Implied Terms in Contract Law

Implied Terms in Contracts

• Implied terms are terms that are not explicitly stated in the contract but are understood to be part of the agreement.
• They can arise from various sources, including the parties' intentions, statutory provisions, common law principles, industry customs, or previous dealings between the parties.
• Implied terms are crucial for ensuring that contracts are complete, fair, and workable, even if certain details were not explicitly discussed or written down by the parties.

Express Terms vs. Implied Terms

• Express terms are in writing, whereas implied terms usually derive from oral negotiations.
• Express terms are terms that the parties have specifically negotiated and agreed to include in the contract.
• Implied terms are terms added to the contract by the law or based on the facts of the case.

Obvious/Officious Bystander Test

• A method used by courts to determine whether a term should be implied into a contract.
• The court considers whether a term is so obviously necessary for the contract to function properly that it would be assumed by both parties, even though it's not explicitly stated in the contract.

Parol Evidence Rule

• The parol evidence rule, embodied in Section 92 of the Evidence Act 1950, prohibits the admission of oral evidence that contradicts or varies the terms of a written agreement.
• Evidence of oral assurances may be admitted if it constitutes a collateral contract.

Collateral Contracts

• Collateral contracts are used to address situations where one party relies on oral assurances made by the other party during negotiations, even though those assurances are not included in the written contract.
• Collateral contracts can sometimes contradict the terms of the main contract.
• The significance of this concept lies in how courts treat such contradictory agreements and their impact on the rights and obligations of the parties involved.

Recognition of Collateral Agreements

• Raja Azlan Shah CJ in Tan See Hoe Co Ltd v Ali Hussain Bros highlighted the recognition that collateral agreements can coexist with the main contract, even if they contradict it.
• This indicates a growing acknowledgment within legal jurisprudence that oral promises made during contract negotiations can hold significant weight, potentially superseding written terms.

Entire Agreement Clause

• The entire agreement clause in the written contract serves to restrict the parties from relying on oral representations or attempting to vary the terms of the contract through oral agreements.
• The High Court held that the entire agreement clause precluded the existence of a collateral warranty and prevented the formation of collateral warranties that contradicted the terms of the written contract.