Terms can be implied to give business efficacy to a contract, an element tat can be observed also in the areas of offer ad acceptance and consideration within commercial contracts. The courts will imply terms not expressly stated in order to sustain the agreement and a businesslike arrangement. After all, parties would not enter freely into a contract that offered them no benefit or indeed may cause some detriment to them. This method of implying terms can be seen most clearly in the case of The Moorcock. The defendants in this case owned a wharf with a jetty on the Thames. The made an agreement with the claimant for him to dock his ship and unload cargoes at the wharf. The ship became grounded at the jetty and broke up on a ridge of rock. The defendants argued that they had given no undertaking as tot h safety of the ship. However the court ruled that there was an implied undertaking that the ship would not be damaged. Bowen LJ stated: “In business transactions such as this, what the law desires to effect by the implication is to give such business efficacy… as must have been intended at all events by both parties who are businessmen”. This decision après to work fairly as e do not expect our car to become damaged if we leave it at a garage. We assume a duty of care on the part of the proprietor. However despite how this case looks on the surface, both parties were aware that the agreement would mean that the ship would be at the jetty at low tide. We would think that a reasonable businessman would have enquired as the safety of ships at such a time ad would be away of the danger of the ship grounding; and so this could also be seen as the courts ‘bailing out’ a businessman who took a risk.
Terms are implied by fact because of the prior conduct of the contracting parties. Where contracting parties have previously dealt on particular terms, if those terms have not been expressed in a present contract they may be implied if the parties are dealing in otherwise essentially similar terms, shown in the case of Hillas v Arcos. In this case a clause was included in a contract that the claimants could buy a further 100,000 lengths of timber the year after, everything else in the contract was quite vague, despite this, the contract was completed and the timber was supplied. The claimants then tried to buy the further 100,000 lengths but the defendants refused to deliver them. They argued that since the previous year’s agreement was so vague in major aspects that it was nothing more than a basis for further negotiations. However the House of Lords held that although the option clause lacked specific detail, nevertheless it was in the same terms as the contracts that had been completed. It was therefore implicit in the original contract that the option is carried out in the same terms if the claimants wished to exercise it.
The classic test used to determine whether a term is implied by fact was laid down in the judgement of Lord MacKinnon in Shirlaw v Southern Foundries Ltd as is phased as follows: “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, while the partied were making their bargain, an officious bystander were to suggest some express provision for it in their agreement, they would testily suppress him with a common “Oh of course!””. This is commonly known as the ‘officious bystander’ test and is still used today to determine whether or not terms are implied into contract my fact. It has been used in many cases such as Shell (UK) Ltd v Lostock Garage Ltd, Crossley v Faithful & Gould Holdings Ltd but most famously in Liverpool City Council v Irwin.
In this case the Council let flats without a proper tenancy agreement, only a list of obligations signed by the tenants. There were no express undertakings on the part of the council included in the agreement. The council failed to maintain common areas such as corridors stairwells, lifts and rubbish chutes and they became badly vandalised over time. The claimants withheld rent in protest, when the council sued, the tenants counter- claimed, arguing a breach of the implied term that the council should maintain common areas of the building. In the Court of Appeal, Lord Denning felt that such a term could be applied as it was reasonable in the circumstances. The House of Lords though rejected this more relaxed approach. Lord Wilberforce said that to do this would be to “extend a long and undesirable way beyond sound authority”. The House of Lord were not prepared to accept that the council had an absolute obligation to maintain the common areas, but did recognise the implied term to take reasonable care to maintain the common areas , which they did not feel had been breached by the council.
This may seem unfair on the tenants, who were living in a 15 storey building with faulty lifts, dark corridors and non - functioning rubbish chutes. We would on the face of it believe that maintenance of the common areas was the council’s responsibility. Despite this, Lord Denning’s approach was arguably too relaxed. Implying an absolute obligation on the part of the council to maintain common areas would have been impossible. This would mean that every time the slightest thing was not in full working order (including a single broken light bulb); the council would be in breach of this absolute obligation. The House of Lords believed this would be an unreasonable expectation
Terms that have not been expressly discussed by the parties can also be implied by law in two ways, by the courts and by statutes. Terms implied by law are done so irrespective of irrespective of the wishes of the parties. The justification is that the law, either the courts or parliament itself wishes to regulate such agreements. It is often felt that a particular term should naturally be incorporated into a contract of a particular type. Once it has been decided that a particular term should be incorporated, that case will then stand as precedent for future cases involving the same kind of agreement. The case of Liverpool City Council v Irwin can be used to demonstrate this. Although the House of Lords could not imply a term by fact as it failed the officious bystander test, it did accept that there should be a general obligation on a landlord to take reasonable care to maintain common areas in tenancy agreements. This case set a precedent for future cases even though it was not felt that the council had breached this implied obligation in this case.
