implied terms essay

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Article Contents

1. introduction, 2. express terms, 3. terms implied in fact, 4. terms implied in law, 5. conclusion.

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Express and Implied Terms

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Frederick Wilmot-Smith, Express and Implied Terms, Oxford Journal of Legal Studies , Volume 43, Issue 1, Spring 2023, Pages 54–75, https://doi.org/10.1093/ojls/gqac023

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Contract terms can be express or implied. But what does that mean? I argue that the distinction can be illuminated by reference to the philosophy of language. Express terms are best understood by reference to the truth-conditional content of the parties’ agreement; implied terms are derived from express terms by a process of reasoning, albeit one aimed at establishing the parties’ commitments.

Contractual terms can be either express or implied. That statement—disarmingly simple, commonplace—is a source of perennial controversy. For example, in Marks & Spencer v BNP Paribas , the Supreme Court disavowed Lord Hoffmann’s advice to the Privy Council in Attorney General of Belize v Belize Telecom Ltd on the basis of implied terms. 1 Judges and scholars also continue to debate whether the law should recognise duties of good faith (sometimes under the rubric of ‘relational contracts’)—and, if so, whether the recognition should be via a term implied in law or in fact. 2

The intractability of these debates should come as no surprise. For one thing, the proper approach is important to practising lawyers (and their clients), who therefore have every incentive to highlight all possible points of disagreement. More important (and certainly more interesting) is the fact that doctrinal disputes rest upon contested but under-explored theoretical premises. The very notion of a contractual term is puzzling, partly because it has been ignored by scholars; even with a sure grasp of the concept of a term, it is not obvious what the express/implied distinction actually consists in.

Any account of implied terms presupposes an account of express terms—though those presuppositions are often silent preludes to any discussion of contractual terms. I begin by presenting my own account of express terms. My overarching claim is that it is best to understand both express and implied terms by reference to the meaning which lends those terms their content. However, the express/implied distinction in law does not supervene on the explicit/implicit distinction in language. Express terms, in other words, are terms whose content derives from both explicit and implicit features of agreements. Thus, when we interpret agreements—ie when we aim to discern what their express terms are—we are sometimes concerned to establish implicit meanings. Implied terms are, I claim, concerned only with a sub-category of implicit meaning.

These distinctions allow us to vindicate the central justificatory claim Lord Hoffmann made in Attorney General of Belize , that implied terms seek to spell out the meaning of an instrument (and, therefore, the justification of their enforcement is no different from the justification of the enforcement of express terms). Further, since the meaning of agreements from which implied terms take their content is itself derived from a rule-governed process of reasoning, the otherwise puzzling decision in Marks & Spencer —puzzling, because it offers no account of why implied terms arise—is also rendered explicable. The critical practical question is what the rules should be. That will determine, for example, whether the law should recognise duties of good faith—and when.

A. Terms and Meaning

When thinking about contracts, we should distinguish linguistic from legal content. 3 Linguistic content concerns the information conveyed by an action such as (in our context) an utterance or agreement; 4 legal content is the relevant change in the set of legal propositions resulting from the action under consideration (the oral agreement, the signature on a written document, etc). 5 The content of the propositions may be the same. For example, a contractual document might state that ‘ A owes B £10’. Its linguistic content might be the same as the legal content it generates: A owes B £10. But this connection is a contingent fact and should not mask the conceptual point, that the linguistic and the legal are on different metaphysical planes. Perhaps this is too obvious to voice: a lawyer’s job is not to discover the meaning of anything; it is to ascertain the contribution made—say, by an agreement—to the content of law. 6 But we should attend to the distinction: the language of ‘interpretation’ has led some scholars and judges to think of ‘contractual interpretation’ as, at root, a philological exercise, which can have insidious effects on doctrine. 7

There is no orthodox account of the nature of an express term, largely, perhaps, because few have ever paused to consider the issue. For example, Peter Benson’s long and thoughtful treatment of implied terms at no point explains what an express term is. 8 One account seems to be presupposed in the English cases. Lord Neuberger writes that ‘it is only after the process of construing the express words is complete that the issue of an implied term falls to be considered’. 9 In so saying, he suggested that express terms are concerned with ‘express words’; we can only turn to implied terms when there are no ‘express words’, or when interpretation of those words is exhausted. This formulation is prominent, particularly in the more recent cases. 10 There are at least three problems with it. 11

First, since our focus is upon a type of legal content, any analysis which explains terms by reference to ‘words’ is elliptical. Words are not terms: terms have legal content; words do not. Ellipsis is often fine enough, but we should seek more clarity when trying to understand the concept.

Second, the underlying distinctions (‘express’ and ‘implied’) are most readily and commonly used to analyse semantic concepts, like meaning and reference. With a bit of work, it may be possible to apply them to words. Yet once the idea of ‘implied words’ is spelled out, it seems that terms deriving from implied words can be express. Assume, for the sake of argument, that it makes sense to say that words can be implied in cases of ellipsis. 12 Suppose that a man walks into a shop and holds up a bottle of water: ‘How much [would it cost to purchase this bottle]?’ The shopkeeper replies: ‘Fifty [pence].’ The man pays. There is a contract of sale; its express terms derive from meaning encoded in the words implied (ie those in square brackets). 13

Third, every term, express or implied, of a written contract must depend in some sense on the words used to form or represent the agreement; no conception of implied terms says that a judge can ignore the contractual text. 14 The crucial question for an account of express and implied terms is the precise relation between the text used and the terms created. Neuberger’s statement does not grapple with that; at most, it reasserts the question. I turn to the question now.

B. The Nature of Express Terms

(i) the core concept.

Suppose that two parties, A and B , agree on the sale of B ’s boat. They devise a written contract. Clause 1 reads ‘ A agrees to purchase and B agrees to sell all rights, title and interest in the vessel Frege ’. Ignore the law for a moment. The agreement encodes truth-conditional content, content which determines aspects of its meaning: about, for example, who A is, who B is and the identity of the vessel. Call all such information ‘semantic’.

Contractual terms are (roughly) those propositions of law made true by the parties’ act of contracting. The core—though, as I explain below, not the entire—concept of an express term is one where the legal content of a particular proposition is provided by the semantic content of the parties’ agreement. 15 In the above example, the parties’ agreement creates two terms: an obligation on B to transfer title of the vessel to A ; and an obligation on A to pay the purchase price to B . Those terms are express because the legal content—who the parties are, what they must do—is given by the semantic content of the parties’ agreement. 16

This account is clearest where the parties agree to a written text, or where the agreement is formed through linguistic means. However, the same account applies to contracts agreed by conduct. As my example of the purchase of the bottle of water illustrates, actions can (alone, or combined with words) be used to communicate an intention, either to make an offer or to accept an offer made. 17 Where an offer is made by conduct, the offer will give any ultimate agreement its content. We can apply the same distinctions deployed above and below (in my analysis of contracts formed through linguistic means) to such cases. That is because the concepts I use to explain implied terms are not unique to linguistic means of representing content: gestures can have content, and can generate implicatures and presuppositions, too; indeed, the law on implied terms generated through conduct is a fertile source of further study of that very point. 18

(ii) Beyond the core

John Stuart Mill pointed out that

If I say to any one, ‘I saw some of your children today’, he might be justified in inferring that I did not see them all, not because the words mean it, but because, if I had seen them all, it is most likely that I should have said so: though even this cannot be presumed unless it is presupposed that I must have known whether the children I saw were all or not. 19

To develop and extend the core concept, two features of Mill’s example are worth stressing.

First, there is a distinction between the intuitive truth conditions of what is asserted in an utterance and other propositions conveyed by the utterance. We can mark this distinction by talking of what an utterance asserts as distinct from what it conveys . In Mill’s example, the speaker asserts the proposition that he (Mill) saw at least one of the hearer’s children. If Mill saw no children, we would, intuitively, call his statement false; if he saw one or more, we would think it true. If we assume that Mill sought to ‘make [his] contribution as informative as required’, we can also deduce that he did not see every child. 20 The utterance conveys that information. But Mill does not actually say that. If he did see all the children, perhaps we might charge him with being misleading, but not of lying.

We can denote this distinction, using terminology I have already invoked, by thinking of a divide between ‘semantics’ and ‘pragmatics’. 21 Although the distinction is famously slippery, it is customarily thought to be something along the following lines: semantics concerns the truth-conditional content encoded in a sentence or utterance (in its relevant context); pragmatics deals with the information communicated by (but not encoded within) the sentence or utterance. Thus, it is natural to suggest that the semantics/pragmatics distinction, whatever it may be, marks the divide in natural language from which lawyers derive the distinction between express and implied terms. 22

The suggestion should be rejected. Pragmatic inferences can part-constitute express terms; the semantics/pragmatics distinction cannot, therefore, be central to our inquiry. Consider, to illustrate, a case where I say that ‘I will pay you £10 if you deliver the Frege ’. As a matter of pure semantics, we agree that: if you deliver the vessel, I will pay. This is logically consistent with you not delivering the vessel and my paying you the money. Yet the obligations are clearly dependent; the express terms of our contract are: if and only if you deliver the vessel, I will pay you. The ‘and only if’, which converts a conditional to a biconditional, is a pragmatic inference. 23 In this way, the express terms of a contract can depend on pragmatics for their content.

In light of this, an extension to the core concept can be made. The core concept of an express term is one where the content is the parties’ agreement’s semantic content. Like any core, that concept is incomplete. All semantic content-based terms are express; not all express terms’ content is coextensive with semantic content alone (at least as that concept is customarily understood). How, then, can we incorporate this insight into our concept? It is hard to do so without overkill: as explained below, some pragmatic features are better explained as functions of implied terms. It is better to hold onto the core concept, accepting that it has some fuzzy edges. Indeed, if there were a very clear divide between the two concepts, the debate on the nature of implied terms would not have proved so intractable.

The second key feature of Mill’s discussion is as follows. There is an intuitive distinction between explicit and implicit features of an utterance, but this distinction does not map perfectly onto that between semantics and pragmatics. 24 Implicit features of speech sometimes contribute to the intuitive truth conditions of what is asserted; sometimes not. I will mark that distinction by using the language of ‘implicit content’ for the former features and ‘implicatures’ for the latter.

To see an example of implicit content, suppose that you come to my party and I tell you that ‘all the beer is in the fridge’. If true, this would be quite some party: my fridge would have all the beer in the universe ready for my guests. In context, of course, what I said was that all the beer for the party is in the fridge. So what I said was true. Yet there are no words to which you could point as expressing the restriction: it comes from the sentence as a whole, in its context of utterance. Here, then, the content in question is both implicit and part of what is asserted by the utterance. There are numerous similar examples in natural language. 25 A child falls over and cuts herself; the parent reassures the child: ‘You’re not going to die.’ What the parent has explicitly said is false: the child is bound to die. But the proper interpretation of what is said is something like ‘You’re not going to die from that cut ’. 26 We can refer to these ideas in the language of ‘implicit content’. 27 The ‘beer in the fridge’ example is one of restriction of a quantified domain.

