Rainer Evers
30 March 2009
Did you mean to say that? Implied terms
in contracts
Framework
Implied term may be found from:
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Express terms of contract
Terms plus surrounding circumstances
Nature of legal relationship of parties
Statute (some statutory implied terms can be
expressly excluded)
 Custom
Traditional pre-conditions
Usually said that no term can be implied unless it:
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is reasonable and equitable
is necessary to give business efficacy
is so obvious as to go without saying
is capable of clear expression; and (or is it “or”?)
does not contradict any express term
Traditional pre-conditions 2
In fact, all of the above are probably untrue and may
well be contradictory, or, as Dyson LJ said in Crossley
v Faithful [2004] 2 All ER 447
“It seems to me that, rather than focus on the
elusive concept of necessity, the existence and
scope of standardised implied terms raise
questions of reasonableness, fairness and the
balancing of competing policy considerations”.
This is judicial code for “we’ll do what we think best.”
Implied by custom
 Contracts are not formed in a vacuum
 Ordinary consumer contract
 On-going trading relationship
 Generic – landlord and tenant, sale of property
Term sanctioned by custom:
“in commercial transactions, extrinsic evidence
of custom and usage is admissible to annex to
written contracts… matters with respect to which
they are silent” Parke B
Hutton v Warren (1836) 1 M&W 466
Implied by Custom 2
 Cannot import “usage” if language of contract
suggests contrary intention
 Supposition is that parties knew the usage and
chose to exclude it Les Affreteurs Reunis SA v
Walford [1918] AC 801
 “Custom comes not to destroy but to fulfil the law”
Implied by Custom 3
 A two-fold test:
“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 … where it can be …
imported consistently with the tenor of the
document as a whole” Jenkins J London Export
Corp. v Jubilee Coffee Roasting
[1958] 2 All ER
Why custom matters: commercial law
“the greater part of modern commercial law and…
no small part of the law governing landlord and
tenant have been constructed upon” custom and
usage Cheshire, Fifoot and Furmston
1. Practice shown to exist and parties to have relied
on it
2. Over time, courts assume it applies to all contracts
in that trade or locality unless excluded
3. Legislature adopts it as standard rule for the
business
Commercial law 2
 Illustration of point 2 occurs as long ago as 1757. In
Pelly v Royal Exchange Assurance 1 Burr. 341:
Ship’s rigging removed at end of a voyage and
stored in warehouse which then burnt down.
Insurers refused to pay as not part of the voyage
“What is usually done by such a ship with such
a cargo and in such a voyage is understood to
be referred to by every policy and to make part
of it as much as [if] it was expressed” Lord
Mansfield
Commercial law 3
And again:
“In the case of an insurance for a certain
voyage, it is clearly established that there is an
implied warranty that the vessel shall be seaworthy” Parke B Dixon v Sadler (1839) 5 M&
W 405.
Now forms part of Marine Insurance Act 1906, but, as
with many implied terms, this can be expressly
excluded by contractual wording
Implied by Usage and then Statute
 Previous instance of warranty of sea-worthiness is
now an example of such pre-statutory origins.
 Most common application is in sale of goods –
originally courts would not imply a “fit for purpose”
warranty: caveat emptor
 Implied terms from market usage
Sale by sample
Sale by description – including merchantable quality
Fit for purpose, if buyer made this known
Seller has title (from 1864)
Sale of Goods Act 1893: codified usage
Terms implied by the courts 1
 Furnished house on lease is habitable (unless
expressly/implicitly excluded)
 Employee will act with “good faith and fidelity” Hivac
v Park Royal [1946] 1 All ER 350
 Employee will use reasonable care and skill Harmer
v Cornelius (1858) CBNS 236
 Employer must not require employee to commit an
unlawful act Gregory v Ford [1951] 1 All ER 121
Terms implied by the court 2
 Couches in a Turkish bath free from vermin
Silverman v Imperial London Hotels (1927) 137 LT
 Plates used for printing banknotes would not be
allowed to get into unauthorised hands Banco de
Portugal v Waterlow [1932] AC 452
 Vehicle used for driving instruction would be insured
BSM v Simms [1971] 1 All ER
Standardised terms implied by the court
 “the court is really deciding …the content of a
paradigm” (Cheshire) contract of the relevant type
 It does this without reference to the parties’ actual
intention except where the contract specifically
excludes the implied term
 The question the courts asks: what obligations “the
nature of the contract itself implicitly requires”. Is it
a “legal incident” of such a contract? Liverpool CC v
Irwin [1977] AC 239
 “Factual matrix” may be relevant to assumed intent
or implicit requirements
Terms otherwise implied by the courts
 Open to very extensive application.
