5.5 implied terms (overview and universal terms) (slides).pptx

Principles of Business Law TOPIC 5: TERMS OF A CONTRACT IMPLIED TERMS: OVERVIEW UNIVERSAL IMPLIED TERMS Implied terms: overview  Contracts contain implied terms in addition to the expressly agreed terms.  Terms can be:  implied ‘by operation of law’ – into all or parti...

Principles of Business Law TOPIC 5: TERMS OF A CONTRACT IMPLIED TERMS: OVERVIEW UNIVERSAL IMPLIED TERMS Implied terms: overview  Contracts contain implied terms in addition to the expressly agreed terms.  Terms can be:  implied ‘by operation of law’ – into all or particular classes of contracts  universal implied term: implied into all contracts  common law: duty of co-operation  Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd  generic implied term: implied into contracts of a particular class  common law, eg: doctor/patient contracts: Breen v Williams  Statute: Goods Act 1958 (Vic)  in fact (ad hoc term)  common law: implied to fill a gap in a particular contract, eg, Moorhead v Brennan The universal duty of co-operation  All contracts contain an implied duty to co-operate with the other party so as to allow the other party to receive the fundamental benefits promised under the contract.  The duty requires contracting parties to act reasonably.  Case example:  Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd The universal duty of co-operation: Secured Income v St Martins FPBCL p 417 Facts  SI sold a large office block to SM.  $170,000 remained owing after settlement.  The contract provided for the reduction of this amount if aggregate rents did not reach a specified figure.  The aggregate rents were far below the specified figure.  As a result, SI offered to lease so much of the vacant premises as would increase the aggregate rent to a level that the $170,000 would be payable (that is, there would be no reduction).  SM rejected this offer and, as a result, the amount owing to SI was reduced to zero pursuant to the terms of the contract.  SI sued for damages for breach of the implied duty to co- operate.  SI alleged the implied duty had been breached by SM’s rejection of SI as a tenant. The universal duty of co- operation: Secured Income v St Martins (ctd) Issue  Had SM breached the implied duty of co-operation by refusing to accept SI as a tenant? Decision  St M had not breached the implied duty of co- operation. Reason  A party that has legitimate concerns about the financial strength of a prospective tenant does not act unreasonably in rejecting the rental application – there has been no failure to co-operate.