An example of an implicature is, as developed below, the implication of Mill’s statement, that he had not seen all the children. The implicature is divined not from any individual word, but from the words used plus more general ideas about speakers’ purposes in communication. 28

It is characteristic of all implicit features of expression that there is no phrase, word or morpheme denoting the meaning in question. The explicit/implicit distinction is therefore a promising distinction in natural language upon which the express/implied term distinction could supervene. Perhaps this is what David McLauchlan has in mind when he says that express terms are derived from the ‘express meaning [of] the words’. 29 His notion seems to be this: express terms derive from the explicit meaning of contractual agreements; implied terms derive from the implicit meaning of agreements.

We should reject this suggestion, too. Terms whose content is given by, or partly by, implicit content are usually understood as express. For example, when the Antaios was chartered on a three-year time charter, clause 5 of the charterparty stated that ‘on any breach of this charterparty, the owners shall be at liberty to withdraw the vessel’. The arbitrators, High Court, Court of Appeal and House of Lords all agreed that the clause did not mean what it said. Rather than ‘any breach’, they all agreed that the clause meant ‘any repudiatory breach’ (depriving the clause of any contributory meaning to the instrument, since the owners had that power at common law). 30 The case is perhaps best known for Lord Diplock’s incautious statement about ‘business common sense’. 31 More interesting for our purposes is the fact that no one thought the issue was one of the implication of terms; it was understood to be a question of interpretation. 32 The example is no different, conceptually, from that of the beer in the fridge. It shows that the distinction between express and implied terms cannot be that between explicit and implicit features of agreements.

The point is of more than theoretical interest. Had the issue been characterised as concerning the implication of terms—an implied limitation, that is, on the scope of the express clause—it is hard to see how the owners’ argument could have failed. 33 It was not necessary to restrict the owners’ right in the way the House of Lords did. This is, then, one way in which apparently rigid rules on the implication of terms can be manipulated: by collapsing implicit aspects of agreements into express terms.

(iii) The concept restated

The core concept is helpful enough for most purposes. A more accurate statement is as follows: express terms are those whose content is given by or closely relates to the semantic content (including implicit content) of the parties’ agreement. The emphasised text is to include the pragmatic features of agreements—such as that in The Antaios —which are customarily thought of as part of express terms.

With this preliminary account in place, we can now turn to implied terms.

A. The Basic Distinction

The concept of an implied term seems to have emerged by the end of the 17th century, at least within certain commercial cases. 34 A century later, the concept was entrenched, usually in cases of sale. For example, in Gardiner v Gray , Lord Ellenborough said it ‘is an implied term in every such contract’ that goods sold are ‘saleable’ and ‘answering the description in the contract’. 35 And in Morley v Attenborough , Baron Parke considered ‘whether there is an implied warranty of title in the contract of sale of an article’. 36 By the end of the century, Bowen LJ was able to formulate the various strands into a general principle, that terms are implied ‘to give such business efficacy to the transaction as must have been intended’. 37

The law has since come to distinguish between terms implied ‘in law’ and those implied ‘in fact’. The canonical statement of this distinction is in Liverpool City Council v Irwin. 38 Lord Cross said that

When it implies a term in a contract the court is sometimes laying down a general rule that in all contracts of a certain type—sale of goods, master and servant, landlord and tenant and so on—some provision is to be implied unless the parties have expressly excluded it. 39

Such a term is now said to be one implied ‘in law’. ‘Sometimes, however,’ Lord Cross added,

there is no question of laying down any prima facie rule applicable to all cases of a defined type but what the court is being in effect asked to do is to rectify a particular … contract by inserting in it a term which the parties have not expressed. 40

I will consider terms implied in fact in this section, before turning to terms implied in law in the next.

B. Implied Terms and Implicature

(i) the thesis.

In recent decades, both the concept of terms implied in fact and the test for their implication have been the source of a great deal of controversy. 41 The debate has focused in part on whether the implication of terms involves a ‘different process’ than the interpretation of express terms. For example, Lord Neuberger has said that ‘construing the words used and implying additional words are different processes governed by different rules’. 42 But this statement is elliptical, for reasons which should now be familiar: we need to move beyond references to words in any analysis. The challenge is to state plainly, without ellipsis or metaphor, what implied terms actually are.

My thesis is that the content of implied terms does not derive from any content asserted by the parties’ agreement; instead, implied terms are derived from express terms through a rule-governed process of reasoning. 43 To that extent, the Supreme Court was right in Marks & Spencer to stress the distinction between interpretation and implication. However, the method of inference from express terms should be linked to the underlying agreement: an implied term should also be one to which the parties can be understood to have agreed. For that reason, the board in Belize Telecom was correct to downplay the distinction between interpretation and implication. I will develop and explain my thesis in this section by reference to ‘implicatures’, a concept from the philosophy of language; in the next section, I consider the related but distinct concept of presupposition.

Recall Mill’s example, where someone says ‘I saw some of your children today’. Although such a speaker does not say that he did not see all the children, in Paul Grice’s term he implicates that fact. In Grice’s canonical example,

A is writing a testimonial about a pupil who is a candidate for a philosophy job, and his letter reads as follows: ‘Dear Sir, Mr. X’s command of English is excellent and his attendance at tutorials has been regular. Yours, etc.’ 44

The content of the letter is that X speaks English well and turns up to class. The natural reading is that the referee wants ‘to impart information that he is reluctant to write down’. The implicature is: ‘Mr. X is no good at philosophy.’ 45 There is, therefore, an intuitive distinction between the proposition expressed in the reference letter and the proposition thereby conveyed .

The precise mechanism by which implicatures arise is a matter of intense debate amongst philosophers of language and linguists. The orthodox view is probably something like this: we first decode what is said (the proposition expressed, which is concerned, in the above terminology, with what is asserted ) and then infer from this some further proposition (the proposition conveyed). 46 The reference letter refers only to the candidate’s command of English and attendance at tutorials, so it is natural to think that one must first decode, roughly, that the candidate has a good command of English and attends tutorials. From that content, combined with context (and certain assumptions about the purpose of the utterance), we can infer that the candidate is hopeless. 47

Philosophers of language tend to consider unilateral utterances, not the content of agreements. Nevertheless, these distinctions can be applied—albeit with some revisions—to agreements and, therefore, to contracts. Agreements can generate implicatures. 48 Consider, to illustrate my claim, Short v Stone . 49 The declaration in assumpsit stated that

in consideration that the plaintiff, being then unmarried, at the request of the defendant, had then promised the defendant to marry him the defendant, he the defendant then promised the plaintiff to marry her within a reasonable time next after he should be thereunto requested by the plaintiff so to do … 50

It also stated that, ‘contrary to his said promise’, the defendant married a third party, one Edith Collins. The defendant’s response was that the plaintiff had not alleged a request prior to issue of the suit. The plaintiff demurred to the plea and that was held to be good. The defendant’s breach was not in failing to marry on request, but in marrying the third party; the absence of request was, therefore, immaterial. The further obligation (not to marry anyone else) arises because, although the promisor never said as much, it is natural for a promisee to infer that the promise to marry on request carried with it the further obligation. 51

Just as the reference writer did not actually say that the candidate was hopeless, it was no part of the explicit content of the promise that the defendant would not marry a third party. Nevertheless, the parties meant the agreement to include the further obligation. This close relation to what is said is important because it demonstrates that implied terms are not simply ‘logical implication[s]’ (ie entailments) of express terms. 52 Suppose that you and I agree that ‘2 + 2 = 5’. A logical implication of our agreement is that we are fools—but we do not agree to that . 53

This account raises two immediate issues: first, how are the implications of an agreement derived? Second: which implications of an agreement do the parties agree to? These issues must be considered together. We need to distinguish between the implications of the parties’ agreement to which it is sensible to say the parties are committed—and those implications which, while logical inferences of the agreement, are ones the parties should not be held to have agreed. To clarify this, we should return to individual utterances. When seeking to ascertain the implicatures of a speaker’s statement, we must assume something about the speaker’s purpose in making the statement. For example, Grice’s ‘cooperation principle’ assumes that speakers aim to make their conversational contribution ‘such as is required, at the stage at which it occurs, by the accepted purpose or direction of the talk exchange in which you are engaged’. 54 With that principle in hand, it is easy enough to see how the implicature in the reference example is derived.

This shows that implicatures can be derived from express terms only with something like Grice’s cooperation principle: some statement of the parties’ purposes in reaching the agreement they reached. This is not simply a matter of linguistics: background normative assumptions will condition which further propositions the parties are understood to have agreed. Consider, for example, Lord Hoffmann’s statement that

The question of implication arises when the instrument does not expressly provide for what is to happen when some event occurs. The most usual inference in such a case is that nothing is to happen. If the parties had intended something to happen, the instrument would have said so. 55

This reticence makes sense only against a background where parties are assumed to be (and thought to be justified in being) self-interested. This reluctance would not be shared when considering, by contrast, agreements between friends. 56 This point is of central importance: a great deal of doctrinal debate regarding implied terms concerns what the background assumptions of contracting ought to be. I return to it in more detail below when I consider implied terms of good faith.

(ii) Doctrinal evidence

The close relation between implicature and implied terms can be demonstrated by considering three doctrinal features of implied terms. Each feature is explicable once implied terms are understood as legal implicatures.

First, express terms have a logical priority over implied terms. As Lord Neuberger states, ‘until the express terms of a contract have been construed, it is, at least normally, not sensibly possible to decide whether a further term should be implied’. 57 The reason is that implied terms are inferred from express terms. 58 This priority aligns with the linguistic sphere, where implicatures are derived from the content asserted.

Some have expressed doubt about this alleged priority of express terms over implied terms. For example, Lord Mance claimed that courts should not

adopt too rigid or sequential an approach to the processes of consideration of the express terms and of consideration of the possibility of an implication … [P]articular provisions of a contract may … give rise to a necessary implication, which, once recognised, will itself throw light on the scope and meaning of other express provisions of the contract[.] 59

This is doctrinally heretical. Yet it is analogous to the debate concerning the mechanism by which implicatures arise. Stephen Levinson objected that the two-stage Gricean model, where pragmatic rules are combined with what is said to generate further meaning, was circular. ‘What is said,’ he claimed, ‘seems both to determine and to be determined by implicature.’ 60 The idea is that the product of the reasoning process can be used to feed back into the question of what is ‘said’. But if what is ‘said’ is the input to the reasoning process, how can that be so? There is, Levinson suggested, a ‘chicken-and-egg problem’ about priority: neither what is said nor what is implied can be given priority, since each depends upon the other. 61 Hence his name for this objection: ‘Grice’s circle.’ It does not matter, for our purposes, what the proper resolution of this puzzle is. The point is that the theoretical foundations of the doctrinal dispute are uncovered once we understand implied terms as implicatures.

