Contract Law – Express and Implied Contract Terms
The terms of a contract define the rights and obligations of the parties involved. While the express terms, i.e., those which are clearly agreed between the parties, form the visible framework of the agreement, the full scope of the contract often extends beyond this due to implied terms which may be automatically included in the contract, even if they are not explicitly stated.
Understanding both the express and implied terms of your contract is essential, as together they determine the full scope of the parties’ rights and obligations to each other.
In this article, we discuss what express and implied terms are, how they affect the drafting of a contract, as well as how they come into play when dealing with a contractual dispute.
Express Terms
Express terms are those contractual provisions which have been explicitly agreed by the parties, whether documented in writing (such as a formal written contract, or email correspondence), or agreed orally (in the case of a verbal agreement).
Implied Terms
Implied terms are provisions which, although not explicitly stated, are automatically incorporated into a contract by operation of law, or, in the event of a dispute, by the courts.
Implied terms often serve to protect parties in unequal negotiating positions, fill in gaps in the contract, and ensure that the contract functions effectively or reflects the intentions of the parties.
Which term takes priority?
Generally express terms will take priority over implied terms as the courts are reluctant to interfere with a commercial agreement between two parties, particularly where the two parties have equal bargaining power and have had access to legal advice.
However, where terms are not expressly agreed, or when implied and express terms conflict with each other, the courts often rely on implied terms to resolve the issue.
In addition, certain implied terms cannot be excluded as a matter of law, so it is important to be aware of the implied terms which may apply to your contracts.
Terms implied by statute
Certain implied terms are automatically incorporated into specific types of contracts by statute.
For example:
- In contracts for the sale of goods, the Sale of Goods Act 1979 (SGA) automatically implies terms that the goods will correspond with their description, are of satisfactory quality, and will be fit for any purpose which the buyer has made known to the seller. The parties will be taken to have agreed to such terms automatically, unless they include an express term in their contract excluding or alter these terms.
- In consumer contracts, the Consumer Rights Act automatically implies various terms (a number of which are similar to those under the SGA), including the right of the consumer to receive services performed with reasonable care and skill, within a reasonable time, and at a reasonable price if not otherwise agreed upon.
Where a contract is silent on a particular issue, parties might disagree which terms should govern. This was considered in the case of Lowe v W. Machell Joinery Ltd [2011] BLR 591, where it was held that in the absence of express provisions relating to the quality of goods to be supplied or the work to be carried out, courts will imply terms under statute or common law and in this case, the court accepted the Claimant’s reliance on the SGA.
Therefore, implied terms can often act as a fallback option where certain terms have not been expressly addressed by the parties, to resolve disagreements and give way to a contractual intention.
Where implied terms are relevant, they have equal weight to express terms. A breach of an implied term by either party will therefore amount to a breach of contract with all of the usual remedies available, which may include the innocent party’s right to terminate and claim damages.
Terms implied by court
In the event of a dispute, the court may imply terms into a contract to reflect the presumed intentions of the parties, or to fill in a gap in the contract, or where a particular term is customary within a specific trade or locality.
However, this will only happen in limited circumstances.
The case of BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of the Shire of Hastings [1977] 52 ALJR 20 provided tests for establishing an implied term in a contract:
- It must be reasonable and equitable;
- It must be necessary to give business efficacy to the contract (i.e.) is the term necessary to make the contract work?
- It must be so obvious that it ‘goes without saying’, also known as the officious bystander test.
- It must be capable of clear expression; and
- It must not contradict any express term of the contract.
Further guidance was provided in Marks & Spencer v BNP Paribas 2015 UKSC 72, namely that the implication of a term does not depend on the proof of an actual intention of the parties. It also noted that it is not sufficient to imply a term just because it appears fair or that it would have been agreed by the parties had it been suggested.
The courts will not imply terms simply for the purpose of improving a contract or retrospectively making it fairer and more reasonable.
Can implied terms be excluded from a contract?
Certain implied terms can be excluded or varied by including an express term in the contract to that effect, subject to it being fair and reasonable and there are two statutory controls which are applicable.
Firstly, the Unfair Contract Terms Act 1977 limits the exclusion of certain liabilities, such as death or personal injury by negligence, by imposing a reasonableness test. Whilst reasonableness is not defined within the Act, generally this means terms must be clear and precise, and commonly used within that type of contract. The second statutory control is the Consumer Rights Act 2015, which requires consumer contract terms to be fair and transparent.
These two pieces of legislation protect parties with unequal bargaining power by restricting the freedom on what terms parties can incorporate into their contracts. In Harrison and Others v Shepherd Homes Ltd [2011] EWHC 1811, the Defendant argued that the contract was an agreement which excluded any implied terms, however the court rejected this, advising that the contract did not exclude clauses relating to the Defendant’s standard of care.
Therefore, it is not always possible to exclude or vary statutory implied terms. It is more likely that implied terms will be able to be excluded or varied in business-to-business contracts, whereas many terms implied into consumer contracts cannot be excluded, and any express terms which seek to limit or exclude liability in consumer contracts will not be binding.
It is important to obtain legal advice as to the implied terms which may apply to your contract, and to assess whether excluding or varying them is possible or appropriate. Where exclusions are permitted, they must be reasonable, so careful drafting is essential to ensure that any exclusions are valid and enforceable.
Representations
A representation is a statement which is made in order to induce a party to enter into a contract. This includes, for example, matters discussed during negotiations.
It is important to note that pre-contractual statements, or representations, are neither express nor implied terms, and will not form part of the contract unless incorporated as an express term. The rationale behind this is that not all statements made between parties during negotiations are intended to carry contractual weight. Any terms which are discussed during negotiations and are important to the parties must therefore be included in the contract as express terms.
If a representation proves to be false, and has not been included as an express term, it is not capable of imposing liability for a breach of contract. In such cases, the innocent party would instead need to pursue a claim for misrepresentation.
Conclusion
When considering which type of term should take priority, the courts generally favour express terms that are formally written into a contract as they are more likely to reflect the intentions of the parties at the time the contract was entered into However, where there are disputes over the parties’ intentions, or where a contract falls silent on a particular point, courts often imply terms to resolve matters.
Therefore, understanding the role of both express and implied terms is critical to ensuring that your contract accurately reflects the parties’ intentions and obligations.
A well-drafted contract offers clarity and certainty for the parties, including both express and implied terms, and reducing the risk of disputes arising over what terms are included in the contract.
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