Last week we looked at the primary constituents of a contract – Offer, consideration, and acceptance – and if you’re the kind that likes visual metaphors, you can consider these the bare-bones of a contract.

This week, we’re going to briefly introduce contractual terms. Further on our visual metaphor, contractual terms are the meat on the bones. They are what pad out the contract and define exactly what people are bargaining for.

There are two broad types of term – express and implied – and these can come into existence through different means. These are all discussed below.

Express Terms

Express terms are those which are agreed between the parties orally or in writing. They are the terms which are specifically mentioned by the contracting parties and are generally unambiguous.

Examples might be a particular level of payment for a contract of employment, the provision of a particular service, or that payment must be made by a certain date.

Implied Terms

Although people are generally free to contract on whatever terms they wish, certain terms are implied into contracts by the courts in certain circumstances.

Although it is not a courts prerogative to re-write the terms of contracts, there are times when contracts just don’t work out. For the purposes of making the contract work, to achieve fairness, or to relieve hardship, the courts can intervene where necessary.

Terms can be implied in to contracts from four sources of law – By custom, fact, or law.

Terms Implied by Custom

Terms which are implied by custom only have force in so far that the parties have not expressly excluded them from the contract.

For custom to be implied into contract, it must be certain, notorious, reasonable, recognized as legally binding and consistent with the express terms.

There must be proof in the first place that the custom is generally accepted by those who habitually do business in the trade or market concerned. Moreover, the custom must be so generally known that an outsider who makes reasonable enquiries could not fail to be made aware of it. The size of the market or the extent of the trade affected is neither here nor there.

Although I can give no specific example, I will go so far as to say: If it is custom in the events industry that an event organizer buys the first round of drinks for every guest**, and it’s well known that this is the case, then it would be implied into the contract.
** Please note: This is not a custom…

Terms Implied by Fact

Terms implied by fact are those which depend upon the specific facts of the contract.

There are two tests which would determine the implication of a term in a contract by fact. These are the business efficacy test and the officious bystander test.

The first test, proposed in the case of The Moorcock, states that a term is implied in to a contract by fact if it is necessary to give business efficacy to a contract and to avoid a failure that the parties, as reasonable businessmen, could not have intended.

The second test, which originated from the case of Reigate v. Union Manufacturing Co (Ramsbottom) Ltd, states that a term can only be implied in fact if a fictional officious bystander listening to the negotiations of the contract would have suggested the term be included, but would be dismissed as if it too obvious.

Naturally, the implication of these terms will depend upon the specific construction of a contract.

Terms Implied by Law

Terms implied by law are terms which have become standardized parts of all contracts of a certain type.

Under the common law, in the case of Liverpool City Council v Irwin, it was held that in contracts between landlord and tenant in multistory housing, a term would be implied that obliges landlords to keep common areas in reasonable repair.

Terms can also be implied by the action of a statute. Terms implied by statute are terms which are brought into existence through the will of Parliamentary law making. For me, they provide some of the most important functions and protections for consumers and workers.

Examples include:
• The National Minimum Wage Act 1998 – implies into all contracts of employment that the payment will be the current rate of national minimum wage based on the worker’s age.
• The Sale of Goods Act 1979 and Supply of Goods and Services Act 1982 – implies considerable consumer protections into all consumer contracts of sale
• The Unfair Contract Terms Act 1977 – adds force to the Sale of Goods Act 1979 by defining which terms are negotiable and non-negotiable. One example is that it is a non-negotiable term that the seller has legal title to the products, and implication as to fitness of purpose and quality, for example, is non-negotiable in consumer contracts.
• The Consumer Protection (Distance Selling) Regulations 2000 – implies into contracts many consumer rights relating to fraudulent use of payment cards, unsolicited goods, and cancellation of orders via distance selling.

To conclude there are two types of contractual term – express and implied.

Express terms are unambiguous and are generally those that contracting parties would agree that they agreed to. However, implied terms are those which are implied into existence by the action of custom, law, or fact.

Implied terms generally exist because the contract could not function without them or to protect weaker contracting parties. In the present labour market, for example, without minimum wage protections prices for labour would decrease until a person’s labour had no value. As you can probably imagine, this would be a highly undesirable situation to be in.

Craig

Craig Ineson is a law graduate of the University of Liverpool, current student of international business law at master’s level, a passionate restaurant reviewer, and experienced content writer.
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