Implied by Law - Term Paper Example

Employment/ Labour Laws Introduction Pertinent issues of a contract include the rights and obligations of the contractual parties, which are contained in the terms of that particular contract. Whether clearly articulated in an open manner or not, the terms of a contract bind the parties to a contract to such an extent that they ensure that the rights and obligations are enjoyed and obeyed. Terms of a contract are therefore central to the contracting concept at any point throughout the contractual process and duration. Terms of a contract are generally taken to be express or implied by law1. When clearly articulated by the parties on a certain written or oral agreement, the contractual terms are said to be express and bind the parties to the extent of their reasonable provisions. In cases where the express terms are enforceable, the parties must come to an agreement either prior to or at the contracting time and conclude their agreement2. Express terms are easily identified by evidence of the contractual parties consent prior to or at conclusion of the contract. Examples of express terms include written terms which are formulated and designed in form of a document. Oral concurrence is also considered in express terms to the extent of their reasonableness. Implied contract terms include those terms that are deemed to be enforceable by the law notwithstanding the fact that no clear discussions took place or writing on the same exists. Implication is done at common law or by legislation. Origin Generally, contractual terms are clearly stipulated in standard contracts, where parties come into concurrence on certain pertinent issues. It is however difficult to contemplate and expressly state all the contingencies in a contract due to intricacies involved in various cases. The operation of the contract would therefore be exposed to loopholes that could alter the rights and obligations on the parties. For justice to prevail, the courts systems reign in and offer directions on problematic contracts having reached a snug on the premise of inadequacy of the express terms. Employment contracts are sensitive like any other contracts are and the manner in which the terms are considered, especially the controversy surrounding implied terms has been in existence. The application of implied terms in employment contracts is particularly difficult due to the unique nature of the contract. Many contractual parties are unable to determine their obligations and even rights when implied terms of a contract are in contention. But ignorance of the law is no defence as a major maxim goes- ignorantia juris non excusat3. This work explores the types of implied terms of a contract and suitable case law examples used to illustrate the actual situation in their applications. Types of Implied Terms in Case Generally, three classes of implied contract terms exist as provided for by law or fact. Under each provision of implied terms, there are specific types of implied terms. For instance, under terms of contract implied by law, there are universal terms as well as generic terms while BP refinery test is used to determine if terms implied by fact exist. i) Universal Terms The law assumes that all contracts must bear inherent implied terms by the virtue of being contractual engagements. Parties to a contract are bound by universal terms merely by acting in a contractual manner and neither of them can be heard to say that they are not bound. Specific conditions dictate the existence of universal terms, for instance the duty of cooperation and the duty to act in good faith. The role of universal terms is to assist in the enforcement of express terms and is only implied to the extent of their consistence with express terms. Even if the exclusion of some terms appears to be confused with the duty to act in good faith, parties to a contract must bear their responsibility in the contract. As the judge stated in Butt V McDonald “It is a general rule applicable to every contract that each party agrees, by implication, to do all such things as are necessary on his or her part to enable the other party to have the benefit of the contract.”4 Secured Income V St. Martins Secured Income offered and eventually sold a property consisting of a big block of offices to the defendant. A part of the settlement amounting to $ 170, 000 was outstanding by 26th January 1973 and was payable by 26th June 1973 by a certain formula if aggregate rents fell below the figure by that time. It was also stipulated that any leasing to a third party after the agreement should be approved by the defendant. By the settlement time, aggregate rents fell below agreed figure and Secured Income decided to lease vacant premises to a level that would secure the $170,000 settlement from reductions. Contrary to this, the defendant rejected the move to effect the lease on the premise that the remaining vacant offices could generate a figure of zero when the agreed formula was applied. On the ground of unfair treatment by St. Martins, Secure Income filed a suit for damages. This is because the complainant alleged that the defendant would be compelled by the implied term that cooperation was required to ensure that tenants were secured in to the premises (Lewinson, 2004, p61). The presenting issue in this case was whether there existed an implied term that would compel the defendant to cooperate with the complainant in ensuring that the contract went through. In the judgment made, the judge held the position that a duty to cooperate is implicit in any contract but the defendant observed the part of the contract expected and did not breach this term by rejecting the lease on reasonable grounds. According to Mclnnis the delicate issue of cooperation and arising obligations are classified under positive and negative duties5. Under the duty to act in good faith, the implied term comes into enforceability to deter opportunists from exploiting the other party to a contract. In the United States, the Uniform Commercial Code has a provision that states: “Every contract imposes on each party a duty of good faith and fair dealing in its performance and enforcement.”6 However, the implied term has been enforced in Australia to bind parties to an insurance contract and fiduciaries while in Europe, civil codes observe the principle in many instances. ii) Generic Terms Specific types of contracts exhibit specific terms which remain enforceable whether expressly stated or excluded. In such instances, the implied terms are assumed to be a necessity that otherwise considerably alter the operation of the contract. Even if the generic terms require a case oriented approach in determination of their existence, their scope is generally wide and unspecified. These terms are implied on tow bases which include; trade custom or certain contract types. They mainly ensure observance of instructions in employment contract, ensure fitness and merchantability for contracts of goods sale as well as habitation fitness for house letting contracts. Con-Stan Industries V Norwich In this case, Con-Stan made a payment for an insurance premium with a broker who connected Norwich insurance company for the same. Before the insurance company (Norwich) had received the payment from the broker, Con- Stan went into liquidation. The insurance company went to court seeking to establish to the insured that there is an implied term providing that where the broker arranges for an insurance agreement on behalf of the insurer, the broker is liable to pay the premium. According to Gillies the presenting challenge was to establish if there is an implied term to the effect that insurance contracts pass the liability from the insured to the broker7. In the ruling, since it could not be ascertained whether it is generally accepted practice that insurance companies only collect premiums from brokers, the judge was of the opinion that the term could not be enforceable. iii) Implication by Fact Terms implied by virtue of fact are generally specific and unique such that they cannot be excluded from a contract by lack of express inclusion. The principle of such terms is based on the premise of the general presumption of intentions held by the parties to a contract by the conclusion of the contract. BP Refinery v Shire of Hastings BP Oil Company was contracted by the state to for an oil facility project with a provision allowing the company to involve an external company for up to thirty percent. The defendant subjected BP at a lowered preferential taxation rate upon which BP Australia took over BP after six years prompting the defendant to revert to normal taxation. The presenting challenge was to determine if the Shire could imply that preferential treatment ended with end of BP ownership of the refinery and if BP could claim it had a thirty percent stake in BP Australia8. It was held that BP had implied terms over its connection to BP Australia and that the preferential taxation was to be upheld. This became the famous BP refinery test that was enforced in Coldefa Constructions V SRA. Works Cited Adelaide Law Review Association. An annual survey of Australian law. Adelaide, Australia: Law Book Co. 1994. Clarke, J. 2010. Terms of a contract. Australian Contract Law, Viewed 9th January, 2010 http://www.australiancontractlaw.com/law/implied.html Gillies, P. Concise contract law. Sydney, Australia: Federation Press. 1988. Lewison, K. The interpretation of contracts. London, UK: Sweet and Maxwell Publishers. 2004. Matthews, P. “Ignorance of the Law is No Defence.” Legal Studies, 3(2):174-195. 1983. Mclnnis, A. The new engineering contract: a legal commentary. London, UK: Thomas Telford Publishing. 2001. Riordan, J. 2004. “Part VII- Implied Terms.” Viewed 9th January, 2010 http://www.jaani.net/resources/law_notes/contracts/12_Implied_Terms.pdf Read More