Second, an implied term cannot contradict the express terms of the contract. 62 This assumption is explicable on my proposed model of implied terms: the implicature of an agreement cannot be inconsistent with the content of the agreement itself precisely because the implicature seeks to develop the content asserted. 63

Third, implied terms can be excluded by express provision. 64 It is, by contrast, unintelligible to talk of ‘excluding express terms’. That contrast—between express and implied terms—is so obvious as to scarcely warrant comment. Yet it is theoretically significant precisely because the signature component of implicatures is that they can be cancelled without amending the content of the utterance. 65 It makes sense for a referee to write that ‘Mr X’s attendance at tutorials has been regular’ and then to add that ‘he is a superb philosopher’. By contrast, it makes no sense to say: ‘You’re not going to die (from that cut) and you are going to die from that cut.’ 66 Thus the possible express exclusion of implied terms, and incoherence of ‘excluding express terms’, is explicable once implied terms are understood as implicatures.

C. Presupposition

Conversational implicature is often distinguished from presupposition. The definition of presupposition, and the way in which presuppositions are inferred, are sources of considerable debate in the literature. We can prescind from most of these issues; however, as I describe below, certain legal disagreements are illuminated by knowledge of the wider philosophical debate.

As a general characterisation, we can say that an utterance presupposes some proposition if (and only if) one can reasonably infer from the utterance that the speaker accepts the proposition (and the utterance would not make sense if they did not). 67 Agreements, likewise, make presuppositions. For example, the contract where ‘ A agrees to purchase and B agrees to sell all rights, title and interest in the vessel Frege ’ presupposes that there is a (possibly unique) vessel, named the Frege , to which B holds title. My account to date has explained implied terms as legal implicatures of express terms. Might implied terms also be derived from presuppositions of express terms? 68 ‘Yes’, I will argue. But the relation between presupposition and implied terms is complex and requires special care.

Let me first justify my ‘yes’. In the Exchequer Chamber’s decision in Couturier v Hastie , Parke B states that ‘when there is a sale of a specific chattel, there is an implied undertaking that it exists’. 69 The content of this implied term derives from an existential presupposition: an undertaking to sell a thing presupposes the existence of the thing. 70 The structure of this implied term fits my account developed above: the content of the term is derived from the meaning of the express term but is not itself contained in the express term’s meaning.

There are, however, three complications to any account of implied terms which makes reference to presupposition. The first is that the presuppositions of express terms can be obligations or conditions and that not everyone understands the conditions as terms of the contract. Parke B’s dictum illustrates a presupposition as an obligation. By contrast, the High Court of Australia observed in McRae v Commonwealth Disposals Commission that (in a contract of sale) the existence of the item—ie the same presupposition Parke B held was promised—may be an implied condition precedent to the validity of the obligation to deliver. 71 It is not easy to explain why presuppositions are construed in such different ways when the express term is the same. To say that it is ‘a question of construction’ for each individual contract whether the presupposition yields a condition or obligation is little more than a conclusory label; it would not explain the reason why the analysis is different.

On some views, such conditions (often discussed in terms of ‘common mistake’ and ‘frustration’) are not juristically distinct from implied warranties: they are implied terms like any other. 72 Yet that view is far from universally accepted; the orthodox account is that common mistake and frustration are legal doctrines, not epiphenomena of the parties’ agreement. This shows that particular care is needed when developing any account of implied terms by reference to presupposition. However, it does not challenge my thesis: consistent with my claims, the content of both the condition and the promise is supplied by the presupposition of the express term; the proper characterisation of the presupposition as a condition is a separate question to an account of implied terms.

The second complication raised by cases of presupposition is that the presupposition of an utterance cannot normally be cancelled felicitously. 73 Suppose, for example, that B promises A : ‘I will transfer title in the Frege to you.’ This presupposes the existence of the vessel. It would be incoherent for B to add ‘but there is no such vessel’. I have already claimed that the legal parallel to cancellability is the parties’ power to exclude implied terms. The fact that presuppositions cannot normally be cancelled is therefore in tension with the legal position that parties are able to exclude implied terms.

But it is only in tension, not strictly inconsistent with the legal position. When an implied term is excluded, the parties cancel not the presupposition, but the warrant as to its truth. That distinction may be subtle, but is important. It is odd (even suspicious), but not a semantic catastrophe, to say ‘I will transfer title in the Frege to you but I do not promise that the Frege exists’. The oddity, however, serves to highlight a confusing feature generic to cases where implied terms are founded upon presuppositions. Once B has promised to transfer title to the Frege , if the Frege does not exist, B will (absent any implied condition on the validity of the obligation) inevitably owe damages for breach of the express terms. An implied obligation to warrant the truth of a presupposition therefore seems unnecessary: a failure of presupposition entails breach of an express term from which the presupposition was derived. This means that it is difficult to square the existence of implied terms founded upon presuppositions with the law’s rule that implied terms must be necessary.

The third complication is that there is an unusually strong urge, when considering terms sourced in presuppositions, to explain the term as express, not implied. This is demonstrated clearly in the High Court of Australia’s discussion of Couturier v Hastie . 74 The same is true of the High Court’s own decision in McRae . The Commission accepted the claimant’s tender for the purchase of an oil tanker said to be ‘approximately 100 miles North of Samarai’. 75 No such vessel existed. The claimant brought a claim for breach of contract and thus had to prove that a contract existed (or, more precisely, that the obligation to transfer title to the vessel was not cancelled by the parties’ common mistake). The High Court of Australia held that the contract was valid and permitted an action for breach. The Court held that the essential question was: ‘What did the promisor really promise?’ 76 In other words, it regarded the question as turning on an analysis of the express terms.

This complication may be partly a function of the contested nature of presupposition in the philosophy of language. There is, for example, a debate concerning whether some (and, if so, which) presuppositions are lexically encoded in the primary utterance. That debate suggests one reason why it may be tempting to understand presuppositions as part of express terms: I have argued that express terms are those terms founded upon the semantic content of the agreement; semantic presuppositions can therefore naturally be understood as constituting express terms. Further, and less charitably, the fact that implied terms founded upon presuppositions are difficult to justify as a matter of necessity may also explain why courts consider them as part of the express terms: as I claimed above in the context of The Antaios , the distinction between express and implied terms can be manipulated for precisely these reasons.

These complications illustrate that the relationship between presupposition and implied terms is worthy of further inquiry. They are not, however, problems for my account: implied terms are, stated generally, terms derived from the express terms through a process of reasoning which seeks to determine what further terms the parties are (by their commitment to the express terms) committed to.

This analysis helps to illuminate—and sometimes to dissolve—two controversies in the doctrinal and scholarly literature.

(i) Interpretation and implication

I began this article by introducing, albeit briefly, two doctrinal debates. The first was the question, raised most clearly in Attorney General of Belize and Marks & Spencer , of whether implied terms are functions of the parties’ agreements or the court’s rules; the second was the question of whether the law should (or does) recognise implied duties of good faith. Once the proper theoretical basis of implied terms is understood, these debates can be seen as closely interlinked—and various apparent disagreements between the disputants can be dissolved.

We should begin by characterising the first question more carefully. The orthodox account of implied terms is that they are derived from ‘rules’, and that this derivation is a different process from the interpretation of express terms. There are two stages to this analysis. The first is to establish the content of the express terms of the contract. Once that is done, implied terms are derived from the combination of those express terms with doctrinal rules, such as the ‘business efficacy’ rule. 77 Adherents of this model thus draw a sharp distinction between interpretation of the contract (that is, the elucidation of express terms) and the implication of terms: express terms are logically prior to implied terms; the content of implied terms is derived in a different manner from that of express terms. 78 The chief rival to this account is Lord Hoffmann’s advice in Attorney General for Belize . Lord Hoffmann claimed that ‘the implication of the term is not an addition to the instrument. It only spells out what the instrument means.’ 79 Hoffmann therefore endorsed an agreement-centred account of implied terms. 80

My analysis shows what is right about both accounts. The parties have not catered for implied terms in the content of their agreement, which is why courts turn to the implication of terms. However, the implication of terms is still tethered to the agreement: they are derived from the express terms through a rule-governed process. 81 And, importantly, the rules are best understood as attempts to specify the rules of communication in the context of contracting. This shows why the classic ‘rules’ or ‘tests’ for the implication of terms stress the centrality of the parties’ agreement. This is obvious enough in the ‘officious bystander’ test. 82 But it is also implicit in the ‘business efficacy’ test: the parties are understood to have a master intention, that any contract they entered into will function, and the judges’ aim is to ensure that that intention is fulfilled. 83 As Lord Wright put this, a term implied in fact ‘must be implied if the intention of the parties is not to be defeated ’. 84 These tests’ reference to the parties’ agreement is explained by my thesis: implicatures of an agreement are meaningfully part of what was agreed. The distinction between agreement and rule-governed models is therefore too crude. The supposed distinction between Hoffmann’s and Neuberger’s accounts is more shallow than commonly supposed: both conceptions of implied terms are, to adapt Derek Parfit’s phrase, ‘climbing the same mountain on different sides’. 85

There are two crucial benefits to this softening of the contrast between agreement and rule-based accounts. First, it helps clarify what is at stake in various doctrinal debates; second, it enables us to improve upon the contemporary doctrinal debate, while understanding why the doctrine is as it is.

To see the first of these benefits, recall that an implicature is derived from a proposition with an additional rule—for example, Grice’s ‘cooperation principle’, introduced above. Such additional rules are functions of the context in which the primary utterance (in the contractual context, the express terms) is made. Crucially, the law’s rules for the implication of terms have a reflexive aspect. 86 Given the basis of terms implied in fact, those rules must aim to track the parties’ reasonable expectations about the content of their contracts; however, the law’s rules also part-constitute the parties’ expectations, since what the parties are entitled to expect depends in part on what the law allows them to take for granted.

To illustrate this point, consider the contemporary battle over the implication of a duty of good faith. 87 In his discussion in Yam Seng , Leggatt J was concerned to show that the implied term simply represented what the contracting parties would be likely to expect their contract to mean: he argued that the term in question was an implication in fact. Soon after, Leggatt J stated that (on the contract before him in that case) such an implication could be made as an implication either in law or in fact. 88 I do not seek to analyse the merits of these decisions. My point is simply that contracting parties to long-term contracts will now be able to expect something more than the most basic cooperation to which they were previously entitled. 89 In that way, the court’s decisions affect the underlying maxims from which further implicatures (and, so, implied terms) can be derived.

This example explains why controversy surrounds the proper tests for the implication of terms and why it can be difficult to see what is at stake in the heated debates. There is controversy because implied terms are a key battleground where the question of what contracting parties can legitimately expect, so far as the law is concerned, is answered. These debates can be both at the wholesale level (concerning what the test(s) for the implication of terms ought to be) and the retail level (in an individual case, concerning what those rules demand for a token contract). Since these are, at root, political questions about the proper distribution of power, powerful and impassioned disagreement is predictable. However, it can be difficult to see what is at stake precisely because these political disputes are fought, as it were, through satellite litigation over the proper maxims to govern the derivation of implicatures.

