Understanding Implied Terms in Contracts

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Questions and Answers

Which condition must be met for a term to be implied in a contract under the test of business efficacy?

The term must be explicitly stated.

The term must reflect common practice.

The term must be fair and reasonable.

The term must be necessary for business efficacy. (correct)

What does the Officious Bystander Test assess in contract law?

Whether all parties agree to the terms.

Whether any custom is followed in the industry.

If the term is necessary for business efficacy.

If a reasonable person would find the term obvious. (correct)

In the context of terms implied in fact, what does the legal principle established in Acotec v McLaughlin emphasize?

Terms must be necessary or so obvious that they go without saying. (correct)

Terms can be implied if they are customary in contracts.

A term must always be documented to be enforceable.

All parties must demonstrate intent to include the term.

When assessing the Reasonable Person Standard in contract law, which case serves as a notable example illustrating this principle?

Marks and Spencer v BNP Paribas Securities Signup and view all the answers

According to the quote from William Morton & Co v Muir, what can we infer about the expectations of reasonable parties in a contract?

Certain conditions are naturally expected by both sides. Signup and view all the answers

What is the primary reason for the law to imply terms into a contract?

To ensure fairness between parties Signup and view all the answers

Which of the following describes an implied term that is not based on statute?

Implied terms by custom or usage Signup and view all the answers

In the context of the Sale of Goods Act or Consumer Rights Act, can a seller entirely remove implied terms from their contracts?

No, certain implied terms cannot be contracted out of Signup and view all the answers

What standard is often used to determine whether a term should be implied into a contract?

Officious bystander test Signup and view all the answers

Which of the following acts specifically implies terms for business-to-consumer contracts?

Consumer Rights Act 2015 Signup and view all the answers

What is the primary focus of the Business Efficacy test as discussed?

The presumed intentions of the parties. Signup and view all the answers

In the Officious Bystander Test, how would the parties likely respond to an obvious term proposed by a bystander?

They would respond with 'Oh of course!'. Signup and view all the answers

What was the key issue in Crawford v Bruce regarding the rent increase?

The method for agreeing on rent was unclear. Signup and view all the answers

What standard does the Reasonable Person Test utilize in contract law?

The understanding of a hypothetical reasonable person. Signup and view all the answers

In Marks and Spencer v BNP Paribas, what does it state about the implication of terms?

It is not critically dependent on proof of actual intention. Signup and view all the answers

What was the outcome regarding the machinery in J&H Ritchie v Lloyd Ltd?

The machinery was determined to be defective. Signup and view all the answers

Which of the following best defines 'Terms Implied in Fact'?

Terms inferred from the circumstances and presumed intentions. Signup and view all the answers

What principle was highlighted by Lord Neuberger regarding the implication of terms?

Implication is based on the viewpoint of hypothetical reasonable individuals. Signup and view all the answers

Study Notes

Implied Terms

Implied terms are terms in a contract that are not explicitly written but are understood to be part of the agreement.
This presentation focuses on identifying implied terms, when the law implies terms into a contract, and categories related to them (statute, common law, custom/usage, and fact).

Introduction to Implied Terms

The presentation's focus is what constitutes an implied term and when the legal system incorporates them into contracts.
It explores why the law includes implied terms within contracts.

Categories of Implied Terms

Implied by Law: These terms are automatically incorporated based on the type of contract or industry standards, affecting similar contracts.
Implied by Statute: Laws create these terms (e.g., Working Time Regulations 1998, Commercial Agents Regulations 1993, Sale of Goods Act 1979/Consumer Rights Act 2015).
Implied by Common Law: These terms derive from established legal precedents (e.g., duty of care for solicitors/accountants, duty of mutual trust/confidence in employment).
Implied by Custom/Usage: The common practice in a specific industry or trade forms these terms (e.g., William Morton & Co v Muir 1907 SC 1211).
Implied in Fact: These terms are based on the specific circumstances of the contract and the implied intentions of the parties.

Implied Terms by Statute: Examples

Working Time Regulations 1998
Commercial Agents (Council Directive) Regulations 1993
Sale of Goods Act 1979/Consumer Rights Act 2015

Can Implied Terms Be Restricted?

Sale of Goods Act 1979 implies terms for business-to-business contracts for goods sales.
Unfair Contract Terms Act 1977 restricts the ability to contract out of implied terms.
The Consumer Rights Act 2015 implies terms for business-to-consumer contracts concerning goods or services.
The 2015 Act restricts contracting out of these implied terms.

Implied Terms in Sale of Goods Act/Consumer Rights Act 2015

The seller legally transfers ownership of goods (s12 1979 Act/s17 2015 Act).
Goods sold by description must match; (s13 1979 Act/s11 2015 Act).
Goods in business sales need satisfactory quality (s14 1979 Act/ss9-10 2015 Act).
Goods sold by samples/bulk need similar qualities (s15 1979 Act/ss13-14 2015 Act).

Implied Terms in Sale of Goods Act/Consumer Rights Act 2015 (2)

Can one contract out of implied terms?
If the 1979 Act applies, s20 of the Unfair Contract Terms Act 1977 is relevant.
If the 2015 Act applies, s31 is not applicable, whereas ss12-15 are only applicable if fair and/or reasonable.

Implied Terms Under Common Law

Duty of Care: This is applicable to solicitors or accountants.
Duty of Mutual Trust: This is applicable to employment contexts.

Implied Terms by Custom

William Morton & Co v Muir 1907: This case highlights that terms can be implied due to common practice or usage in a particular industry.

Terms Implied in Fact

The implication is to make contractual dealings work effectively.
Should a contract need re-drafting due to implied terms?
Acotec v McLauglin [2016] CSOH 134.
Marks & Spencer v BNP Paribas [2016] AC 742.
Tests to imply terms in fact relate to business efficiency.

Terms Implied in Fact: Case Example (1) - Crawford v Bruce

Ten-year lease. 3- yearly review of rent.
The landlord sought to increase rent, but the lease did not contain specifications for determining rental increases.
Tenant argued the lack of a method for calculating the increase as a violation. The court found a term to be implied that the rent increase should be based on the current market price.

Terms Implied in Fact: Case Example (2) - J&H Ritchie v Lloyd Ltd

Purchaser bought machinery that malfunctioned shortly after. The vendor acknowledged a repair issue without providing details.
The purchaser returned the item, and the vendor claimed the item was of satisfactory quality, which the courts viewed as implied.
Case illustrates the implication of terms related to satisfactory goods quality.

Terms Implied in Fact: Case Example (3) - Aberdeen City Council v Stewart Milne Group Ltd

The case examines business efficacy/officious bystander tests for implying terms
A sale of land included a provision for an "uplift" to the price paid, based on the future profits from development
The court examined whether an implied term for calculating the uplift at market value was part of the agreement.
This instance emphasizes judging terms' practicality in making a contract function.

Terms Implied in Fact: Case Example (4) - Aberdeen City Council v Stewart Milne Group Ltd

Continues the discussion of the previous example, relating to whether the transfer not at "arms length" should be deemed at market value
This discussion further delves into principles for implying terms based on reasonable agreement and good practice within contract formation.

Reminder of Test of Implied Terms

Implied terms must either ensure the contract achieves its goals or be self-evident.
Cases like Acotec and Marks & Spencer (AC 742, paras 14-31) illustrate this principle.

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Description

This quiz covers the concept of implied terms in contracts, focusing on when they are recognized by law. It examines various categories, including terms implied by statute, common law, and industry practices. Enhance your understanding of how these terms affect contractual agreements.