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Contract Implied Terms: An Overview

Monday, 20 February 2012

Although commercial agreements are usually expressed in writing, it remains the case in English law that a physical contractual document is not required. Where a physical document does exist, the contract may contain terms that are not explicitly included - implied terms. However, such terms cannot simply be implied at will to rearrange a written contract after it has commenced; implied terms must meet certain criteria.

Applicable Criteria

Implied terms must meet one or more of the following; they must:

  • Be reasonable and equitable;
  • Be necessary to give business efficacy to the contract - the contract will not be effective without it;
  • Be so obvious that it goes without saying;
  • Be capable of clear expression; and
  • Not contradict any express term of the contract.

Including Implied Terms

The individual criteria highlight the issues that must be considered for terms to be implied in a contract but can oversimplify the process of inclusion. While useful for a basic assessment of potential implied terms, each test seeks to fulfil a wider requirement - answering the question of what the instrument (the contract) read as a whole against the relevant background would reasonably be understood to mean.

The criteria are objective tests regarding that central purpose - does the proposed implied term actually help spell out what the contract means?

If, for example, circumstances arise in the performance of a contract that had not been envisaged but an implied term makes the contract workable, and the parties would clearly have included such a term had they envisaged those circumstances before the contract was commenced, that term is likely to satisfy the criteria.

Where an implied term is considered so obvious it goes without saying, another legal concept may be introduced - the 'officious bystander' test. It has been argued that if an officious bystander considers a term so obvious it goes without saying, it may in rare cases not require the element of necessity. However, generally an implied term must be necessary to make the contract workable.

Part-written, Part-oral Contracts

Where the parties to a contract have not attempted to spell out the full terms of a contract in writing, there is more scope for flexibility. In such circumstances a court will imply terms by reference to the imputed intention of the parties and where it is necessary for reasonable or effective operation of the contract.

If you need advice regarding contractual issues, Rollingsons has lawyers experienced in company law matters. For more information please contact James Crighton via e-mail or by phone on 0207 611 4848.