An implied term signifies a promise or assumption that is not expressly part of a contract. Nevertheless, these terms are still enforceable. For example, you may be able to imply that a particular promise, which you have not expressly stated in the contract, forms a part of the agreement anyway. Therefore, it will be an implied term which is in turn enforceable. This article sets out the different types of implied terms, and how they may affect the contracts you enter into.
What is An Implied Term?
Simply put, implied terms are promises that parties have not expressly written into a contract. However, they still form part of the agreement between parties. There are different types of implied terms, which you may incorporate into your contracts, which include terms implied:
- in fact;
- by law;
- by custom; and
- as a result of past dealings.
Terms Implied in Fact
A court may include these types of terms in a contract to ensure the document reflects the parties’ actual intentions. Often, they are terms that you do not think of expressly including in the contract because they ‘go without saying’. For example, it goes without saying that if you park your car in a car park, the premises will be in reasonable condition. Therefore, this term is necessary to allow the car park to function effectively.
Terms implied in fact must:
- be reasonable and equitable. They cannot benefit one party and burden the other;
- be necessary to give business efficiency to the contract. For example, the contract will not work effectively without the term;
- be so obvious that it ‘goes without saying’. An impartial bystander in the position of the parties should be able to assume that the term is part of the contract;
- be capable of clear expression; or
- not contradict any other terms of the contract.
In situations involving formal and detailed contracts, courts are hesitant to imply terms unless they are necessary. Therefore, the threshold for the above requirements is high in most commercial circumstances.
Terms Implied by Law
Parties can automatically assume that terms implied by law form part of specific categories of contracts because of legislation or previous court decisions. If your contract falls into a given category, it might have particular default terms.
These categories of contracts include:
- service contracts: It is implied the service will be executed with due care and skill;
- employment contracts: It is implied an employer will provide a safe system of work; and
- lease contracts: It is implied a landlord will give the tenant quiet enjoyment of the premises.
This list is not exhaustive, so other established categories may apply. You should consider what category of contract your agreement falls under and whether the implied term is necessary for all contracts of that category.
Terms Implied by Custom
Parties can imply a term into a contract if other contracts in the same market, trade or context can be reasonably presumed to have that term. Therefore, terms that may be implied by custom are taken to be standard practice or tradition.
For example, when contracting a plumber, there might be an implied term that they will bring their own tools, as this is standard practice in the industry.
To imply a term into a contract by way of custom, you must be able to show the custom or usage exists. You then need to prove that the term is so notorious that everyone in the trade reasonably assumes that it will be part of an agreement. It also cannot contradict an express agreement between the parties. If a term is implied into a contract because it is custom, the parties to the contract will be bound by it even if they were not aware of the custom.
Terms Implied as a Result of Past Dealings
Where parties have a recurring relationship, courts may imply terms into a contract based on the parties’ previous behaviour. This is especially relevant where a contract is an informal agreement that only outlines the key terms.
When implying terms as a result of past dealings, a court needs to consider whether the:
- contact between the parties was regular;
- past dealings were consistent and uniform; and
- implied terms contradict an express agreement.
You should keep in mind that the threshold for these requirements is high. For example, three contracts over the course of five years is unlikely to prove consistent and uniform dealings.
Usually, parties draft simple and informal contracts outlining the key terms of an arrangement. However, a court may imply terms into a contract even after you have entered into it. Therefore, if you think a promise, which you have not included in the formal contract, should form part of the agreement, you should consider whether it is an implied term. There are different types of implied terms, so you should be aware of all of them. If you have any questions, contact LegalVision’s contract lawyers on 1300 544 755 or fill out the form on this page.
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