Key Takeaways

  • Implied conditions are unstated terms that courts assume are part of a contract for fairness or necessity.
  • They often arise in contracts of sale, employment, and service agreements.
  • Courts imply conditions through law (statute or precedent) or fact (based on conduct or circumstances).
  • Breach of implied conditions can justify contract termination or damages.
  • Common examples include duties of cooperation, reasonable care, and good faith.
  • Understanding the difference between implied and express conditions helps clarify legal obligations in contract disputes.

Implied condition contract law presumes certain conditions of the contract exist, even if it is not clearly stated, and that both parties understand these conditions exist before entering into the contract. The Sale of Goods Act 1930, Section 12, describes a condition as the basis for the contract and any breach may result in a voided contract. The consequences of the breach will depend on the nature of the contract and the promises given.

What Is a Condition?

A condition is a promise and the duties they generate and are the basis of what makes the contract work. A condition must meet one of the following to be satisfied:

  • When the statute shows that it is a condition.
  • If the law requires the court to confirm it is a condition.
  • If a breach occurs and the consequences go to the root of the contract.
  • When the parties agree that it is a condition and should be treated as such.

Under the Sale of Goods Act 1930, a condition and a warranty are seen as separate despite them both acting as a promise made by the seller. They are seen as separate because the nature of the promise is different.

An example of a condition being applied occurred in Baldry v. Marshall (1925). In this case, the buyer consulted a car dealer to purchase a car to be used for touring. The car dealer recommended a Bugatti car and stated it would meet the need the client requested. After the purchase, the buyer realized the Bugatti was not fit for touring. The court agreed that as a condition of purchase, the car should have met the implied ability of touring. The buyer was able to return the car and receive the full cost of the car back.

What Is an Implied Condition?

An implied condition in contract law refers to a term that, while not explicitly stated in the contract, is considered to be included by the nature of the agreement or by operation of law. These conditions are essential for the contract to function as intended and are recognized by courts to reflect the parties’ presumed intentions or to uphold fairness.

Implied conditions can arise in two primary ways:

  • Implied by Law: These are automatically included in certain types of contracts due to statutory requirements or established legal precedent. For example, under the Uniform Commercial Code (UCC), there is an implied condition that goods sold are fit for their intended purpose in certain transactions.
  • Implied by Fact: These arise from the circumstances of the contract, the parties' behavior, or common business practices. Courts consider what the parties likely intended had they explicitly addressed the issue.

Conditions in the Contract of Sale of Goods

The Sale of Goods Act 1930 explains the conditions that relate to the ownership, quality, and nature of products being sold in Sections 14 through 17.

  • Condition as to Title [Sec. 14 (a)]: Also known as Right To Sell. In every contract of sale, the first implied condition on the part of the seller is that they have the right to sell the goods. The seller is typically the owner of the goods or is an agent of the owner. In the case of selling a vehicle, ownership may be proven by possessing the vehicle's title.
  • Sale By Description (Sec. 15.): The description of the product or goods being sold is an implied condition that the product or goods will match the description given. The description can include the quantity, characteristics, trademark, brand name, or what type of packing is used.
  • Condition as to Fitness or Quality [Sec. 16(1)]: On a contract of sale the rule of law is "Caveat Emptor," or let the buyer beware, is the implied condition. This means that the seller will supply products or goods in a condition that allows them to be used as expected by the buyer. The buyer should make the seller aware of the intended use, and the buyer will rely on the seller's knowledge level to confirm the particular use is possible.
  • Condition as to Merchantability [Sec. 16(2)]: There is an implied condition that the goods shall be of merchantable quality. Merchantable quality means the quality of the goods being sold are of reasonable and usable quality and are able to complete their intended function. The description of the goods must match a description that is generally known to the marketplace.
  • Condition Implied by Custom [Sec. 16(3)]: The implied condition is that the quality of the goods will meet the requirements described by the seller. If information or condition are withheld, the buyer can reject the product.
  • Condition in a Sale by Sample (Sec. 17): A contract of sale states that the products and goods delivered will match the sample used to confirm the sale. The implied conditions are that the bulk order will match the quality of the sample, that the buyer will be able to inspect the bulk order with the sample in a reasonable timeframe, and that no defects are present so the items are sellable.

How Courts Determine Implied Conditions

Courts use several principles to decide whether to imply a condition into a contract:

  1. Business Efficacy Test: A term will be implied if it is necessary to make the contract workable.
  2. Officious Bystander Test: A condition may be implied if it is so obvious that both parties would have agreed to it had it been suggested.
  3. Reasonableness and Custom: Courts may imply conditions based on customary practices within a particular trade or industry.

However, courts generally exercise caution in implying terms and only do so when the absence of the term would lead to unjust or commercially unreasonable results.

Implied Terms vs. Implied Conditions

It is important to distinguish between implied terms and implied conditions:

  • Implied Terms are provisions that courts or statutes read into contracts but may not be central to the contract’s performance. Breach of such terms often results in damages but not termination.
  • Implied Conditions, on the other hand, are so vital that breaching them typically allows the aggrieved party to treat the contract as repudiated.

Understanding the distinction helps parties assess the severity of a breach and the remedies available.

Legal Significance of Breaching Implied Conditions

Breach of an implied condition generally gives the non-breaching party the right to terminate the contract and/or seek damages. For instance:

  • If a supplier delivers defective goods that fail to meet the implied condition of merchantability, the buyer may reject the goods and rescind the contract.
  • In employment, if an employee violates the implied condition of loyalty, the employer may be justified in terminating the contract.

The legal consequences depend on whether the condition is considered fundamental to the contract’s performance.

Examples of Implied Conditions in Contracts

Implied conditions vary depending on the type of contract, but common examples include:

  • In Contracts for Sale of Goods:
    • The goods must match the description provided.
    • The goods must be of merchantable quality.
    • The goods must be fit for the purpose the buyer communicated to the seller.
  • In Employment Contracts:
    • Employers must provide a safe working environment.
    • Employees must act in good faith and serve their employer’s interests.
  • In Service Agreements:
    • Each party must cooperate to fulfill the contract.
    • There is an implied obligation to perform the service with reasonable care and skill.

Frequently Asked Questions

  1. What is an implied condition in simple terms?
    An implied condition is a fundamental contract term that is not written but assumed to exist based on law or the nature of the agreement.
  2. How does an implied condition differ from an express condition?
    An express condition is clearly stated in the contract, while an implied condition is inferred by courts based on the contract’s context or legal standards.
  3. Can implied conditions be enforced in court?
    Yes. Courts can enforce implied conditions if they are deemed essential to the contract’s performance and fairness.
  4. Are implied conditions common in contracts?
    Yes. Many standard contracts, especially in sales, employment, and services, include implied conditions even if the parties are unaware of them.
  5. What happens if an implied condition is breached?
    The non-breaching party may have the right to terminate the contract and seek compensation, depending on how fundamental the condition is to the agreement.

If you need help with implied condition contract law, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.