The recession means more firms are turning to legal documents so now is a good time to understand expressed and implied terms. By Greg Brownlee
The current economic climate is encouraging many clients and contractors to get their contracts out of the drawer and take a keen interest in following them to the letter. Now is a good time to get to grips with contract terms both expressed and implied.
In their simplest form contracts are made up of terms, which are offered by one party and accepted by another. The majority of the terms affecting a contract will be ‘expressed’ and actually appear in the contract, but parties may also be bound by terms that they have not expressly agreed - these are called implied terms.
The requirement to imply a term will arise from one of two situations. The first happens when there is a complete agreement but the parties have failed to draft all the terms in detail. The second arises when the parties failed to foresee an eventuality actually taking place, meaning that no term exists in the contract to deal with it. But which terms have the power to stick? There are three main terms that a court will imply in a contract:
Trade custom and practice
It is customary for certain practices to prevail in the performance of a contract or for risks to be allocated between the parties in a particular way. For example, in crane and plant hire contracts, a court will generally imply that any damage to the equipment occasioned during the hire period will be the financial responsibility of the hirer, not the owner.
In fact or business efficacy
The courts are generally reluctant to imply terms as a matter of fact, in other words a term will not be implied by a court to simply make the contract more convenient to a party. In exceptions, a term will be implied if its absence is so obvious that the parties are considered to have intended it in the contract.
Statue & the Sale of Goods Act 1994
Some implied terms are governed by Parliamentary intervention, for example all forms of contract that include for the supply of goods (such as works and materials) and services are subject to and may have terms implied from the Supply of Goods and Services Acts 1982 (as amended by the Sale and Supply of Goods Act 1994). In these examples, the reasoning behind the statute is generally to protect a weaker party - as such statutory terms are automatically incorporated into a contract.
So remember, implied terms do have their place: avoiding the need to draft an unrealistic number of terms into a contract. The general principle is that a term will be implied by a court to avoid unjust operation of a contract.
Greg Brownlee is managing director of commercial and contract management consultancy, Blake Newport.