. In some cases terms can even be implied by custom, trade usage or common business practice.

General Overview: Implied Terms

Different scholars divide implied terms in different ways. However the general accepted criteria is the following: 1. Terms implied by custom 2. Terms implied by courts a. As a matter of fact b. As a matter of law 3. Terms implied by statutes

Terms implied by Custom:

When parties enter into a contract in a particular line of business, it is often acceptable for them not to incorporate each and every term in the contract. This is done because there are certain terms which are established by custom in the trade. It is possible for the court to incorporate any relevant custom of the market, trade or locality in which the contract is made, unless the custom is inconsistent or the express terms of the contract contradict the custom. For example, in British Crane Hire Corporation Ltd. v Ipswich Plant Hire Ltd. [1975], both the claimant and the defendant carried out plant hire businesses. They had contracted with each other on two previous occasions and had used a printed form. However, on the third occasion the defendants needed a crane urgently and therefore did not sign the printed form. The crane sank into the marshland and the claimant sought damages from the defendant. However, the defendant argued that since the form had not been signed they were not subject to any kind of liability. The Court of Appeal held that the oral contract which existed between the two parties (as a result of the previous dealings) was subject to the terms of the Contractors Plant Association, which were commonly used in the particular trade and to which both the parties were familiar, since they were in the plant hire business.

00001313 As it was in this case, the terms were implied due to the custom which existed in the business/trade, and was even incorporated in the Contractors Plant Association. However, there are cases where the customs are not so clear and therefore the courts are reluctant to impose/incorporate these customs in the contract.

Terms implied by Court:

Terms implied by court may be divided into two categories.

As a matter of fact:
Terms implied as a matter of fact, are implied to give effect to the obvious, but unexpressed intention of the parties. Moreover, these terms are implied to give business efficacy to the contract and are only implied when it is necessary to make the contract effective. There are mainly two tests which are applied to find out whether a term should be implied or not. These are the Business Efficacy Test and the Officious Bystander Test.

As a matter of law:
The most important feature, of terms implied as a matter of law, is that they do not depend upon the intention of the parties. They are imposed by the courts, generally, to make the contract effective. Some of these terms have statutory force while others are imposed by courts. Moreover, these are implied as a matter of policy into all contracts of a similar type. 1 The most important thing about implying terms as a matter of law is that the term should be reasonable, in Crossley v Faithful & Gould Holdings Ltd. the court went as for as to suggest that the implication of terms should depend upon principles of reasonableness rather than necessity. It should be noted that it is not always possible to classify implied terms, sometimes they include elements of both types and therefore it is best to say that they do not belong to any kind of category. Probably the best example is the case of Moorcock. An agreement was made to unload a boat at a jetty. When the tide went out, the boat grounded and was damaged. The contract did not cover the safety of the boat or the required water level. However, the jetty owner was held liable for the breach of an implied term that the boat could be left there safely. Such a term was necessary, said the Court of Appeal, to give the contract business efficacy.

Terms implied by statutes:

Originally the courts were the only ones who had the jurisdiction to imply terms. However, recently statutes have started to gain importance and with that, there are certain terms which have been given statutory authority. The terms, which have statutory authority, were initially taken from the customs of merchants and later recognized by the English courts and now have statutory authority. In theory, the terms implied by statute should be based upon the intentions of the parties. In reality, it is not always true because we can easily imagine that sellers and purchasers will not
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Jill Poole Contract Law, 8th Edition (2006)

00001313 intend to undertake extra obligations set out in the statutes. However, one should keep in mind that terms will not be implied if the contract specifically excludes them or if the terms would be inappropriate in the circumstances of the contract. When excluding a term, implied by statute from the contract, the wordings have to be very precise. The most popular example of terms implied by statutes is the Sales of Goods Act (1979). Most of the implied terms in this act relate to the quality of the sale/supply in a goods contract and those relating to the standard of care in contracts for services. Another example is the Supply of Goods and Services Act (1982), which includes implied terms about hire/purchase and barter of work/materials.2

Keenan & Riches Business Law, 6th Edition (2002)

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Implied Terms: Variation and Exclusion

In the past two centuries, implied terms have gained importance and popularity rapidly. Furthermore, they have become an important part of contracts and it is not unusual for parties to rely on them, while contracting. If a term is implied be either courts or statutes, then it is possible to exclude them from the contract. For example, in a sales contract by description there is an implied term stating that goods have to correspond with the description (s 13 SGA 1979). Therefore, it is possible to not mention this in the contract. Moreover, other matters such as quality, suitability, fitness and matters regarding delivery are also covered in the SGA 1979. Terms implied by courts and customs can be excluded as well. For example, when a person buys a mobile phone it is a usual trade practice/custom to provide the charger with it for free. In this case if the seller does not provide the customer with charger he might be violating an implied term, according to English law. It should be noted that generally implied terms are applicable to all types of contracts (i.e. they are universal) as long as they are relevant. However, in certain cases if the contract expressly states that the implied terms should not be applied then it will not be applied. The reason for express terms prevailing over implied terms is the doctrine of freedom of contract. According to this doctrine the parties should be free to contract whatever they want 3. This doctrine is one of the founding principles of Contract law and has enormous importance. Originally the attitude of the courts towards implying terms was negative, because for them it appeared to be like writing the contract for the parties and this was a violation of the freedom of contract. However, since the past two centuries things have changed and now the courts are more liberal towards the idea of implied terms. I would go even as far as to say that nowadays the English courts feel that it is their duty to make the contracts work and therefore it is important for them to imply terms where it is necessary. Contract law has been greatly influenced by the changing position of the implied terms in the recent times. Nowadays, the implied terms offer some security to the parties and to some extent it is possible to say that because of the implied terms the contracts have become more effective and fair. In conclusion, it is possible to say that implied terms play a major role in contracts. It is because of them that the parties can exclude certain terms from the contracts and later rely on the courts to imply them in case of any dispute.

http://www.thestudentroom.co.uk/showthread.php?t=1540370

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Bibliography:
Keenan, D. and Riches, S., 2002. Business Law. 6th ed. Harlow: Pearson Education Pool, J., 2006. Textbook on Contract Law. 8th ed. New York: Oxford University Press. Sale of Goods Act 1979, Ch 54. London: HMSO Supply of Goods and Services Act 1982, Ch 29. London: HMSO Smithies, D., 2007. Contract - Express & Implied Terms. [Online] Tutor2u. Available at: http://tutor2u.net/law/notes/contract-express-implied-terms.html [Accessed 03 April 2011] The Student Room, 2011. Is it possible to exclude implied terms completely? [Online] Available at: http://www.thestudentroom.co.uk/showthread.php?t=1540370 [Accessed 04 April 2011]