To see the second of these benefits, notice that Lord Hoffmann made two points in Attorney General for Belize . He argued, first, that the theoretical basis for the implication of terms was, as suggested in this article, 90 a matter of interpreting the parties’ agreement. 91 And he inferred from this, second, that the old tests, such as the ‘officious bystander’, were therefore no more than rules of thumb. 92 The Supreme Court seemed to reject that analysis. When Lord Neuberger disavowed the advice of the board in Attorney General for Belize , he reaffirmed the old test: terms implied in fact arise only where a proposed term is ‘so obvious as to go without saying or to be necessary for business efficacy’. 93 These, though, are tests for the implication of terms. Lord Neuberger’s judgment offers no conceptual or theoretical basis for those tests—or, indeed, for the implication of any terms. There is, therefore, no rebuttal of the central theoretical premiss from which Hoffmann inferred his conclusion.

This is a puzzle. But we can make some progress, and throw more light on Marks & Spencer , if we assume that Lord Neuberger’s quarrel was not with the premiss, but with the inference. Lord Hoffmann disavowed any test for the implication of terms, simply buck-passing the task to the interpretation of language (as he had already buck-passed the task of the interpretation of contracts to the study of language). 94 However, it is a more complicated task to ascertain implicatures than it is to divine semantic content; one must be attuned to the context of utterance and, especially, the background norms of the parties forming the agreement. The Supreme Court’s essential concern seems to have been a sense that Lord Hoffmann’s approach would make it too easy to imply terms. The concern is, on this analysis, not that the theoretical premiss is false; it is, instead, a fear that the approach would lead busy judges to forget the distinctly legal context of implied terms (inferring implicatures too readily, as one might between friends or in a non-legal context).

There is a more wide-ranging concern here regarding rule design, a concern which is rarely made explicit in judicial discussions. The optimal legal rule will always depend upon both the inherent and the contingent limits of a legal system. The Supreme Court’s judgment in Marks & Spencer presupposes that clever counsel might hoodwink the busier or less able judges, leading to unjustified implications of terms. This might be right; it is a partly empirical question. But, even if so, it is entirely consistent with my thesis in this article, which is that Lord Hoffmann’s theoretical premiss was sound.

(ii) Implied terms and the fixation thesis

In Lord Hoffmann’s canonical statement, a contract’s content is a function of ‘the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract ’. 95 This suggests that the contribution a contract makes to the law is fixed at the time of entry into the contract. We can call this thesis, that contractual content is fixed at the point of contracting, the ‘fixation thesis’. 96

This thesis is important for our purposes because there is sometimes an equivocation, apparent in both the judicial and scholarly literature, between talk of implied terms as something nascent within the parties’ contract (and discovered by courts) and something the courts put into the contract. 97 Consider this passage of Lord Hodge:

Interpretation is not the same as the implication of terms. Interpretation of the words of a document is the precursor of implication. It forms the context in which the law may have to imply terms into a document, where the court concludes from its interpretation of the words used in the document that it must have been intended that the document would have a certain effect, although the words to give it that effect are absent. 98

The passage begins with a distinction between interpretation from implication: Hodge states that ‘the law’ implies implied terms, in presumed (though silent) contrast to express terms, which Hodge suggests that the parties themselves add. However, the passage concludes that terms will be implied only when the document ‘must have been intended’ to have some particular effect, ie to include the proposition in question, the implied term. He concludes, therefore, that the parties intended that the term be part of the contract.

If implied terms are additions to contractual content, fashioned by a judge, their existence seems to be inconsistent with the fixation thesis. That is obviously true if the implied terms are added by a judge at trial; it is also true if the implied terms are added by legal rules, certainly if those rules ever change after a contract is agreed. Implied terms thus raise the spectre—for those who agonise about these things—of judicial interference in parties’ bargains. These concerns led Lord Hoffmann to stress, in his own judicial treatment of the topic, that the court has ‘no power to improve upon the instrument’. 99 When there is an implied term, he went on,

it is said that the court implies a term as to what will happen if the event in question occurs. But the implication of the term is not an addition to the instrument. It only spells out what the instrument means. 100

My proposal explains both the perennial equivocation and why implied terms can be understood to be consistent with the fixation thesis. There is a sense in which the courts add implied terms: the implication of terms into a particular contract depends in part on the wholesale rules governing the implication of those terms, and those rules are within the court’s control. However, part of the court’s aim, in formulating the rules and adding those terms, is to ensure that the legal content of the parties’ contract tracks the set of propositions to which the parties agreed. In that sense, therefore, implied terms are consistent with the fixation thesis.

Certain terms arise not as a direct function of the parties’ agreement, but as ‘legal incidents of [certain] … kinds of contractual relationship’. 101 This kind of ‘term’, now generally known as a term ‘implied in law’, arises as follows. The terms of a token contract are taken to constitute a type of contract (such as a ‘contract of sale’ or ‘contract of employment’). 102 The type of contract is then conjoined with the law’s general rules on implied terms—given either by the common law or, as in our example, a statute—to produce further content.

Terms implied in fact must aim to replicate a certain inference of the parties’ contracting, and the rules governing their creation must, therefore, be ­agreement-centric. By contrast, the rules governing the implication of terms implied in law need not bear any relation to the parties’ supposed aims or intentions in forming their contract. The modality of this last statement is vital. The rules concerning the implication of terms in law need not relate to the parties’ agreements or intentions—but they may. A statute could imply into all contracts for the sale of boats that the vessels be blue. The term would then be implied into all sales, yet its implication clearly does not relate to the parties’ intentions. 103 A statute could, equally, imply into all contracts for the sale of boats that the vessels be of merchantable quality. Absent the statute, the same term would probably have arisen in fact, as an implicature of contracting parties’ agreements. The important distinction between terms implied in fact and those implied in law thus concerns the plural justificatory reasons the law can deploy when formulating particular rules. 104

This shows that there is scant commonality between terms implied in law and terms implied in fact. 105 It is perhaps too late to uncouple these concepts in lawyers’ minds, but it would be better if we could. Indeed, there is a pernicious aspect of their coupling: the use of the same language—‘implied terms’—allows judges some latitude to develop legal policies under the guise of party autonomy. This, certainly, was the way in which the 19 th -century creations of the law of contract were justified. 106 The same justificatory slippage is apparent in much of the contemporary debate on duties of good faith: judicial policy has, perhaps, been smuggled into commercial contracts under the guise of terms implied in fact. This may or may not be a good thing as a matter of legal policy; yet, certainly when we consider the doctrine as scholars, it would be a shame if the nuanced distinctions were missed through use of the same label.

Terms implied in law are, instead, far more closely related to legal doctrines such as the power to terminate for breach, the right to contractual damages on breach and the rule that a contract will be cancelled automatically if a frustrating event occurs. Scholars and judges often attempt to repackage these features of the law as contractual terms, often implied terms. The acceptance of those theses waxes and wanes over time: it was once almost universally accepted that frustration arises due to an implied term; now that view is heretical. 107 These legal doctrines are very similar to terms implied in law: both are ways in which the law adds contractual content beyond that supplied by the parties’ agreement; both can, unless there is some policy precluding it, be excluded by the contracting parties’ agreement. Even so, there are a number of ways in which they differ. First, and perhaps most obviously, terms are implied in law only into specific types of contract: contracts of employment, contracts for the sale of goods and so on. By contrast, doctrines apply to all types of contract, regardless of their characterisation. Second, and perhaps more importantly, terms implied in law must be ascertained before any legal doctrines are applied. One cannot, for example, decide whether a contract for the sale of goods is frustrated on destruction of the subject matter before one has ascertained whether a term implied in law deals with that risk.

So long as this ordering and the distinctions between the concepts is borne in mind, there is no great risk to use of the same language. Even so, common terms for disparate concepts is a familiar problem for lawyers—and we must always, I have argued, be on particular guard against use of a unitary label, ‘implied term’.

It is only with a good grasp of the concept of express terms that we can begin to think about implied terms. Further, the scope of express terms determines where the more permissive attitude of interpretation runs out and parties are forced to the more rigid rules of implied terms. This means we have good theoretical and practical reasons to think more carefully about express terms. I began this article with such an account and argued that express terms include implicit features of agreements.

I went on to develop an account of what makes a term ‘implied’. I sought to show the sense in both the agreement-based and the rule-governed accounts of implied terms, and the wider considerations (beyond the parties’ agreement) at stake in all such discussions. None of this will end scholarly and doctrinal debates about implied terms. Perhaps, though, it will put them on a surer conceptual footing—and help bring out what, if anything, is at stake in those debates.

I am especially grateful to Alex Georgiou, George Leggatt, Matt Mandelkern, Stephen Neale, Robert Stevens and Adrian Zuckerman for discussion and comments on earlier drafts of this article. I am also grateful to all attendees at presentations at NUS Law and Lionel Smith’s discussion forum.

Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10, [2009] 1 WLR 1988; Marks & Spencer plc v BNP Paribas Services Trust Company (Jersey) Limited [2015] UKSC 72, [2016] AC 742.

Compare eg Yam Seng Pte Ltd v International Trade Corp Ltd [2013] EWHC 111 (QB), [2013] 1 CLC 662 and Al Nehayan v Kent [2018] EWHC 333 (Comm), [2018] 1 CLC 216 with MSC Mediterranean Shipping Co SA v Cottonex Anstalt [2016] EWCA Civ 789, [2017] 1 All ER (Comm) 483 [45].

The language of ‘legal content’ is most associated with Mark Greenberg: see eg ‘The Standard Picture and Its Discontents’ in Leslie Green and Brian Leiter (eds), Oxford Studies in Philosophy of Law , vol 1 (OUP 2011) 69. The phrase ‘legal impact’ is used by Nicos Stavropoulos, ‘Words and Obligations’ in Andrea Dolcetti, Luís Duarte d’Almeida and James Edwards (eds), Reading the Concept of Law (Hart Publishing 2013) 139. I understand these terms to signify the same phenomenon, though I have adopted Greenberg’s terminology because I believe it will be most familiar to contract lawyers.

This language is also somewhat contentious: see Greenberg (n 3) 47–8.

I develop this account in greater detail in Frederick Wilmot-Smith, ‘Term Limits: What Is a Term?’ (2019) 39 OJLS 705.

In the United States, scholars sometimes denote the linguistic exercise as ‘interpretation’ and the legal enterprise as ‘construction’: Arthur Linton Corbin, Corbin on Contracts: A Comprehensive Treatise on the Rules of Contract Law (West Publishing Co 1951) §534, 7. This language, which seems to originate in Francis Lieber’s Legal and Political Hermeneutics (1837), has some antecedents in English contract law, eg Chatenay v Brazilian Submarine Telegraph Co Ltd [1891] 1 QB 79 (CA) 85 (Lindley LJ). I have various concerns with the language. Most pertinent to this inquiry is that it allows one to assume, wrongly, that the meaning of texts has a special status in determining their contribution to the law.

