To what extent does the law impose compulsory terms on parties to contracts?

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Remziye Ozcan                03/11/2010

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To what extent does the law impose compulsory terms on parties to contracts?

When considering the extent to which the law imposes compulsory terms on parties, one must take into account the distinction between express and implied terms, and also consider the scope and limitations of imposing the latter. Implied terms are regarded as default rules which the courts can imply into the contract along with the terms the parties have expressly agreed to. The courts power to imply terms into contracts is implemented cautiously, as it threatens to interfere with the freedom of the parties to select and agree to their own contractual obligations.

There are three sources of implied terms, custom is one source, where that custom is ‘reasonable’ it binds both parties whether they were aware of it or not. However more importantly, many terms which are implied in law have been put into statutory form. Parliament can of course imply terms into contracts based on public policy or the rule of law. An obvious example is the Sale of Goods Act 1979, for instance there is an implied warranty that the goods are free from charges or incumbrances in favour of third parties (s.12(2)), there is an implied conditions that goods sold by description shall correspond with the description (s.13(1)) and of course an implied term stating that the goods supplied under the contract are of satisfactory quality (s.14(2)). There are many more implied conditions which are concerned with the quality, purpose and defects of the goods, which along with the sections mentioned above are for the protection of consumers rather than the intention of the parties. This growing concern for ‘consumer protection’ in relation to the consumer-welfarism theory, is further emphasised with the Unfair contract Terms Act 1977, which places strict  limitations upon the ability of sellers to exclude the operation of these implied terms.

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Another source of implied terms is that of common law, or those ‘implied in fact’. This classification suggests the idea that the term being implied is perceived by the courts to be the unexpressed intention of the parties, and they would have agreed for it to be imposed. There are however some implications, one test which must be satisfied is the ‘officious bystander’ test. MacKinnon L.J describes this as follow: “Prima Facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying, so that, if ...

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