Terms Implied by Common Law

What are implied terms (in comparison to express terms)

Express terms are terms explicitly stated within the contract.

Implied terms are terms which are not stated but are expected and can be implied by the courts.

What ways can common law imply terms into contracts?

1. Business efficacy/officious bystander test

2. By custom

3. By prior dealings

1. Business efficacy/officious bystander

The BE/OB tests asks two questions:

1. Is the term necessary to make the contract effective?

2. If the parties had thought about it, would they agree the term should be in the contract?

1.(a). Business efficacy

This implies a term if it is necessary to make the contract work. If the contract still works without the term, it will not be implied.

The Moorcock: C moored his ship on D’s dock but the ship was damaged. D argued there was no term that said the boat wouldnt be damaged. HELD: C would only have entered the contract if that term was implied, so it was.

Schawel v Reade: C bought a horse for breeding. Horse ended up having diseases. HELD: C would only have entered contract if the horse was healthy so the term was implied.

1.(b). Officious bystander

This implies a term if it is so obvious it would have been expected originally. Had another party been there at the time the contract was formed, would they assume this term was in it?

To use this, it must be demonstrated that at the time of formation, both parties would have agreed to the term. (Shirlaw v Southern Foundries)

Hollier v Rambler: (controversial outcome) C and D often formed contracts in person, but on one occasion they did it over phone and a term was left out. Courts held the officious bystander wouldn’t have expected the term, so it wasn’t implied.

Can terms be implied if either party wouldn’t have agreed to them?

No. (upholds Freedom of Contract).

Shell v Lostock: Held that Shell would never agree to sell petrol ‘at their lowest price’, so the term couldn’t be implied

M&S v BNP Paribas Security Services Trust held that the term will be implied if the reasonable man would see it as the intention of both parties.

2. Terms implied by custom

If a term is customary in a certain circumstance, it can be implied.

Hutton v Warren: C planted seeds on a field but D evicted them before harvest. HELD: It is customary for there to be a term preventing this, so this term could be implied.

(potential issue in that judges can use this to align with their own opinions on a case, undermining their seperation from the case)

3. Terms implied by prior dealings

Prior conduct between parties may result in a term being implied.

Hillas v Arcos: held that a term in a prior contract could be implied in a later one.