See Wilmot-Smith (n 5) 717–21.

cf Peter Benson, Justice in Transactions (Harvard UP 2019) ch 2.

Marks & Spencer (n 1) [28].

eg Attorney General of Belize (n 1) [21] (Lord Hoffmann); Sembcorp Marine Ltd v PPL Holdings Pte Ltd [2013] 4 SLR 193 (SGCA) [93]; Trump International Golf Club Scotland Ltd v Scottish Ministers [2015] UKSC 74, [2016] 1 WLR 85 [33] (Lord Hodge); Impact Funding Solutions Ltd v Barrington Support Services Ltd [2016] UKSC 57, [2017] AC 73 [31] (Lord Hodge); Wells v Devani [2019] UKSC 4 [28] (Lord Kitchin); Duval v 11–13 Randolph Crescent Ltd [2020] UKSC 18, [2020] AC 845 [26] (Lord Kitchin). There are some earlier precursors to this language, eg MacAndrew v Chapple (1866) LR 1 CP 643, 648 (Byles J).

Lurking here is an obvious pitfall: any account of express or implied terms which explains those concepts using the qualifiers ‘express’ and ‘implied’ is immediately suspect.

I am grateful to Matt Mandelkern for discussion on this point.

See further Wells v Devani (n 10) [59] (Lord Briggs), considering a contract for the sale of a broom, where the ‘essential terms other than price [are] agreed by conduct’.

Leonard Hoffmann, ‘Language and Lawyers’ (2008) 134 LQR 553, 571.

I prefer to talk in terms of the parties’ agreement than their intention . This is a complicated issue and I hope to dodge most difficulties, hence my relegation of the point to a footnote. My choice of ‘agreement’ over ‘intention’ would be objectionable only if the content of an agreement can come apart from the content of a group intention. Since no one has engaged seriously with the group intentionality literature and applied it to contract, it is difficult to know whether that is possible.

As the example shows, many express terms are only established after the resolution of the expressions whose reference shifts depending upon the context of utterance. See especially David Kaplan, ‘Demonstratives’ in Joseph Almog, John Perry and Howard Wettstein (eds), Themes from Kaplan (OUP 1989) 505.

See further The Leonidas D [1985] 1 WLR 925 (CA) 936 (Robert Goff LJ); Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] QB 433, 436 (Dillon LJ) and 445 (Bingham LJ).

This is an under-explored area in the literature, but see generally Philippe Schlenker, ‘Gestural Semantics’ (2019) 37 Natural Language & Linguistic Theory 735.

John Stuart Mill , An Examination of Sir William Hamilton’s Philosophy, and of the Principal Philosophical Questions Discussed in His Writings (Longmans, Green & Co 1865) 442.

HP Grice, Studies in the Way of Words (Harvard UP 1989) ch 2.

Charles Morris , Foundations of a Theory of Signs (University of Chicago Press 1938) 6.

For a hint of this view, see FSHC Group Holdings Ltd v Glas Trust Corporation Ltd [2019] EWCA Civ 1361, [2020] Ch 365 [87] (Leggatt LJ, with whom Flaux and Rose LJJ agreed).

See generally Michael Geis and Arnold Zwicky, ‘On Invited Inferences’ (1971) 2 Linguistic Inquiry 561; Lawrence Horn, ‘From if to iff : Conditional Perfection as Pragmatic Strengthening’ (2000) 32 Journal of Pragmatics 289.

For a summary of views on the explicit/implicit distinction, see Robyn Carston, Thoughts and Utterances (Blackwell 2002) ch 2.

See eg the overused and elusive example of Wittgenstein’s ‘game’: Ludwig Wittgenstein, Philosophical Investigations (rev edn, Blackwell 2001) 28.

Kent Bach, ‘Conversational Impliciture’ (1994) 9 Mind and Language 124, 134.

I take this helpful terminology from Paul Elbourne’s Definite Descriptions (OUP 2013) 173. Very similar ideas are expressed in different ways: John Perry talks of ‘unarticulated constituents’ (John Perry, The Problem of the Essential Indexical: And Other Essays (OUP 1993) 206–25); Sperber and Wilson refer to ‘explicature’ (Dan Sperber and Deirdre Wilson, Relevance: Communication and Cognition (Blackwell 1995) 182); and Kent Bach coined the language of ‘impliciture’: Bach (n 26) 126.

eg Grice’s maxim of quantity: Grice (n 20) 26–7.

David McLauchlan, ‘Construction and Implication: In Defence of Belize Telecom ’ [2015] LMCLQ 203, 208.

Antaios Compania Naviera SA v Salen Rederierna AB (The Antaios) [1985] AC 191 (HL).

Likewise, see the restrictive interpretation given to the clause in Bank of Credit and Commerce International SA (In Liquidation) v Ali (No 1) [2001] UKHL 8, [2001] 1 AC 251 (‘any claims … of whatsoever nature that exist or may exist’).

Would any such term have been inconsistent with the express terms? I do not see why it is any more inconsistent that an implied term of (say) merchantability in a contract of sale.

John Baker, Introduction to English Legal History (5th edn, OUP 2019) 381.

Gardiner v Gray (1815) 4 Camp 144, 145; 171 ER 46, 47.

Morley v Attenborough (1849) 3 Ex 500, 509; 154 ER 943, 947.

The Moorcock (1889) 14 PD 64 (CA) 68.

Liverpool City Council v Irwin [1977] AC 239 (HL). See generally Sir Kim Lewison, The Interpretation of Contracts (7th edn, Sweet & Maxwell 2020) §6.01ff.

See Attorney General of Belize (n 1); Marks & Spencer (n 1).

Marks & Spencer (n 1) [26].

A consequence of this view is that a contract must have at least some express terms; it cannot be composed of implied terms alone.

Grice (n 20) 33.

eg François Recanati, ‘Embedded Implicatures’ (2003) 17 Philosophical Perspectives 299, 300. Compare Robert Stalnaker, Context (OUP 2014) 84–5.

The context-sensitivity of these inferences is clear to all who read reference letters from both the United States and the UK.

My thesis is even clearer if contracts are best understood, as they were until comparatively recently, as sets of dependent and independent obligations: cf Kingston v Preston (1773) 2 Doug 689, 99 ER 437 (KB); Boone v Eyre (1779) 2 Wm Bl 1312, 96 ER 767 (Court of Common Pleas). That is because the implicature derives from a unilateral utterance (promise), not a joint statement (ie agreement). For a powerful recent statement of the old view, see Jordan English, ‘The Nature of “Promissory Conditions”’ (2021) 137 LQR 630. Note, too, that the concept of agreement may be reducible to a unilateral speech act (like a promise or an offer): Hanoch Sheinman, ‘Agreement as Joint Promise’ in Hanoch Sheinman (ed), Promises and Agreements: Philosophical Essays (OUP 2011); Oliver Black, Agreements: A Philosophical and Legal Study (CUP 2012).

Short v Stone (1845) 8 QB 358; 115 ER 911 (QB).

Short v Stone (1845) 8 QB 358, 358; 115 ER 911, 911 (QB).

Duval (n 10) [44].

Compare Andrew Robertson, ‘The Foundations of Implied Terms: Logic, Efficacy and Purpose’ in Simone Degeling, James Edelman and James Goudkamp (eds), Contracts in Commercial Law (Thomson Reuters 2016) 166.

See Stephen Neale, Descriptions (MIT Press 1990) 73–4.

Grice (n 20) 26. cf Sperber and Wilson’s neo-Gricean account of ‘relevance’: Sperber and Wilson (n 27).

Attorney General of Belize (n 1) [17].

See Adam Kramer, ‘Implication in Fact as an Instance of Contractual Interpretation’ (2004) 63 CLJ 384, 400.

Marks & Spencer (n 1) [28]. See further Impact Funding (n 10) [31] (Lord Hodge); Trump International (n 10) [35] (Lord Hodge).

Lord Neuberger’s expression is more hesitant, suggesting that a contract can be composed of implied terms alone. That is not possible on my account, since an implied term is conceptually related to express terms.

Trump International (n 10) [42] (Lord Mance).

Stephen C Levinson, Presumptive Meanings: The Theory of Generalized Conversational Implicature (MIT Press 2000) 186.

This is the fifth of Lord Simon’s rules in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 (PC). There are numerous precursors, eg Lynch v Thorne [1956] 1 WLR 303 (CA) 305.

Compare an ironic statement, where ‘we are asked to understand the opposite of what is said’: Quintilian, The Orator’s Education, Volume IV: Books 9–10 (Donald A Russell ed and tr, Harvard UP 2002) Book 9.2, 59. Such complications cannot arise in the context of agreements.

eg Geys v Société Générale, London Branch [2012] UKSC 63, [2013] 1 AC 523 [55] (Baroness Hale): a term might be ‘implied into a class of contractual relationship … unless the parties have expressly excluded it’.

See Grice (n 20) ch 3.

See Carston (n 24) 124 and 138 (comparing ‘explicature’ and ‘pragmatic inference’ on grounds of cancellability).

See generally Robert Stalnaker, Context and Content: Essays on Intentionality in Speech and Thought (OUP 1999) ch 2; Scott Soames, Philosophical Essays, Volume 1: Natural Language: What It Means and How We Use It (Princeton UP 2008) 93. Particularly given what I say in the text to n 53, presupposition must be clearly distinguished from entailment.

For a suggestion along these lines, see Luke Harding and Matthew Harding, ‘Misleading Silence under Australian Consumer Law’ in E Bant and J Paterson (eds) Misleading Silence (Hart Publishing 2020) 72–3.

Couturier v Hastie (1852) 8 Ex 40, 55; 155 ER 1250, 1256 (Exch). It is tempting, but wrong, to see implied warranties of title or authority as analogous: cf s 12 of the Sale of Goods Act 1979; The Res Cogitans [2016] UKSC 23, [2016] AC 1034, [39] (Lord Mance). However, these are not presuppositions, strictly so-called; they can, for example, be cancelled quite naturally (and are thus best seen as implicatures, consistent with my primary account of implied terms): see Mackenzie Chalmers, The Sale of Goods Act, 1893 (W Clowes 1894) 26; s 12(3) of the Sale of Goods Act 1979.

Note that this presupposition might not have been common ground until the promise which led to the agreement. See generally Stalnaker’s notion of ‘context set’ in Stalnaker (n 67) ch 5.

McRae v Commonwealth Disposals Commission (1950) 84 CLR 377 (HCA) 409.

JC Smith, ‘Contract, Mistake, Frustration and Implied Terms’ (1994) 110 LQR 400; J English, ‘“Frustration” in Discharge of Contractual Obligations’ (unpublished doctoral thesis, 2022).

cf Grice (n 20) ch 17. The exception is where the proposition expressed by the utterance is embedded under an operator, eg a conditional or negation. This point is irrelevant in our context.

