Contract | Formation
Terms: Implied by Courts
Study Note | Degree
Download
bitsoflaw.orgbits of law
Introduction
A contract has express terms which the parties have agreed. However, there may also be implied terms that are read into the agreement, by the courts or through statute.
Terms may be implied as the parties may assume certain terms are obvious, sometimes on the basis of previous dealings and therefore do not explicitly state them in the contract. Parties may not consider a particular point so omit it form the contract and the courts decide it was only left out due to carelessness. A term may also be implied to protect a party, usually through statute to protect consumer.
Local custom or trade usage
Courts may imply terms on the basis of local custom or trade usage.
Hutton v Warren (1836) 1 M&W 466
Facts:
The plaintiff's lease of his farm expired. The plaintiff claimed a reasonable allowance for seed and labour expended on the land. There was no mention of this in the lease.
Issue:
If the contract is silent on a point may a term be implied?
Held:
The term was implied as it was customary for the allowance to be given to tenant farmers locally and the contract did not expressly state the allowance would not be given.
If the contract contains a term which expressly contradicts the local custom or trade usage, the courts understand that the parties considered the usual practice and decided not to follow it.
Previous dealings between the parties
Courts may imply terms on the basis of previous dealings between the parties.
Spurling v Bradshaw [1956] 1 WLR 461
Facts:
The defendant delivered barrels of juice to the plaintiff for storage. On each occasion the defendant was sent a receipt for the barrels, which included an exemption clause. The defendant collected the barrels and found that they were empty, so refused to pay the storage charges and the plaintiff sued. The defendant counter-claimed for negligence and the plaintiff relied on the exemption clause as a defence.
Issue:
Was the exemption clause an implied term of the contract?
Held:
The clause was a term of the contract despite being contained in the receipt (a post contractual document). It was incorporated in the contract by the parties' previous consistent course of dealing.
Presumed intention of the parties
Courts may imply terms to reflect the presumed intention of the parties.
AG for Belize v Belize Telecom Ltd [2009] 2 All ER 1127
Lord Hoffman: .. The court has no power to improve upon the instrument which it is called upon to construe... It cannot introduce terms to make it fairer or more reasonable. It is concerned only to discover what the instrument means. However, that meaning is not necessarily or always what the authors or parties to the document would have intended. It is the meaning which the instrument would convey to a reasonable person having all the background knowledge which would reasonably be available to the audience to whom the instrument is addressed...
.
However, courts only take this approach cautiously because the interests and intentions of parties in dispute tend to conflict.
Type of contract
Courts may imply terms which are standard provisions found in a certain type of contract, for example tenancy agreements or employment contracts.
Liverpool City Council v Irwin & Another [1977] AC 239
Facts:
The defendants were tenants of the council, the plaintiff. The defendants had refused to pay rent because the common areas of the flats (stairs, lifts, rubbish chutes) had fallen into disrepair. The plaintiff sought to evict the defendants for rent arrears. The defendant counter claimed for a breach of obligation to repair. However, the tenancy agreement only covered the obligations of the tenant not the landlord.
Issue:
Was there an implied term that the landlord had an obligation to repair the common areas of the flats?
Held:
There was an implied term that the landlord should take reasonable care to keep the common areas in reasonable repair. It was found to be necessary for the common areas to be maintained and the tenants were not expressly obliged to do so. Therefore it could be implied that it was the landlord's obligation. However, the council was not held to be in breach of the implied term.
Lord Denning, (dissenting) in the Court of Appeal, argued that the court could imply a term if it was reasonable to do so. However, in the House of Lords, Lord Wilberforce rejected this argument and held that the term should be implied using the test of necessity: what was necessary to make this particular type of contract work. Highlighting that a reasonable term may improve the contract but was not necessary in order for it to work.