#17244 - Implication Of Terms - GDL Contract Law

Broadly speaking, the law recognises four rationales for the implication of terms. They are

• 1) Implication from custom

• 2) Implication from presumed intention (“terms implied in fact”)

• 3) Implication from the parties’ legal relationship (“terms implied in law”)

• 4) Implication from statute.

1) Implication from Custom:

• Smith v Wilson (1832) - the term that “1000 rabbits”, in a contract made in the 1830s in Suffolk, has the meaning “1200 rabbits”.

  • An exception to parol evidence rule.

• Hutton v Warren (1836) The tenant of a farm was given notice by his landlord to quit. The landlord later served notice that the tenant was bound, in accordance with a custom of the country, to continue to farm in a regular way until leaving.

  • Tenant claimed that custom also entitled him to an allowance for the cost of seed and labour. Claim upheld.

2) Implication from presumed intention (“terms implied in fact”)

• Gives effect to what the parties must be deemed to have intended. Will only be implied where ‘necessary’ to give effect to the intention of the parties.

  • Will not be implied merely because the parties wopuld have both agreed to it if suggested (M&S v BNP Paribas, Lord Sumption: only implied if, without that term., the contract would lack commercial and practical coherence).

• The Moorcock (1889) – owner of steamship leased wharf to moor. When the tide went out the ship was damaged as it hit river bed. Claimed damages on basis that contract implied that the wharf was in water sufficiently deep for safe mooring.

  • CA agreed on basis of business efficacy – a presumption that the parties, as reasonable people in business, must be taken to have intended their contract to work

• Reigate v Union Manufacturing [1918] – contract specified two grounds in their contract on which the agency would terminate (death of the agent, or by a period of notice).

  • Scrutton LJ refused to imply term that terminated when one party ceased to do business: had it been put to the parties they would probably have disagreed about it, and that they had contractually recorded the extent of their agreement.

• Shirlaw v Southern Foundries Ltd [1939] – change of ownership at a iron foundry. Changed articles of association in order to sack MD. Held there was an implied term in the contract that the company’s articles would not be altered to create the right to dismiss Mr Shirlaw.

  • MacKinnon LJ: had an officious bystander suggested this provision at the outset of the contract, both parties would have agreed with it.

• AG of Belize v Belize Telecom [2009] – Power to appoint/dismiss special directors of board was given to owner of a certain portion of shares. No one had the requisite shares. Implied term that articles could be construed to allow for termination of the directors.

  • Allowed by Lord Hoffmann who explained his view of the relationship between the interpretation of contracts and the implication of terms from the presumed intention of the parties.

  • They were one and the same process, based on the court’s objective construction of what the parties must be deemed to have meant.

3) Implication from the parties’ legal relationship (“terms implied in law”)

• It may be possible to imply a term because the contract is within a recognised class, but lacks terms which are normally found in that class of contracts.

  • Test again one of necessity, in the sense that a term will be implied if the nature of the relationship between the parties requires it.

• Liverpool CC v Irwin [1977] – courts implied an obligation on Liverpool CC to repair the common areas of a block of flats.

• Scally v Southern Health [1922] – courts implied term that employers should notify employees of right to ‘buy years’ to make up the 40 years required to qualify for state pension.

• Crossley v Faithful & Gould Holdings [2004] – An employee, who had resigned on mental health grounds, had followed his employer’s advice to backdate his resignation for tax reasons, as a result lost certain entitlement.

  • CA rejected an implied term to take reasonable care for his economic well-being.

  • Too broad and implied too burdensome a duty.

4) Implication from statute.

• Implied regardless of the intention of the parties.

• Contracts for goods are regulated by:

  • Sale of Goods Act 1979 (commercial contracts)

  • Consumer Rights Act 2015 (consumer contracts)

• Contracts for goods are regulated by:

  • Supply of Goods and Services Act 1982 (commercial contracts)

  • Consumer Rights Act 2015 (consumer contracts)