Implied Terms Essay Example for Free

Implied Terms Essay Terms can be implied to reflect the presumed intention of the parties, or for reasons of public policy. The different bases for implying terms are considered below. Terms Implied to Give Effect to Presumed Intention of Parties Term implied on the basis of business efficacy Business efficacy means that the parties require that term in order that the contract will work (The Moorcock). The following rules for implying a term on the basis of business efficacy were summarised by the Privy Council in BP Refiner v Shire of Hastings and later approved by the High Court in Codelfa v State. †¢ The term must be reasonable and equitable; †¢ Implication must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it; †¢ Term must be so obvious that it goes without saying; †¢ Term must be capable of clear expression; and †¢ Term must not contradict any express term of the contract. Terms implied from previous consistent course of dealings In the circumstances of the case, is it reasonable to hold that the parties entered into the contract on the basis, and with the knowledge, that their agreement would be on the terms set out in previous contracts entered into (Henry Kendall Sons v William Lillico Sons). The relevant term or terms must have been part of earlier agreements between the parties and the must be evidence of an earlier consistent course of dealings between the parties. Relevant in this assessment are – †¢ the number of dealings between the parties; and †¢ the consistency of dealings between the parties. The greater the number of prior dealings, the greater the likelihood of incorporating the term (cf Hollier v Rambler Motors with McCuthbert v David MacBrayne). Consistency of contractual dealings is also important as the argument for incorporation is less compelling if the terms are incorporated into earlier contracts on some occasions but not others (McCuthbert v David MacBrayne Ltd). Terms implied from custom or usage The parties to a contract are presumed to contract with reference to whatever customs that prevail in the trade or locality in question. In Con-Stan Industries of Aust Pty Ltd v Norwich Winterthur Insurance the High Court set out a number of rules that must be satisfied before a term will be implied on the grounds of custom or trade usage: 1. The existence of a custom or usage that will justify the implication of a term into a contract is a question of fact. In making the determination, the focus must be on the custom or usage in the particular trade or profession under construction. . There must be evidence that custom or usage relied upon is so well known and acquiesced in that everyone making a contract in that situation can reasonably be presumed to have imported that term into the contract, however, the custom need not be universally accepted. Firstly, there must be sufficient evidence that a custom of the kind alleged in the fact exists. Thus custom must be sufficiently widespr ead and consistent that it can be articulated with some certainty. Secondly, the custom must5 be so widespread that it is well known to the people within the trade or profession. 3. A term will not be implied on the basis of custom or usage where it is contrary to the express term of the agreement. As term implied must on custom and usage must reflect the presumed intention of the parties, if the parties expressly exclude such a term, or insert a term inconsistent with it, the term cannot be regarded as reflecting their intention. 4. A person may be bound to custom notwithstanding the fact that he or she had no knowledge of it. Unless the parties have agreed to the contrary, a term is implied provided the elements of the second limb above are met. A term implied to complete agreement The judiciary attempts to uphold agreements if at all possible. As a means of upholding contracts where not all the terms have been finalized, in an appropriate case the courts may be prepared to imply a term (Hillas Y Co v Arcos). Terms Implied Irrespective of Parties’ Intention Term Implied as a Legal Incident of a Particular Class of Contract A term may be implied as a matter of law in contracts of a particular class (Liverpool City Council v Irwin). Some examples are: †¢ Contract for the provision of goods and services: goods or services will be reasonable fit for the purpose supplied or rendered (Samuels v Davis). Contracts for the provision of professional services: reasonable care will be taken by professional in provided services (Greaves Y Co v Baynham). †¢ Contracts of employment: duty to proved a safe work place (McLean v Tedman). †¢ Building contracts: the completed house will be fit for habitation and the work done will be carried out in a proper an d workman like fashion (Perry v Haron Developments). General Duty of Co-operation There is an implied term a general duty of cooperation of all contracts that each party agrees to do all things necessary to enable to other party to have the benefit of the contract (Butt v McDonald). Some examples include: †¢ A term may be implied to give effect to the presumed intention of the parties (Curro v Beyond Productions). †¢ Duty to comply with reasonable requests †¢ There is a duty to do all things necessary to enable the agreement to be completed (Adelaide Petroleum v Poseidon). †¢ Where a contract requires concurrent performance it may be implied that rights are to be exercised in good faith and there is a duty to cooperate (Service Station Association v Berg Bennet Associates). †¢ There is a duty to exercise contractual powers reasonably (Renard Constructions v Minister for Public Works). Implication of duties of good faith, fair dealing and reasonableness It has been suggested that the courts may be prepared to imply a duty for the parties to act in good faith in performing a contract (Renard Constructions v Minister for Public Works). Some examples include: †¢ The preparedness of the courts to imply a reasonable price where the contract is silent †¢ Statutory implication of reasonable price in a contract for the sale of goods †¢ Duty on a prospective buyer to act reasonably as well as honestly in determining whether finance is satisfactory in a contract to purchase Term Implied by Statute Sale of Goods Act 1896 (Qld) Implied condition that the seler has title to the goods bing sold, or will have title at the time property in the goods is to pass: s15(a) †¢ Implied warranty that the buyer will have quiet possession of the goods: s15(b) †¢ Implied warranty that the goods are free from any charge or encumbrance: s15(c) †¢ In a contract for the sale of goods by description, an implied condition that the goods correspond with the description (and if the sale is by sample, as well as by description, it is not sufficient that the bulk of the goods corresponds with the sample if the goods do not also correspond with the description): s16 †¢ Where they buyer, expressly or by implication, makes known to the seller that particular purpose for which the goods are required, so as to show that the buyer relies on the sellers skill or judgment, and the goods are of a description that it is in the course of the seller’s business to supply, an implied condition that the goods are reasonably fit for the purpose: s17(a) †¢ When goods are bought by description from a seller who deals in goods of that description, an implied condition that the goods are of merchantable uality: s17 (c) †¢ In a contract for sale by sample, implied condition that the bulk corresponds with the sample in quality, that the buyer will have a reasonable opportunity of comparing the bulk with the sample, and that the goods are free from any defect, rendering them unmerchantable, which would not be apparent on reasonable examination of the sample: s18 Clear words are required to exclude implied terms (Wallis v Pratt and Haynes). Trade Practic es Act 1974 (Cth) The Trade Practices Act will only operate where the supplier is a corporation and the acquirer is a consumer within the statutory definition (ss4 and 4b) or if the transaction falls within one of the categories of extended application of the legislation for example, if the tranaction occurred as part of the supplier engaging in trade or commerce internationally, interstate or between a state and territory (s6(2)(c)). Terms implied by the Trade Practices Act are not limited to contract for the sale of goods but also extend to their supply. Supply is defined to include sale, exchange, lease, hire or hire purhcaes (s4). The Trade Practices Act implies in a contract for supply of service, a warranty that the service will be rendered with due care and skill and that any materials supplied will be reasonably fit for the purpose for which they are supplied. A further warranty will be implied that the services and materials supplied in connection with them will be reasonably fit for the purpose for which those services are required – or of such a nature and quality that they might reasonably be expected to achieve the result.