 In Scally v Southern Health [1991] 4 All ER, claimants were not
told of changed pension rights allowing them to buy extra
years, but only within a 12 month window. Claimants said
there was an implied term that the 12 month time limit should
have been drawn to their attention.
 Despite this, general presumption is against implying terms,
and the more detailed the contract, the stronger the
presumption: “The general presumption is that the parties have
expressed every material term” Lord Wright Luxor v Cooper
[1941] AC 108
Terms otherwise implied by the courts 2
 Quite impossible to see how the parties could have
had such terms in contemplation. Is the court
perfecting an incomplete contract?
 Finding implied terms may be judicial cover for court
to introduce what it thinks is fair/needed to do justice
 Liverpool CC v Irwin. Implied duty on council to
keep lifts and access points in reasonable state of
repair? Was this completing an incomplete contract,
a term implied for “business efficacy” or simply a
“fairness” implication? A classic compromise – not
an absolute duty, but a duty to take reasonable
efforts
Terms otherwise implied by the courts 2
 A term will not be implied unless it is equitable and
reasonable Young v MacManus [1969] 1 AC 454
 However, “The touchstone is always necessity and
not merely reasonableness” Lord Edmund-Davies
LCC v Irwin
 “A minimalist approach is called for. An implication
may only be made… of what is necessary and no
more” Lightman J Robin Ray v Classic FM 1998]
FSR 622
 “The implication is essential to give effect to the
reasonable expectations of the parties” Lord Steyn
Equitable Life v Hyman [2002] 1 AC
“Business efficacy”
 Not a pre-condition to an implied term being found
 Term implied if necessary for the contract to work or
if obvious what the contract would have said if the
parties had turned their minds to it
 A “term can be implied if and only if the court finds
that the parties must have intended that term to form
part of their contract” Lord Pearson Trollope v NW
Metropolitan Regional Hospital Board [1973] 2 All
ER – but if that’s what they intended, why have they
subsequently gone to court?
Business efficacy 2
 Irrelevant whether it would have been reasonable for a term to
have been included and implied terms “must … always yield to
the express letter of the bargain” Evershed MR Lynch – Thorne
1956] 1 WLR 303
Can have extreme result: in Lynch building contract specified
particular construction method which was defective, but no room
for implied term that building should be constructed so as to be fit
for human habitation.
In Miller v Emcer [1956] Ch.304 because there was an express
covenant for quiet enjoyment, the traditional implied covenant as
to title was deemed to have been excluded.
Business efficacy 3
 Implied term only if, while being negotiated, someone had said:
“what will happen in such a case? [parties] would both
have replied ‘Of course so and so will happen; we did not
trouble to say that; it is too clear’” Scrutton LJ Reigate v
Union Manufacturing [1918] 1 KB
But this applied only if both parties, as reasonable people, would
have responded in such a way and starting point is that parties
have expressed all their contractual intentions
“a last desperate expedient in a tenuous case” Cheshire
Miscellaneous
 Duty to co-operate will be implied if contract cannot
be performed without it
 Contract may say explicitly that no terms can be
implied, but potential problems where express terms
implicitly exclude normal implied terms
 Can the court imply a term to deal with an
unexpected contingency? I.e. where the parties
cannot have had an expectation
 Implied term must be capable of clear formulation
Miscellaneous 2
 Exclude implied terms by entire agreement
 Performance to be delivered within reasonable time
 If “price to be agreed”, price will be reasonable –
Foley v Classique Coaches [1934] 2 KB. A question
of fact – in some instances, there may simply have
been no concluded contract
 Contract may be determined on reasonable notice,
but court may also find that there are no limits to
contract length and that notice may not be given
 Fit for purpose/reasonable care and skill
Questions?
These are presentation slides only. The information within these slides does not
constitute definitive advice and should not be used as the basis for giving definitive
advice without checking the primary sources.
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