Introduction
Terms implied by common law and statute are key components of contract law, affecting the operation and fairness of agreements. Implied terms are unwritten provisions that the law incorporates into contracts based on the presumed intentions of the parties or statutory obligations. These terms are categorized into those implied by common law and those implied by statute. An analysis of these categories provides understanding into the principles governing their application in contractual relationships.
Terms Implied by Common Law
Under common law, implied terms are divided into terms implied in fact and terms implied in law, each arising from different reasons and circumstances.
Terms Implied in Fact
Terms implied in fact are based on the specific context of the contract, stemming from practical necessity or unspoken agreement.
-
The Business Efficacy Test, established in The Moorcock [1889] 14 PD 64, implies terms necessary for a contract to work effectively. Let me explain: it ensures that the contract makes practical sense by filling gaps the parties hadn't expressly considered.
-
The Officious Bystander Test, from Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206, suggests that if an impartial observer were to ask, "Does this term form part of your agreement?", both parties would promptly say, "Of course!"
Example: The Concert Agreement
Consider a contract between a music festival organizer and a band. Although not written, it's understood that the band will perform to a reasonable standard. This unwritten expectation is so obvious that it goes without saying.
Terms Implied in Law
Terms implied in law are introduced by the courts to establish obligations based on legal norms or fairness, regardless of the parties' intentions.
-
The Implied Duty to Cooperate requires parties to work together to fulfill the contract's purposes, ensuring neither party hinders the other's performance.
-
The Implied Term of Good Faith imposes a duty on parties to act honestly and fairly towards each other throughout the contractual relationship.
Example: Responsibilities in Tenancy Agreements
In Liverpool City Council v Irwin [1977] AC 239, the court held that landlords have an implied obligation to maintain common areas of a building. Even if not stated in the contract, this duty is imposed by law to ensure fairness between landlords and tenants.
Terms Implied by Statute
Statutes can imply terms into contracts, especially to protect consumers. Key statutes include the Sale of Goods Act 1979 and the Consumer Rights Act 2015.
Sale of Goods Act 1979
This act implies terms into contracts for the sale of goods:
-
Satisfactory Quality (Section 14(2)): Goods must meet the standard that a reasonable person would regard as satisfactory, considering the description, price, and other relevant circumstances.
-
Fitness for Purpose (Section 14(3)): Goods must be fit for any particular purpose made known to the seller at the time of the contract.
Example: Faulty Appliance Purchase
Suppose someone buys a new washing machine that breaks down shortly after installation. Even if the contract doesn't specify, the law implies that the goods should be of satisfactory quality. The buyer may have a claim against the seller under the Sale of Goods Act 1979.
Consumer Rights Act 2015
This act modernizes consumer protection, covering goods, digital content, and services. It implies that:
-
Quality of Digital Content (Sections 34-36): Digital content must be of satisfactory quality, fit for a particular purpose, and as described.
-
Reasonable Care and Skill in Services (Section 49): Services must be performed with reasonable care and skill.
Example: Defective Smartphone Software
If a consumer buys a smartphone and the software is faulty, not performing as advertised, the Consumer Rights Act implies that the digital content should be of satisfactory quality. This gives the consumer rights to remedies such as repair, replacement, or refund.
Supply of Goods and Services Act 1982
This act relates to contracts for services, implying terms such as:
-
Reasonable Care and Skill (Section 13): Services will be carried out with reasonable care and skill.
-
Reasonable Time for Performance (Section 14): Services will be performed within a reasonable time if no time is fixed in the contract.
Example: Delay in Web Design Services
If a business hires a web designer without setting a deadline, the law implies that the service will be completed in a reasonable time. If the designer takes excessively long, the client may have a legal remedy for breach of contract.
Exclusion Clauses and Statutory Implied Terms
Contracts may contain exclusion clauses to limit liability, but statutory terms sometimes cannot be excluded. The Unfair Contract Terms Act 1977 (UCTA) and the Consumer Rights Act 2015 place restrictions on the ability to exclude certain implied terms.
-
UCTA Section 6: Prevents the exclusion or restriction of liability for breaches of certain implied terms in consumer contracts regarding the quality and fitness of goods.
-
UCTA Section 7: Provides similar protection in non-consumer contracts, ensuring fundamental obligations cannot be easily excluded.
Example: Second-hand Car Purchase
If someone buys a second-hand car with an exclusion clause stating "sold as seen," but the car is unroadworthy, the seller may not be able to rely on the exclusion clause. The statutory implied term that goods are of satisfactory quality may override such exclusions, protecting the buyer.
Conclusion
Terms implied by common law and statute interact to complete and regulate contractual agreements. The complex interplay between implied terms and express terms requires careful analysis. While parties may expressly agree on certain terms, implied terms can fill gaps to ensure contracts function effectively and fairly.
Key legal principles, such as the Business Efficacy Test and the Officious Bystander Test, determine when terms are implied in fact, based on the specific circumstances of a contract. Statutory implied terms, imposed by laws like the Sale of Goods Act 1979 and the Consumer Rights Act 2015, set mandatory standards for goods and services, particularly to protect consumers.
These concepts often intersect. For example, a contract for the sale of goods might involve both common law implied terms (such as a duty to cooperate) and statutory implied terms (like the requirement that goods be of satisfactory quality). Awareness of these interactions is important when drafting, interpreting, or enforcing contracts.
Specific requirements, particularly those in statutory provisions, may limit the ability of parties to exclude implied terms, especially in consumer contracts. Understanding the scope and limitations of exclusion clauses is important for ensuring compliance with legal obligations and protecting the rights of the parties involved.