Terms can also be implied by Acts of Parliament. These statutes are mainly designed to protect the contracting party with the least bargaining, usually the consumer. Arguably the most important of the acts is the Sale of Goods Act 1979, which has six noteworthy sections on this matter. The first is S12 the implied condition as to title, it is assumed that the seller has the right to sell the goods. This is shown in the case of Niblett Ltd v Confectioners’ Materials Co Ltd and also in the simpler case of Rowland v Divall. In this case the claimant bought a car that turned out to be stolen. When the rightful owner of the car took the car back the claimant was able to recover the full price of the car from the seller. This is assumed to be common sense. We would not want to be unprotected if we had bought something that was then reclaimed and there was no remedy available to us.
The next section is S13 the implied condition as to description shown in the case of Re Moore & Co. A contract for the consignment of tins was described as being in cartons of 30 tins, when the consignment arrived, half the cartons were or 24 tins. It was held that there was a breach of S13, even though the actually quantity of tins ordered was correct. This may appear very unfair on the part of the defendants; however certainty in commercial agreements is seen to be highly important by both the courts and parliament. We should also consider that this difference in how the tins were packaged may have implications or the claimants, perhaps affecting how they intended to transport the consignment ad may even have led to addition costs on the part of the claimant. It is felt by the courts and by parliament that items should be as described.
The next section, S14(2), unlike S12 and S13 applied only when goods are sold in the course of a business. Originally the requirement was that good were of a ‘merchantable’ quality. ‘Merchantability’ was a legal term with a very narrow meaning and this meant that many parties were left without a remedy; as in the case of Bartlett v Sidney Marcus Ltd. In this case a car was bought with a defective clutch. The sellers offered to repair the clutch or reduce he price by £25. The buyer accepted the price reduction but soon had to replace the clutch costing £45. Lord Denning rejected the claimants argument that the defect was more costly meant that it was not merchantable. This seems fair, s the defendants had offered to repair the clutch, which the buyer rejected. So it was arguably a good decision, if a little harsh.
A new section of the Sale of Goods act was added by the Sale and Supply of Goods Act 1994, S14(2)(b). This amendment replaced ‘merchantable’ with ‘satisfactory’, a concept that should be easily understood by consumers generally. The definition of satisfactory laid out in S14(2)(b) includes: fitness for all purposes for which good of the kind on question are commonly supplied; appearance and finish; freedom from minor defects and safety and durability. These new provisions should make it much easier for consumers to bring claims in respect of defective goods; and even produce more situations that do not require court action. This may be the reason that there is very little case law on the new provisions.
A section closely related to first defining point in S14(2)(b) is S14(3) - the implied conditions that the goods are fit for their purpose. This can be an expressed purpose as in the case of Baldry v Marshall where it was held that the Bugatti car the claimant had purchased was not fit for the purpose that he had expressed which was a fast, flexible and easily managed car that would be comfortable and suitable for touring purposes. S14(3) can also apply in situations where the purpose is implied as in the case of Grant v Australian Knitting Mills Ltd. In the case the claimant contracted a painful skin disease from chemicals in his underwear. It was held that the buyer would have impliedly made known the purpose for which the underpants would be used even if he had not expressly stated it. This appears like reasonable common sense o the reasonable person and this is likely to be the line of thought that the courts would have followed. It is reasonable to expect that underpants can be work without containing a chemical that will damage the skin. We would expect the same of gloves and socks for example.
Section 15 is the implied condition that goods sold by sample should correspond with the sample. The leading case on this point is Godley v Perry. In this case a boy was injured as a result of a defective catapult. The buyer of the bulk order of catapults had tested the sample but was able to show that the bulk order did not match the quality of the sample.
Finally the Supply of Goods and Services Act 1982 must also be considered. The terms can be implied under this Act are very similar to The Sale of Goods Act 1979 and the amendments of 1994. There are also three further significant implied terms of particular relevance to the supply of services. S13 is as follows: In a contract for the supply of a service where the supplier is acting in the course of a business there is an implied term that the supplier will carry out the service with reasonable care and skill. This is shown in the case of Lawson v Supasink Ltd; when the defendant failed to properly follow the plans the claimant was able to recover their money. The defendant was not entitled to any amount of payment from the claimant. This is fair on the part of the claimant, but may be considered unfair of the part of the defendant. If only one part of the work was not up to standard, the precedent set in the above case means that the defendant would not be entitled to payment for any of the work hat had been completed, even if this was up to the required satisfactory standard.
S14 is an implied term hat where the time for the service to be carried out is not fixed, the supplier will carry out the service within a reasonable time. This is shown in the case of Charnock v Liverpool Corporation. In this case the defendant took eight weeks to repair a car when a competent repair should have taken only five weeks and so the defendant was in breach of the implied term. This decision could be seen as harsh, as this would mean that if for any reason a repair shop owner became overrun with work, or did not have his usual number of staff for any reason, he could find himself in breach of this term in a lot of contracts. This means that although it means that the consumer is not waiting an unreasonable time for services, it can also be unnecessarily harsh on the supplier. S15 is the implied term that where no price is agreed for the supply of the service, the party contracting to with the supplier will pay a reasonable charge. This is fair for the supplier as it means that they can be expect to be paid well and not be ‘ripped off’ but the consumer, or other contracting party. However it does leave contracting parties wondering what a ‘reasonable’ price is, and the safest way to avoid this is to agree a price prior to the supply of the service.
