Terms of a Contract - Case Study Example

Describe and Evaluate the Circumstances in Which a Term may be Implied Into a Contract In order to be able to evaluate the use of implied terms in a contract it is necessary to discuss what an implied term is and how and when such terms can be read into a contract. An implied term is self-explanatory in that there is no express mention of the term either in writing or orally. The court can reach the opinion that the term is an implied term from the conduct of the parties. In this way a contract can be deemed to be valid even though there has been no express agreement between the parties. Generally most terms of a contract are express terms which mean that the terms have been agreed by both parties at the time of the making of the contract. In some occasions the courts will read a term into the contract even though there has been no agreement. This could happen where the contract would not make sense if the term were not included. Implied terms can be implied by statute or by the courts. The Sale of Goods Act 1979 demonstrates how implied terms are used in contract formation. S12 of this Act implies that the person selling the goods has a legal right to sell those goods. Similarly s13 implies that the goods will correspond to the description if the goods have been advertised in a newspaper or catalogue. There is an implied term regarding the satisfactory quality of the goods under s14. It was decided by the court in Benfield (t/a Autoroute Circuits) v Life Racing Ltd [2007]1 that there was no implied guarantee that a particular outcome would be achieved. The court also found that there was no evidence to prove that the defendant was relying on the plaintiff for such a guarantee. Similarly the Supply of Goods and Services Act 1982 also have terms which are implied into the contract. Within that Act there is an implication that the services will be carried out with reasonable skill and care, within a reasonable time and for a reasonable price. In the past the courts have allowed claims under this Act where the goods have been of unsatisfactory quality, where the order has been delivered late or where the price is deemed to be unreasonable. In Walker Crisps Stockbrokers Ltd v Savill [2007]2 the court found that there had been a breach of an implied term of the contract that the broker would carry out his duties with reasonable skill and care. However in the case of Evans v Kosmar Villa Holiday Plc [2007]3 the court of appeal overturned the original ruling that there was an implied term that the holiday company would exercise reasonable skill and care in the provision of facilities and service at the holiday complex, including the swimming pool and its surrounds. In this case the judge in overturning the original decision stated that people had to accept responsibility for the risks they chose to run and that there was no duty to protect them against obvious risks. The court stated that the holiday company did not have a duty to protect the plaintiff from the risk of injuring himself by diving into the pool. These implied terms can protect the buyer from unscrupulous retailers and allow the customer to complain and receive their money back when they do not receive the goods or service they expect to receive. As mentioned above the courts have the power to read implied terms into a contract. In situations where there is a term within a contract that is so obvious it does not need including the courts will treat the contract as though the term was mentioned into the contract. This was applied in Silverman v Imperial Hotels Ltd [1927]4 which involved a contract for use of a Turkish bath. The implied term that was added in this case was that the couches that were used for reclining on would be free from vermin. Terms have also been implied into a contract in respect of matters of law. An example of this might occur where a landlord is expected to keep the communal areas in a state of good repair even though this was not discussed at the time of the creation of the contract. Customary terms can also be implied into a contract for example if the contract was between 2 bakers a dozen would imply 13. Any express term within the contract can negate the implied term. Therefore if the wording of the contract for the bakers clearly stated that for the purposes of the contract a dozen will mean 12 then the courts cannot state that a dozen should be 13. In some cases the courts have implied terms into a contract were they are of the opinion that the contract would be incomplete if the terms were not included. This is likely to occur in employee/ employer relationships. It is usual in with employees and employers to have an implied term that the employee will carry out the work allocated to him with reasonable skill and care and that the employer will indemnify the employee for any losses that the employee experiences due to any negligence of the employer. The courts will only imply a term into a contract where it is absolutely necessary to do so. In the case of Luke v Stoke on Trent City Council [2007]5 the local authority had frequently stopped paying the plaintiff. The plaintiff brought an action for non-payment of salary. The defendant’s made the point at the Employment Tribunal that the wages had been stopped because the plaintiff had refused to work outside of the centre. In making their decision the Tribunal held that the authority was reasonably entitled to require the plaintiff to work outside the centre. The court initially agreed that it was right to withhold the salary and that the plaintiff was required to work outside the centre and if he refused they were right to withhold his salary. In Morrish v NTL Group Ltd [2007]6 the court reached the conclusion that there was an implied term within the contract of employment allowing the employer to dismiss the employee at short notice or to pay the employee money in lieu of notice. They stated in this case that the contract in this case was a contract at pleasure. Terms can also be implied into employment contracts in respect of the conduct of both parties. The courts will imply into such contracts that employees will adhere to the terms of their employment and will carry out tasks in accordance with their job specification. There is an implication that employees will follow the instructions of their immediate supervisor and will carry out their duties wherever they are asked to perform them7. The latter part can only be enforced if there was an agreement between the employee and the employer before the employment began. This might be particularly the case if there is a likelihood that the defendant is likely to be asked to work at a different branch owned or run by the same company. In Secretary of State for Justice v Slee [2007]8 the tribunal found that there had been a fundamental breach of the implied terms of mutual trust and confidence on the part of the plaintiff and that as a result the defendant had been constructively dismissed. The court found that the plaintiff