When are terms implied in a contract?

Different types of implied terms

Terms implied in fact

When the courts look at terms implied in fact they are basically look to prove the parties intentions to make the statement a term of the contract. The courts often state that they are not there to re-write the parties bargain that they originally undertook when creating the contract. They are merely there to establish whether the statement was a term or representation where there is a dispute of such nature.

The business efficacy test

This test applies where the court is looking at terms implied by fact and will ask if the implication of the statement as a term is necessary to give the contract the effect it originally desired. The term must be required to make the contract work. 

Certain ideas that may make establishing a person’s intention a far easier process could include knowledge of the parties and would both parties agree to the terms of the contract?

Terms implied in law

There are many types of contracts which are used on a daily basis that have developed a standard set of terms that can be implied in any contract of the same sort. These will include contracts such as those establishing the lease of a furnished house, contracts of employment and contracts between banker and consumer.  

Terms implied in law are not based on the intention of the parties. Some provisions or terms of a contract of a defined type are to be automatically implied if not expressly implied unless other terms of the contract will expressly state they are not to be implied in the contract.

When will a term be implied in law?

There are two basic requirements for the implication of a term in law. The first is that the contract in question should be of a defined type, and the second requirement is that the implication of the term should be necessary.

Terms implied in custom

There may be certain terms that are customary to a particular trade profession or locality. If the contract falls within one of these categories and certain customary terms have not been expressly stated then they may be implied.

Conditions, Warranties and Innominate terms

There are three types of terms labelled conditions, warranties and innominate terms that will depend upon breach of either, what remedies are available.

A Condition

When a condition is breached the party that has suffered the damage has the right to sue the wrongdoer for damages and also to terminate the contract.

A warranty

Where a warranty has been breached the claimant only has the right to sue the defendant for damages. 

If there is a breach of a warranty the person that suffers the breach cannot terminate the contract or rescind the contract to return to their pre-contractual position.

Innominate term

Where an innominate term has been breached the legal consequences such as the right to sue for damages or rescind the contract will depend upon the factual consequences of the case.  

If the breach of the innominate term goes as far as to depriving the injured party of basically all the benefit that he intended to gain from the contract in the first place then the claimant has the right to terminate the contract in addition to suing for damages.  

When any term is breach the party will always have the right to sue for damages. The breach of an innominate term will ultimately depend on the seriousness of the breach itself.

The classification of the term

On what basis a term will be classed will depend on the intention of the parties.  

There is a general consensus that most people will try and have their terms labelled an innominate term due to the flexible nature it holds in comparison to a straight forward condition.  

On the other hand a person may wish to have their term classified as a condition because of the certainty it holds. This will able both parties to the contract to know exactly where they stand with each other and also allows a breach of such duty to be easily identified.