McRae (n 71) 402–5 (Dixon and Fulliger JJ).

eg JW Carter and Wayne Courtney, ‘ Belize Telecom : A Reply to Professor McLauchlan’ [2015] LMCLQ 245, 251 (‘a matter of contract doctrine’).

For clear statements, see Philips Electronique Public SA v British Sky Broadcasting Ltd [1995] EMLR 472 (CA) 481 (Sir Thomas Bingham MR); Marks & Spencer (n 1) [26]. Implied terms could also, on this model, arise from rulings (ie decisions of individual judges or courts on the terms of the token contract). But those rulings will, in the familiar manner, contribute to legal rules on implied terms. See generally John Gardner, Law as a Leap of Faith (OUP 2012) ch 8.

Attorney General of Belize (n 1) [18].

See further Kramer (n 56); Stephen A Smith, Contract Theory (OUP 2004) ch 8.

In Grice’s treatment, ‘what is said’ was combined with a series of maxims; implicatures were the outputs: Grice (n 20) 26–30.

See the reply to the ‘officious bystander’ in Reigate v Union Manufacturing [1918] 1 KB 592 (CA) 605 (Scrutton LJ) and Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206 (CA) 227 (Mackinnon LJ).

The Moorcock (n 37) 68 (Bowen LJ). By way of analogy, see the ‘master implicature’ of legislation: Timothy Endicott, ‘Interpretation and Indeterminacy: Comments on Andrei Marmor’s Philosophy of Law’ (2014) 10 Jerusalem Rev Leg Stud 46, 55.

Luxor (Eastbourne) Ltd v Cooper [1941] AC 108 (HL) 137 (emphasis added).

Derek Parfit, On What Matters , vol 1 (OUP 2011) 419. In his original Tanner lectures, ‘What We Could Rationally Will’, Parfit attributes the phrase to Mill. He probably has in mind a remark attributed to Mill by Lady Amberley: Bertrand and Patricia Russell (eds), Amberley Papers (1865) vol I, 373. See too Derek Parfit, Reasons and Persons (OUP 1986) 114. I am grateful to Sam Scheffler for help tracing this phrase.

My thinking here derives in part from consideration of Andrei Marmor’s orthogonal points, regarding implicature and legislation: Andrei Marmor, The Language of Law (OUP 2014) 45ff.

The launchpad of the modern debate is now Yam Seng (n 2) 120 et seq (Leggatt J).

Al Nehayan v Kent (n 2) [174].

cf Mackay v Dick [1881] 6 App Cas 251 (HL).

Lord Hoffmann’s precise theory differs from my own. His is clearest in Lord Hoffmann, ‘Anthropomorphic Justice: The Reasonable Man and his Friends’ (1995) 29 The Law Teacher 127, 139; Lord Hoffmann, ‘The Intolerable Wrestle with Words and Meaning’ [1998] SALJ 656, 662.

Attorney General of Belize (n 1) [18] (implied terms spell out ‘what the instrument means’).

Marks & Spencer (n 1) [23].

Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896 (HL) 912H (Lord Hoffmann).

ibid 912H (emphasis added).

The language is taken from Lawrence B Solum, ‘The Fixation Thesis: The Role of Historical Fact in Original Meaning’ (2015) 91 Notre Dame L Rev 1, 1 and 15.

Once you notice this, it is hard not to see it everywhere: Hoffmann, ‘Anthropomorphic Justice’ (n 90) 139 (‘ the judge implies a term because it is necessary to make sense of the contract’, emphasis added); Smith (n 80) 280 (saying that terms implied in fact are ‘implied by the court’ and ‘implicitly agreed upon by the parties’); Hugh Collins, ‘Implied Terms: The Foundation in Good Faith and Fair Dealing’ (2014) 67 CLP 297, 297 and 317 (referring at one point to ‘judicial intervention’ and at another to whether a term was ‘implicitly accepted’); McLauchlan (n 29) 209 (saying that an implication ‘follows … logically’ from an express term and ‘ is the meaning’ of those terms); Joanna McCunn, ‘Belize It or Not: Implied Contract Terms in Marks & Spencer v BNP Paripas ’ (2016) 79 MLR 1090, 1090 (‘the court will “imply a term in fact”, finding that the contract really does provide for the issue, albeit implicitly’).

Trump International (n 10) [35].

Attorney General of Belize (n 1) [16]. Compare Patrick S Atiyah, Essays on Contract (Clarendon Press 1990) 272: ‘in a large number of cases the court is simply … making law for the parties … and … it is a pure fiction to treat this as a matter of “giving effect to the intention of the parties”’.

Mears v Safecar Securities Ltd [1983] QB 54, 78.

For the distinction between ‘type’ and ‘token’, see Charles S Peirce, Collected Papers of Charles Sanders Peirce (Charles Hartshorne, Paul Weiss and Arthur W Burks eds, Harvard UP 1931) 4.537. For scepticism about the process of characterisation required, see Collins (n 97) 307–9.

Notice, though, that there is this commonality: terms implied in law are in one sense derived from the express terms of the contract since those express terms must be construed in order to ascertain whether the agreement is the type of contract to which the general rule, implying the term in law, applies. I am grateful to an anonymous referee for pressing me to clarify this.

Some reasons are, of course, better than others: my point here is conceptual.

Terms implied by law might over time become, because of the reflexive aspect to agreements set out above, terms implied in fact. If a statute creates a standard for a type of good, parties may come to expect that standard to be a part of their contract. But this point, which is obvious enough, does not undermine the general point about the distinction between terms implied in law and in fact.

David Ibbetson, A Historical Introduction to the Law of Obligations (OUP 2001) 222. For further discussion, see Wilmot-Smith (n 5) 719.

Davis Contractors Ltd v Fareham Urban DC [1956] AC 696 (HL) 729 (Lord Radcliffe). Compare, however, Hoffmann, ‘Anthropomorphic Justice’ (n 90) 140 and, more recently, Edwin Peel, Treitel on the Law of Contract (15 th edn, Sweet & Maxwell 2020) §19-124.

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Contract: Implied Terms

Implied contract terms, terms implied in fact, factually implied terms.

Two tests are used to imply terms in fact:  Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd   [2015] UKSC 72. 

The Business Efficacy Test : is the term necessary to give the transaction the business efficacy the parties must have intended? In other words, does the contract lack commercial or practical coherence without the suggested term?

The Officious Bystander Test : if, when the parties were making the contract, an officious bystander had asked them if they intended to include a particular provision, would they have responded ‘of course’ as if it were obvious?

Both tests are an attempt to determine the objective intention of the parties. The courts will not imply a term merely because it is fair, equitable or reasonable to do so. Factors relevant to whether either test is satisfied include:

Reasonable Knowledge

If a reasonable person in the parties’ position would be unaware of the subject matter of the proposed term, or would not have anticipated it, it is unlikely that either test will be satisfied:  Spring v National Amalgamated Stevedores and Dockers Society (no 2)  [1956] 1 WLR 585.

Express Terms

If the express terms of the contract appear to cover the situation in dispute, this indicates that the parties would not have agreed to additional terms:  Trollope & Colls Ltd v North West Metropolitan Regional Hospital   [1973] 1 WLR 601.

The less clear it is what the contents of the implied term should be, the less likely that either of the two tests are met:  Trollope & Colls v North West Metropolitan Regional Hospital  [1973] 1 WLR 601. 

Ease of Agreement

It must be obvious that the parties would have agreed to the term at the time of contracting had they thought of it.

Terms Implied in Law

Legally implied terms.

Some terms are implied by the operation of law. This might be due to statute, such as the Sale of Goods Act 1979, or the common law. When a term is implied in law, the courts are not seeking to determine the parties’ intention:  Liverpool City Council v Irwin   [1977] AC 239

The Test for Implying Terms in Law

There are two requirements for a term to be implied in law:  El Awadi v Bank of Credit and Commerce International SA   [1989] 1 All ER 242. Firstly, the contract must be of a ‘defined type’. Secondly, the term must be ‘necessary’.

What is a ‘Defined Type’ of Contract?

The right kind of contract is normally one which is very common and whose terms do not differ much. Examples include:

• Sale of goods contracts;
• Employment contracts;
• Landlord and tenant contracts;
• Banker and customer.

The contract in question must be a ‘normal’ contract of its type rather than a special, customised contract. 

When is a Term ‘Necessary’?

The test of necessity asks whether contracts of the relevant type ought to all carry the implied term. This is a wider test than the business efficacy test:  Scally v Southern Health and Social Services Board  [1992] 1 AC 294. 

When determining if the term is ‘necessary’, the court may consider whether the term is reasonable, fair and balance competing policy considerations:  Crossley v Faithful & Gould Holdings Ltd   [2004] EWCA Civ 293. The contemporary social policy behind a particular kind of contract is particularly important. However, the courts will not imply a term in law if the matter is better dealt with by Parliament:  Reid v Rush Tompkins Group plc  [1990] 1 WLR 212.

Terms Implied by Custom

Customary contract terms.

The final way a term can be implied into a contract is by trade custom. When a term is implied on customary grounds, the courts make a presumption about the parties’ intentions based on that custom:  Hutton v Warren  (1836) 1 M&W 466.

The Test for Implying Customary Terms

A customary term will only be implied if the practice is clearly established , notorious and reasonable :  Cunliffe-Owen v Teather & Greenwood  [1967] 1 WLR 1421. If this test is met, then it is presumed that the parties intended to include the term in their contract.

A term is notorious if it is ‘so well known in the [relevant] market…that those who conduct business in [that] market contract with the usage as an implied term’:  Cunliffe-Owen v Teather & Greenwood  [1967] 1 WLR 1421. This essentially requires ‘evidence of a universal and acknowledged practice of the market’:  Baker v Black Sea & Baltic General Insurance Co Ltd  [1998] 1 WLR 97.

Rebutting the Presumption of a Customary Term

The presumption in favour of the customary term can only be rebutted if it is contradicted by express terms or terms implied in fact or law, or is ‘inconsistent with the tenor’ of the contract:  London Export Corporation v Jubilee Coffee Roasting Co Ltd  [1958] 1 WLR 271.

Express and Implied Terms Quiz

Test yourself on the principles governing express and implied contract terms.

What factors indicate that an oral statement is a term of the contract? (Three answers)

When will the courts imply a customary term into a contract?

Incorrect . A customary term will only be implied if the practice is clearly established , notorious and reasonable :  Cunliffe-Owen v Teather & Greenwood. Even then, this is merely a presumption which can be rebutted if the contract is inconsistent with the term: London Export Corporation v Jubilee Coffee Roasting.

If the written contract contains a 'no oral variation' clause, in what circumstances can the contract be altered by oral statements?

Incorrect . See Rock Advertising v MWB Business Exchange Centres.

What is the parol evidence rule?

Incorrect . If there is a written contract, there is a presumption that extraneous evidence cannot be admitted to add to, vary or contradict the terms in that written document:  Jacobs v Batavia and General Plantations Trust . This presumption can be rebutted: Gillespie Bros & Co v Cheney, Eggar & Co.