had failed to inform the defendant as to when her post ceased to exist. It was the opinion of the court that the defendant should have been made redundant and offered an alternative post. In this case the court awarded in favour of the defendant on the grounds that the implied mutual trust had been breached. Having discussed what an implied term is and how it can be implied by statute, by customary terms and by the courts it is now possible to evaluate the use of implied terms in more depth. Starting with terms that are implied by statute it is important to note that such implied terms are usually cumulative. With terms implied under the Sale of Goods Act 1979 concurrent implied terms will be implied under the Fair Trading Act 1973. Under the Sale of Goods Act 1979 there is an implied term that the seller has the right to sell these goods and also that the purchaser will be allowed quiet enjoyment of his purchase without any interference from a supplier or a third party. In Fairfax Gerrard Holdings Ltd v Capital Bank Plc [2007]9 the courts initially held that the defendant did not have the right to resell the items, however on appeal the court made the decision that the documentation supplied by the defendant at the time of purchase of the goods clearly stated that it was the intention of the defendant to resell this item to a third party. The court quashed the original decision and allowed the subsequent sale to be bona fide despite the fact that the defendant has not paid the company he bought he equipment from the full asking price10. Often within contract law there is an implied term that each party to the contract will take all necessary steps to ensure the fulfilment of the agreement. Implied terms have been included in contracts where the consideration for the contract is being controlled by a third party. In this case there would be an implied term that neither contractual party can obtain an unfair advantage over the other party. Although the courts have implied terms into a contract on occasion the courts have opted against implying terms in cases were the price quoted for work was exclusive of VAT. This has been the case even when previous business transactions with that company have included VAT. One area were implied terms can often be read into a contract is in the law of intellectual property. This could happen with a patented product where the purchaser is given a licence to extend the life of the product either by repairs to it or the replacing of components on the item. Similarly with copyright licences where the material is purchased for a specific purpose the purchaser would be entitled to use the material in this way so long as he did not resell the material for his own commercial property11. This is often the case in video rental businesses where they have a licence to rent the videos to customers of the shop but are not allowed to copy the tapes and sell them as their own. In Meridian International Services Ltd v Richardson [2007]12 the claimant was claiming the copyright in some computer software. The claimant’s case was that it was an express of implied term of the agreement between the parties that the copyright in the software would be assigned to the claimant. The claimant stated that it necessary to impute such a term into the contract to prevent the customer from reusing the software and also to allow the claimant to sell it. The court in this case decided that it was not a express term nor had the claimant been able to establish a claim on the basis that it was an implied term. The court stated that they did not agree that such an implication was necessary in this case. The final decision of the court was that the defendant would remain as the owner of the copyright. When deciding whether implied terms should be read into a contract the courts will look for evidence of custom or usage in commercial transactions. The courts will often make the presumption that the parties meant to contract with references to the usages even though they did not expressly include this in the contract. The courts will examine the term and if the term is certain, legal, notorious, reasonable and there is evidence that the usage is commonplace for this type of contract then the courts will imply that term into the contract. Implied terms have also been read into tenancy agreements. In Graves v Graves [2007]13 the court held that there was an implied term that 90% of the rent for the property would be met through housing benefit. In the absence of the defendant not being able to claim such benefit the contract would end if housing benefit were not payable. The conclusion that can be reached from the above is that there is no general as to the application of implied terms within a contract. Statute has a tendency to impute implied terms in a more regulated manor. Where implied terms are at the discretion of the courts it often comes down to the interpretation made by the judge. This can lead to a lack of uniformity in the application and it could be argued that on some occasions the imposition of the implied terms gives an unfair result. It can also be noted from the above that all areas of the law of contract can be subject to implied terms. From the research above it would seem that when people are entering into contracts with each other greater care should be taken to ensure that there are express agreements on the important issues. Failing to include express agreements could lead to the court imputing implied terms into the contract thereby producing a result that is unsatisfactory for one or both parties. Bibliography Treitel, G H, The Law of Contract, 10th Ed, 1999, Sweet and Maxwell Beale, HD, Bishop, WD, Furmston, MP, Contract Cases and Materials, 3rd Ed, 1995, Butterworths Civil Procedure Volume 2, The White Book Service, 2002, Sweet and Maxwell Rose, FD, Statutes on Contract, Tort & Restitution, 10th Ed, 2000, Blackstone’s Civil Procedure Volume 1 2002, Sweet & Maxwell Harvey, b & Marston , J . Cases & Commentary on Tort, 1998, 3rd Ed, Pitman Publishing Mozeley & Whiteley’s, Law Dictionary, 1993, 11th Ed, Butterworths Treitel, G H. Law of Contract, 1999, 10th Ed, Sweet & Maxwell Table of Cases Benfield (t/a Autoroute Circuits) v Life Racing Ltd [2007] EWHC 1505 (TCC) Evans v Kosmar Villa Holiday Plc [2007] EWCA Civ 1003 (2007) 151 S.J.L.B. 1404 [2007] N.P.C. 109 Fairfax Gerrard Holdings Ltd v Capital Bank Plc [2007] EWCA Civ 1226 Luke v Stoke on Trent City Council [2007] EWCA Civ 761 [2007] I.R.L.R. 777 Meridian International Services Ltd v Richardson [2007] EWHC 2539 (Ch) Morrish v NTL Group Ltd 2007 S.L.T. 1074 2007 G.W.D. 31-531 Optical Express Ltd v Williams [2007] I.R.L.R. 928 Secretary of State for Justice v Slee Employment Appeal Tribunal 20 July 2007 SWI Ltd v P&I Data Services Ltd [2007] EWCA Civ 663 [2007] B.L.R. 430 Walker Crips Stockbrokers Ltd v Savill [2007] EWHC 2598 (QB) 2007 Wrenn v Landamore [2007] EWHC 1833 (Ch) Table of Statutes Fair Trading Act 1973 Sale of Goods Act 1979 Supply of Goods and Services Act 1982 Read More