Implied terms

  ‘To some this was a fiction, to others an ingenious tool. Either way, it allowed the courts to get involved in the contents of contracts without infringing the principle of freedom of contract. Based on the theory that the courts were merelyinterpreting the presumed intention of the parties, they could incorporate new terms where the contract was silent.’ Appleby in ‘Contract Law’ 2001, published by Sweet and Maxwell, at page 197.

Terms implied ‘in law’ and ‘in fact’

It is perhaps easier to see the ‘justification’ for terms implied in ‘fact’ in the sense that such implied terms tend to apply to just ‘one’ contract on a ‘one off’ basis, being peculiar to the ‘facts’ of that particular case.

It is arguably less easy to justify terms being implied in ‘law’ as these implied terms tend to apply to a whole ‘type’ of contracts across the board. Their justification is often said to be for ‘policy’ reasons or for ‘fairness’.

  How terms may be implied into contracts can be considered under 3 headings:

i. Terms implied by usage or custom

ii. Terms implied by the courts

iii. Terms implied by statute

 

We shall discuss each of these in turn.

Terms implied by usage or custom

 

A key case here is Hutton v Warren 1836

The court held that the plaintiff was allowed a fair allowance for seeds and labour according to the prevailing custom.

London Export Corporation Ltd v Jubilee Coffee Roasting Co

1958 Lord Jenkins stated:

‘An alleged custom can be incorporated into a contract only if there is nothing in the express or necessarily implied terms of the contract to prevent such inclusion and, further, that a custom will only be imported into a contract where it can be so imported consistently with the tenor of the document as a whole.’

Terms implied by the courts

This is where the debate on implying terms ‘in law’ and ‘in fact’ is centred.

 

A leading case is Liverpool City Council v Irwin 1977.

The Moorcock 1889

For business efficacy, a term was implied into their contract that when the tide ebbed and the steamship bottomed out, the river bed was such that no damage would be suffered by the steamship.

 

This is a term implied in fact to the particular facts of this case.

Reigate v Union Manufacturing Co (Ramsbottom) 1918

Shirlaw v Southern Foundries 1939

‘Prima facie that in a contract that is left to be implied and need not be expressed is something so obvious that it goes without saying; so that, if while the parties were making their bargain an officious bystander were to suggest some express provision for it in their agreement, they would testily suppress him with a common,

“ Oh, of course”.’

This is the idea of the ‘officious bystander’ test evidenced in the words of MacKinnon LJ.

Terms implied in law

The courts may also imply terms into contracts not based on the particular facts of the case, but, because they believe the contract to fall into a certain ‘type’ of contract that for policy reasons or fairness, a certain term should be implied into it. These terms are thus said to be implied ‘in law’.

Liverpool City Council v Irwin 1977

The problem with the Liverpool case is that in the House of Lords there seems to be a blurring of these two types of implied terms, terms implied in fact and terms implied in law. This is because the terms implied were implied as being ‘necessary’ (implied in fact) so that the tenants could make use of the lifts and rubbish chutes, yet the landlords only had to take ‘reasonable’ steps (implied in law) to look after the lifts and rubbish chutes.

Liverpool City Council v Irwin 1977 Lord Wilberforce said that a term could only be implied where it was ‘necessary’ to do so. In the case of a tower block of flats since it was ‘necessary’ for the tenants to use the lifts, stairs and rubbish chutes, then the court could imply a contractual obligation on the council with regards to those areas. However, he then said that just what was ‘necessary’ had to be decided in the particular circumstances of each case and in this case it would be ‘unreasonable’ to imply a term that the council had to keep the flats in 100% repair. Rather, the term implied should be that the council should take ‘reasonable care to keep the communal areas of the flats in reasonable repair’ and they had done this.

Terms implied into contracts by operation of statute

In the Liverpool case, the House of Lords allowed a term to be implied into the contract between the council and tenants by virtue of a statute – under section 32 (1)(b)(i) of the Housing Act 1961 – ‘to keep ...in proper working order the installations... for the supply of water..for...sanitary conveniences’. The tenants succeeded on this part of the appeal because the lavatory cisterns were badly designed and so the toilets kept on flooding.

With regards to goods and services, we now have:

For the sale of actual GOODS:  

Sale of Goods Act 1979(as amended by the Sale and Supply of Goods Act 1994)

and 

for the supply of SERVICES – the 

Supply of Goods and Services Act 1982 (as amended by the Sale and Supply of Goods Act 1994) 

Status of terms implied into contracts

For terms implied by statute, most notably for our purposes by the Sale of Goods Act 1979 and the Sale and Supply of Goods and Services Act 1994, the statute usually states whether the implied term is to be a condition or warranty.

The provisions relating to GOODS all imply terms that have to be regarded by the courts as CONDITIONS.

 

But, the provisions relating to the supply of SERVICES do not state that the terms implied are ‘conditions’ - they only imply

‘TERMS’

Sale of Goods Act 1979

Section 12 of the Sale of Goods Act deals with Title 

The Act implies into contracts that the seller has the right to sell the goods, that he has good title in the goods. We are told in section 12 (5A) that the term implied here is to be regarded as a condition.

 Section 13 – deals with Sale by description 

Where goods are sold by description there is an implied term in the contract that the goods will correspond with the description, and this is also to be regarded as a condition.

Supply of Goods and Services Act 1982

Part 1 of the Act  Concerns the ‘supply’ of goods – and was

necessary because:  due to the definition of a contract of sale

under the 1979 Act, many transactions where property does change hands were not covered by the Act.

Supply of Goods and Services Act 1982

Part II of the 1982 Act concerns contracts for ‘services’

Section 13 When acting IN THE COURSE OF A BUSINESS there is an implied term that the supplier will carry out the service with REASONABLE CARE AND SKILL

Section 14 When acting IN THE COURSE OF A BUSINESS if no time is specified for completion of the service in the contract, then there is an implied term that the supplier will carry out the work within a reasonable time.

Section 15 When the contract makes no mention of the consideration (price) there is an implied term that the party contracting with the supplier will pay a reasonable charge – which is a question of fact.

Robinson v Graves 1935

The test for goods or services operates on the basis of finding the ‘SUBSTANCE’ of the contract and then categorising the contract as one of sale of goods or supply of services – one or the other. If the ‘substance’ of the contract is the production of something to be sold, then it is a sale of goods. If, however, the ‘substance’ of the contract is the ‘skill and labour’ involved with the production of the article as only ancilliary, then the substance of the contract is that of supply of services

What is ‘reasonable’ care and skill?

Key cases:

Bolam v Friern Hospital Management Committee 1957

Kimber v William Willett Ltd 1947

Nettleship v Weston 1971

Thake v Maurice 1986

Timing and the effect of delays

United Scientific Holdings Ltd v Burnley Borough Council 1978

Charnock v Liverpool Corporation 1968

Hick v Raymond and Reid 1893

Cost

If there is no mention of the amount payable in the contract then s 15 of the 1982 Act provides for an implied term that the consumer will pay a ‘reasonable amount’.

Course of a business or not

It is important to note that under the Sale of Goods Act 1979 - section 14 (quality

and fitness for purpose) ONLY applies to goods sold in the COURSE OF A BUSINESS, and

  Under the Supply of Goods and Services Act 1982

– sections 13 (care and skill) and 14 (reasonable time ) ONLY apply to suppliers acting IN THE COURSE OF A BUSINESS