Key Takeaways

  • Implied terms in contract law are obligations not expressly stated but assumed by courts to give effect to parties’ intentions.
  • Courts recognize implied terms by custom, statute, or necessity to ensure fairness and uphold business efficacy.
  • Key forms include implied warranties in goods and services, implied duties of trust, and terms essential for contract performance.
  • Notable cases such as Liverpool City Council v. Irwin highlight judicial recognition of duties implied by law.
  • Business efficacy and officious bystander tests are used to determine when terms should be implied.
  • Parties should draft detailed contracts to minimize reliance on implied terms and avoid disputes.

An implied terms definition pertains to the precise language and terminology of a contract. Implied agreement terms relate to items that a court assumes are intended to be mentioned in an agreement, even though they would not be stated expressly. General implied terms are those afforded in agreements for the supply of goods or a sale. 

For example, if A offers goods to B, then B is fair to assume that A has a legal right to offer him the services or goods in question. However, the right could not be stated explicitly in an agreement.

A business person usually does not wish to rely on a judge’s interpretation of the implied terms, which is why the best contracts should be detailed and lengthy so that all items are included in an agreement. However, you should contact an attorney if you cannot include all details in a contract.

Forms of Implied Contracts

Agreement terms may be implied in various ways. In transactions involving the sale of services or goods, you would get a warranty of some type. This means that it is implied that the item you’re purchasing is stated as intended and works properly. Also, the agreement terms are implied when no oral or written contracts exist. In other instances, the contract terms could be implied where the intent behind a contract must have certain items. Even noting express terms that are contrary could not be enough to ignore various terms that are implied by law.

Tests Used to Identify Implied Terms

Courts often rely on established tests to decide whether a term should be implied into a contract:

  • Business Efficacy Test: A term will be implied if it is necessary to make the contract workable. Without it, the agreement would fail to achieve its intended commercial purpose.
  • Officious Bystander Test: A term may be implied if it is so obvious that both parties would agree to it had an independent bystander suggested its inclusion at the time of contracting.

These tests ensure that implied terms are not used to rewrite agreements but rather to reflect what reasonable parties would have intended.

Forms of Implied Definitions

You should also be aware of two types of implied terms: 

  1. Custom
  2. Statute

When it comes to custom terms, such terms are custom in the sense that it is a common happening with a trade context. For instance, Mike buys a bike from a store and expects that the bike is fit for its sole purpose of riding. Regarding statute forms, this pertains to terms implied via statue since it is left in a judge’s hands in deciding a standard regulation of the mandates of a customary term.

Terms that are implied via law must fall back on legal duties stemming from parties that derive from a common contractual partnership, and do not vary based on an intention that’s imputed to the parties.The relationship of all the parties lies between buyer and seller. Therefore, this defines an agreement’s topic as an important incident to have terms apply via law, providing parties with sufficient protections, especially in cases where there is little time involved in negotiating contract terms.

Categories of Implied Terms in Contract Law

Courts typically recognize three primary categories of implied terms:

  1. Implied by Custom or Usage – Terms common in a particular trade or locality may be implied if both parties could reasonably expect them.
  2. Implied by Statute – Laws such as the Sale of Goods Act 1979 (UK) or the Uniform Commercial Code (U.S.) impose terms on contracts, including implied warranties of merchantability and fitness for purpose.
  3. Implied by Law – Certain terms are implied due to the nature of the relationship, such as an employer’s duty to provide a safe working environment.

These categories clarify how implied terms safeguard fairness when express terms are absent.

Notable Cases

In a case known as Liverpool City Council v. Irwin, there are implied statutory terms that a council must legally fulfill. The statuary vehicles that Debora and Peddles could rely on are those that are outlined by the Sales of Goods Act of 1979. The creation of the contract is also defined via Section Two as a valid contract that soundly regulates the terms of a sale pertaining to a statute. The creation of an agreement refers to the selling of goods as an agreement in which a seller agrees or transfers the sale of goods to a buyer in return for money, otherwise known as a price.

The agreement of sale has been validated and the terms within SOGA should apply. The strict contractual adherences stemming from a contract should be addressed pertaining to the quality of the sale, or the supplying of goods, as outlined in SOGA. Based on the circumstances established on the quality of goods, Mike could argue that his bike is not of good quality based on provisions from SOGA.

In addition, terms within SOGA would not extend to the manufacturing of goods in an unsatisfactory manner if such circumstances are fulfilled to the satisfaction of SOGA. If Mike had assessed a bike before buying it, realizing the actual conditions, he would not get the same protections as established in SOGA pertaining to quality and fitness of the bike. Therefore, the implied terms of the description, quality, and fitness of the items would allow Mike to designate the terms. If a term falls under a condition, Mike could rescind the agreement and cite damages in a court case.

If a warranty is factored into the equation, the breach of the terms would only permit Mike to apply for the necessary damages and not rescind the contract itself. Therefore, it’s vital for all parties to note the terms, as would be the case in Lombard North Central PLC v. Butterworth of 1987, where any violation of conditions is labeled as delving to the root of the agreement. Further, an aggrieved party may exit an agreement and file for the necessary damages.

Importance of Implied Terms in Modern Business Contracts

In practice, implied terms frequently arise in business dealings where contracts are informal or incomplete. For example:

  • Employment Contracts: Courts imply duties such as mutual trust, confidentiality, and the obligation to act in good faith.
  • Commercial Contracts: Parties may benefit from implied duties to cooperate and not hinder performance.
  • Consumer Contracts: Statutory implied terms protect buyers by ensuring goods are of satisfactory quality and fit for purpose.

These protections demonstrate why implied terms remain central to contract law despite detailed written agreements.

Frequently Asked Questions

  1. What is the implied terms contract law definition?
    It refers to obligations not expressly written in a contract but assumed by courts to reflect the parties’ true intentions and ensure fairness.
  2. What are examples of implied terms?
    Examples include implied warranties of quality in sales contracts, employer duties of safety in employment, and obligations of cooperation in commercial contracts.
  3. How do courts decide if a term should be implied?
    Courts apply the business efficacy test and the officious bystander test to determine necessity and obviousness.
  4. Can implied terms override express terms?
    Generally, no. Express terms prevail unless the implied term arises from statute, which may override inconsistent contract language.
  5. Why are implied terms important in business contracts?
    They protect parties in situations where express terms are missing, incomplete, or silent, ensuring contracts remain fair and enforceable.

To learn more about implied terms contract law definition, you can post your need, or post your job on UpCounsel’s website. UpCounsel’s lawyers will help you in all cases involving contracts and warranties and will lay out your options if you must go to court over a contract dispute. Moreover, they will review any contract before you sign it.