Which four factors indicate that a court should not imply a term in law ?

When will the courts imply a term into a contract in fact ? (Two answers)

If the literal wording of an express term does not make commercial sense, the courts will intervene to make it more commercially efficient. True or false?

Incorrect . The fact that a term does not make sense may indicate that the parties did not intend the literal meaning. However, this is assessed in all the circumstances and the courts will not necessarily interpret the term differently just because it is unfair or unreasonable: Charter Reinsurance v Fagan.

The courts may imply terms in law into custom, specialised contracts. True or false?

Incorrect . The contract must be a 'normal' incident of a defined type of contract.

When interpreting an express term of the contract, what information may the court take into account?

Which three factors indicate that a court should not imply a term in fact ?

How do the courts determine the meaning of an express term of the contract?

Incorrect . See Investors Compensation Scheme Ltd v West Bromwich Building Society.

When the courts imply a term in law, they are seeking to give effect to the parties' intentions. True or false?

Incorrect . Terms implied in law are normally a question of policy.

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Implied Contract Terms: Definition and How Terms Are Set

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What Are Implied Contract Terms?

Implied contract terms are items that a court will assume are intended to be included in a contract, even though they are not expressly stated. Implied terms occur because all contracts are necessarily incomplete in a world where uncertainty exists and because contracting parties face a trade-off between the costs and expected payoffs of writing more complete contracts.

Relying on implied contract terms is one way of economizing on the transaction costs of contracting, so that parties can focus their time and attention on completing other areas of a contract. Alternatively, in some cases, parties may agree to explicit contract terms that override implied terms if the benefit of doing so outweighs the associated contracting costs.

Key Takeaways

• Implied contract terms refer to the terms that are not expressly stated in a contract but are assumed to be included.
• Because all contracts are incomplete and contracting parties face a trade-off between the costs and benefits of writing more complete contracts, relying on implied contract terms can be one way to economize on contracting costs.
• Implied contract terms may be fixed in common law or legislation or may arise from customary business practice.
• An example of an implied contract term is when the buyer of a product purchases a product and assumes it will be free of general defect.

Understanding Implied Contract Terms

When negotiating contracts, parties choose not just the content of the terms of the contract, but also the degree of completeness of the contract—or how many specific terms and conditions will the contract define and cover in detail. All contracts are incomplete. No contract can cover every possible unknown future circumstance that might be relevant to the execution of the contract, but contracts can be more or less complete.

Businesses and professionals sometimes do not want to rely upon a court's interpretation of implied terms and prefer more complete contracts. Their contracts will often be very extensive, so that as many material items as possible are included in the contract. When it is not possible to cover every possible detail, a lawyer may appeal that such terms were implied to give force to the intent of the contract.

More complete contracts spell out in greater detail what each party is entitled to or bound to do. They take more time and effort to negotiate and write but they may prevent some disputes down the road by addressing issues that might arise in the contract at outset.

This means that contracting parties face a trade-off between writing more complete contracts, with higher transaction costs directly associated with negotiating and writing the contract, or less complete contracts, with lower upfront transactions costs but the risk of higher transaction costs later if a dispute arises over something not specified in the contract.

Benefits of Implied Contract Terms

Reliance on implied contract terms is one way to economize on these types of transaction costs. Implied contract terms allow the parties to skip over negotiating or writing certain terms in their contracts because they are legally assumed implicitly when the contract is entered into. This relieves the contracting parties of both the immediate cost of contracting over these terms and the fear that in the future a dispute will arise over them if they are not made explicit in the contract.

This benefits both parties in that it allows them to instead focus their attention on other aspects of the contract or to reduce the overall transaction cost of the contract. In turn, this benefits society as a whole because reducing transaction costs allows a greater number of economically efficient transactions to occur, which might otherwise be forgone if the transaction costs were higher.

How Implied Contract Terms Arise

Implied contract terms are by definition not explicitly agreed to by the contracting parties when they enter into a contract. So how do they get incorporated into a contract? Contract terms can be implied in a number of ways. Customary business practice, common law precedent, and statutory law can all form the basis of implied contract terms.

For example, in many transactions involving the purchase of goods or services, there is an implied warranty of merchantability in the common law. It is implied that what you are buying will serve the purpose that would be reasonably expected. This contract term is implied even when there is no written or oral contract . The buyer of a product assumes it will be free of general defects upon purchase. If the seller is aware of a frequent mechanical issue with that product, implied contract terms would compel them to make those issues known.

Even stating express terms to the contrary may not be sufficient to negate certain terms implied by the law; some implied conditions fixed in common or statutory law are specifically intended to prevent certain types of contracts or terms. For example, chattel slavery contracts or suicide pacts are illegal by statute or common law in many jurisdictions, and private contracts that include such provisions are considered null and void, notwithstanding the agreement of the parties to any such express contract terms.

In other cases, contract terms may be implied where the intent of a contract obviously necessitates the inclusion of certain items. For example, one of the intents of implied contract terms is to prevent instances of fraud by omission . It is a form of fraud if one of the parties in a contract attempts to renege on or alter their responsibilities by not revealing relevant information. This could include failing to reveal a conflicting interest in a contract with another party. A contract might not explicitly state that such information be made apparent. The implied contract terms might support the necessity to share information.

Contracts between individuals can include implied terms based on the precedents set by their actions or by the customary and accepted practice in their line of business. If a neighbor agrees to pay another neighbor for the regular shoveling of snow in winter, the implied contract terms mean they will pay each time their driveway and walkway are cleared. An incident may occur where the neighbor decides to withhold payment after a recent shoveling. They could still be held responsible for making that payment because of the prior arrangement. Even though there is no written contract to enforce these terms, there is an expectation of payment.

Wilmot-Smith, Frederick. " Express and Implied Terms ." Oxford Journal of Legal Studies , vol. 43, no. 1, Spring 2023, pp. 54–75.

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• Practical Law

Implied terms: a matter of necessity

Practical law uk articles 2-572-1205  (approx. 4 pages), implying terms, the single question test, reasonable or necessary, marks and spencer.

• A party seeking to establish an implied term must show not just that the term could be part of the agreement but that it would be part of the agreement.
• The court will not imply a term as a matter of interpretation unless it is necessary that the agreement should contain the term to achieve the parties' express agreement, purposively construed against the admissible background.
• A party does not show that a term is unnecessary simply by showing that the party's agreement could work better without the implied term. As part of the process of interpretation, the court seeks to find the parties' common aim in entering into the agreement. A term may be implied if it is necessary to achieve the parties' objective in entering into the agreement.

Practical impact

Terms implied by fact.

• The officious bystander test, where the court will imply a term if it is so obvious that it goes without saying, so that if an officious bystander suggested it to the parties, they would both say “Oh, of course!” ( Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206 ).
• The business efficacy test, where the court will imply a term if it is necessary, in the business sense, to give efficacy to the contract ( The Moorcock [1889] 14 PD 64 ).
• Contracts and Transfers: Land and Buildings
• General Contract and Boilerplate
• Landlord and Tenant

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This chapter considers the nature, purpose and scope of implied terms and considers how they might be categorized. The history of implication of terms, especially in sales, and implication of assumpsit, is considered.

A.    General    1.01

B.    Categorization    1.10

C.    PurposeS of implied terms    1.14

1.    Implied terms and positive rules of law    1.29

D.    History of implied terms    1.33

1.    Sales    1.37

2.    Implication of assumpsit    1.45

3.    Summary    1.47

1.01  The content of an agreement consists in its terms, express and implied. Even a contract made in writing, purporting to contain all its terms within the four corners of the document is likely, on careful examination, to be found to contain implied as well as express terms. Any contract of sale, for example, will contain such terms as are implied by the Sale of Goods Act 1979, unless expressly excluded (and even then, the exclusion may be held invalid). In an oral contract, whether or not subsequently evidenced in writing, or a part-oral, part-written contract, many of the terms are likely to be implied terms. In British Crane Hire Corp Ltd v. Ipswich Plant Hire Ltd , 1 the whole contents of a written standard hire contract were implied into the oral contract for hire of a piece of machinery. It is obvious, then, that an understanding of implied terms is essential to an understanding of the contents of a contract and, therefore of what amounts to breach and how damages should be calculated.

1.02  This book aims to set out in some detail the law of England and Wales on implication of terms in contracts. An attempt is made later in this chapter to trace the origins of implied terms in English law, while in Chapter 2 we discuss the theoretical context of implication of terms, before turning to the detail of the various aspects of the doctrine in Chapters 3 to 7, with a detailed consideration of the leading authorities. Since England & Wales remains a significant jurisdiction of choice for parties to international contract-related litigation, including many cases where neither party has any link to the jurisdiction, and decisions of the English courts continue to be influential in many other common law jurisdictions, it is hoped that this book will be of value to practitioners, academics and students far beyond these shores.

1.03  Implication of terms presents a difficulty for the law in common law jurisdictions. It conflicts with fundamental ideas about contract that have had, and still enjoy, significant influence on the common lawyer’s mind. First, it offends against the idea of sanctity of contract. Neither Parliament nor the court is a party to a contract and it is therefore not for the court to intermeddle in the terms the parties have agreed. Arguably, this should be the case even if the lack of a particular term makes the contract unworkable, since the unworkable contract is the only deal made between the parties and they should not be taken to have agreed to a quite different, albeit workable contract. Secondly, it offends against the idea of freedom of contract, for precisely the same reasons. Indeed parties sometimes insert clauses known to one party to be wholly unenforceable but put there for tactical reasons (e.g., penalty clauses and not a few exemption clauses), or make whole ‘contracts’ that are not enforceable as such, as with agreements ‘binding in honour only’. In these cases the courts strike down the offending clause, leaving the contract to be interpreted in its absence, or decline to enforce the agreement as a contract: they do not rewrite the clause to make it legitimate (or, say, strike down a penalty and then imply a liquidated damages clause), or conclude that an honour clause makes for such a failure of consideration that the parties as reasonable business-people cannot have intended.

1.04  With regard to terms implied by statute, there is no question that implication cuts across the parties’ freedom of contract where the term cannot be excluded by an express term, as is the case with the implied terms in sections 12 to 15 of the Sale of Goods Act 1979 in contracts involving a consumer buyer. 2 Whether or not the parties are at liberty to exclude such a term and whether or not they have done so in fact, such terms still cut across the sanctity of contract, since if the parties do not in fact refer to them so as to exclude them (if they may) this may be through ignorance rather than deliberation and in that case it is not possible to say that they meant such terms to form a part of their contract. And the necessity of excluding such a term expressly dictates part of the contract where this is done. It is submitted that the same applies to terms implied by law as an automatic incident of any given species of contract. 3

1.05  Where terms are implied from custom, 4 however, or are implied ‘in fact’, 5 the law’s explanation is one of interpretation of the contract made between the parties, of ascertaining actual intention, which might only imperfectly have been expressed in words, oral or written. So far as this explanation is justified, then there is no interference with either freedom or sanctity of contract. On the contrary: the parties’ intentions are being more completely recognized and upheld by the implication of a term in these cases. That, at any rate, is the justification, and it draws strength from commercial convenience, in that parties engaged in a particular trade, for example, would generally expect that they are operating within the customary matrix of that trade so that opting out of a custom is easier than having to opt in every time, while parties generally cannot actually anticipate every possibility and provide for it, so that implication in fact is a useful part of the litigation content of contract, provision of which is the function of contract law and upon which parties can rely.

1.06  Civil law jurisdictions typically do not require any general doctrines of implied terms. The approach, typified in French law, is to prescribe quite closely the terms on which different kinds of contracts are made. Coupled with a ‘good faith’ approach, this dispenses with the requirement for implied terms. 6 Since the civilian approach does not place such an emphasis on freedom of contract as common law jurisdictions do, an implied term approach, though unnecessary, would not present the conceptual difficulties it poses for the common law, and good faith takes care of lacunae left by the codes, with no problem presented by belief in contractual freedom and party autonomy.

1.07  It may be argued, as the Australians Carter and Peden have, that implied terms are one of the common law’s inbuilt mechanisms for achieving the same ends as good faith in the civil law. 7 The lack of a general requirement of good faith in contracting is a notable characteristic of the common law approach, though the extent of the rejection of good faith varies between different common law jurisdictions. Good faith is almost entirely absent as a doctrinal concept in the law of England and Wales, 8 while in U.S. law the Uniform Commercial Code enjoins good faith in performance and enforcement, but not negotiation. 9 The extent to which good faith is a requirement at the negotiation stage in any jurisdiction is questionable, whatever might be claimed. The idea of negotiating with all cards on the table is not only alien to the common law but is only very partially applicable in any jurisdiction. It is unlikely in the extreme, for example, that a customer in a French car showroom in France, on enquiring about the suitability to his requirements of its flagship vehicle would be told that it is very stylish and comfortable but that if reliability is important to him then a Japanese car would be more suitable as the French manufacturer in question has had many complaints on this score. Moreover, no French court would be likely to uphold a contention that the failure of the showroom staff to point out the shortcomings of their goods is a breach of good faith. Good faith at this stage requires mainly specific information and an avoidance of what in common law jurisdictions would be called ‘misrepresentation’.

1.08  Lord Denning’s attempt in Liverpool City Council v. Irwin 10 to make reasonableness not merely necessary in defining an implied obligation but also sufficient to justify making an implication in the first place, could be regarded as an attempt to introduce a good faith requirement as to terms, that is to say a requirement that the terms of the contract meet with broad notions of fairness. This attempt failed, of course, when this approach was firmly rejected by the House of Lords in the same case. 11

1.09  It can further be argued that civil law does have implied terms, if not quite to the same extent as common law. The compulsory terms in a civil code provided as incidences of different types of contract are surely no different from terms implied by statute, save that terms implied by statute may in some, but not all, instances be excluded by express agreement (see Chapter 6). Indeed, these also fulfil the role of terms implied by law and by custom and usage, though again without the option of contracting out and, necessarily, by a different mechanism. The ‘implied terms’ of the civilians are what are called ‘mandatory terms’ rather than ‘default terms’. That is to say that the court applying the code does one of two things: either imposes a term on the parties different from one to which they had agreed, or supplies a term to fill some gap in the contract’s provision which the parties did not want the court to fill. 12 Where the common law differs is primarily in the fact that in the common law most implied terms supply default rather than mandatory rules and in the possibility of implying terms in fact into individual contracts when disputes reach judgment. 13

B. CATEGORIZATION

1.10  There are a number of ways one can categorize implied terms. Textbooks tend to split them into the categories of terms implied by statute, terms implied in law, terms implied in fact, and terms implied by trade usage or custom. Alternatively, ‘terms implied by common law’ is sometimes adopted to cover both implications in fact and implications into all contracts of a particular type as a matter of law. There is no reason why usage and custom should not also fall under this heading. Lord Steyn in Equitable Life Assurance Society v. Hyman divided implied terms into ‘general default rules’ and ‘ad hoc gap fillers’. 14 This has the limitation, however, of neither distinguishing sufficiently between the sources nor indicating the degree of mandatoriness that might be expected. Terms implied by statute, for instance, may well prove mandatory and unavoidable, as discussed below. In this sense, Lord Steyn’s division also lacks clarity as it does not acknowledge that some implied terms are not default rules at all, but mandatory. 15

1.11  A law-and-economics approach might be to divide implied terms into mandatory and default rules. Mandatory terms are those which cannot be avoided by the parties expressly agreeing to inconsistent terms. Such rules would include UCC 1–203, section 12 of the Sale of Goods Act 1979, and sections 13 to 15 of the same Act in sales from business sellers to consumer buyers. Default terms are ones which apply if the parties do not agree otherwise.

1.12  It would also be possible to categorize implied terms into fixed litigation content, comprising statute-implied terms, terms implied by usage or custom and terms implied as a matter of law, and eo instante litigation content, covering terms implied in fact.

1.13  It is the first manner of categorization, however, which has most often commended itself to the textbook writers, that seems to fit most closely with the language of the judiciary when one looks across the cases as a body, and that makes readiest sense of the subject from the point of view of the practitioner. This is the approach adopted in this book, therefore, in which terms implied by statute, terms implied as a matter of law, terms implied from usage or custom and terms implied in fact are dealt with in separate chapters. This should not, however, be taken as a theoretical preference on the part of the author; a number of ways are equally satisfactory for different purposes.

C. PURPOSES OF IMPLIED TERMS

1.14  From a practical perspective, implied terms might be viewed as a technique of construction or interpretation of contracts. That does not say very much, however, as it says nothing about why implied terms should be adopted for use in interpretation, and nothing about whether they should be so used or to what end.

1.15  As an interpretative technique, implied terms leave something to be desired. To what extent, for instance, does any implied term represent a ‘reading’ of a contract? The answers to such questions, though, are both a matter of degree and a matter of individual preference. We might draw an analogy with interpretation in the arts, distant as this world may seem from the world of contract law. If a Shakespeare play is performed in a reconstructed Elizabethan theatre, with boys playing women, costumes and sets as close as we can manage to what would likely have been experienced in Elizabethan times, and actors sticking faithfully to the words of the First Folio, then that is as faithful an interpretation as we can probably manage. But do we really want boys playing women? Is that part of the intention of the playwright or just a result of operative limitations in Shakespeare’s time? And would Shakespeare want ‘authentic’ dress if he could return today? Or would he be surprised that actors were not dressed in more normal garb? If, in order to evoke similar feelings of familiarity as might have been enjoyed by the Elizabethan audience we transpose Romeo and Juliet to modern-day street gangs, are we interpreting more accurately or just taking an astounding liberty?

1.16  Moving to music, should performances of Mozart require an orchestral pitch of A 5 421 instead of A 5 440, so that everything is played a semitone lower than it appears to be written, and should the modern concert grand piano be eschewed for something that sounds like a battered upright in a bar, so that the performance will sound more like it would have done in Mozart’s day? How can we know he would have wanted it to sound like that if he had had the choice of having it played on modern instruments? And does the realm of legitimate ‘interpretation’ of history, or ‘artistic licence’ run out before or after making a film showing the Enigma machine captured by Americans from U571 (actually sunk by the Royal Australian Airforce) rather than by the Royal Navy from U110 before the U.S. even joined the war, as actually happened?

1.17  What these examples demonstrate is that one’s purpose and ‘taste’ (which in law translates to ‘policy’) must determine one’s answers. The final example above, moreover, demonstrates that we are likely to have divergent views about the difference between interpretation and invention. And though we probably all will be able to draw, at least to our own satisfaction, a reasonably clear dividing line between interpretation and invention, we will also have differing views about the legitimacy of pure invention in different contexts.

1.18  It is submitted that it is easier to see terms implied by law as default but not generally mandatory terms, as interpretative techniques aimed at the better understanding of parties’ intentions as imperfectly expressed in their words, since parties might be taken, if they are in a particular trade, or if they have engaged lawyers to draft the contract document, to be aware of the implications that will be made if they do not express an intention to the contrary. But there are still important ‘ifs’ here: they may not be in the trade, or might not have familiarized themselves with trade usage (particularly if they have not had a dispute of this nature before), and lawyers may not be fully competent or expert in the relevant trade, or the courts may not have determined yet that such and such is in fact a usage of that trade. Moreover, if we exclude mandatory implied terms and terms implied in fact from our consideration, then we have hardly achieved a legitimate categorization of implication as an interpretative technique.

1.19  So, can mandatory implied terms be seen as interpretative? It is submitted that they clearly are not. Rules of interpretation, of which there is a considerable number, have as their function the eliciting of the joint intention of the parties at the time the contract was made, consistent so far as possible with the policy of maximizing certainty. Certainty is achieved, so far as it can be, by consistent application of rules of what might be called legal grammar. But this is an exercise that is necessarily bounded by what the parties have actually said or, preferably, written. The parties may or may not have had in mind the existence and content of any relevant mandatory terms. One implication of the findings of Beale and Dugdale’s classic survey is that parties might well not have them in mind, owing to an ignorance (deliberate or otherwise) of contract law which may well go as far as not actually achieving legally-binding agreements at all. 16

1.20  On the other hand, parties may well develop some knowledge of mandatory terms relevant to their business from experience of disputes and from simply being in the trade; the tacit knowledge of nearly every retailer, for instance, as to the general thrust of section 14 of the Sale of Goods Act 1979. Such knowledge might be taken to have been part of the backdrop against which the express agreement was made. Although the parties might have preferred to contract without such mandatory terms, that does not mean that they did not intend the mandatory terms to have effect; they intended to contract and that in itself imports a good deal into the bargain.

1.21  That said, this is still not an interpretative action on the part of the court, any more than the calculation of damages or the application of the requirement to mitigate loss or the rule against penalties. These are positive rules of law affecting every contract, not a device of interpretation, unless all of contract law is merely interpretative, and that is an extreme position indeed.

1.22  If mandatory terms are not devices of interpretation or construction, what about default terms drawn from legislation, the common law, or trade usage and custom? These seem to have a better claim, in that the parties can contract out of them and therefore might be taken to have accepted them if they fail to contract out. Thus, the contract, properly construed, includes such default terms as are not inconsistent with the express terms. Again, however, it is submitted that this places too great a strain on the idea of interpretation, certainly of construction. To return to our theatrical analogy, to call such an act interpretation, let alone construction, is very like assuming that any characters left alive at the end of the play as written must be assumed to have the fate similar characters have in other plays of the type and period, so a new act can be written in detailing these fates and called ‘interpretation’. Would we generally consider, in ordinary language, that this was ‘interpretation’? It is submitted that some would and others would not, so categorizing such behaviour as interpretation would be at least suspect and by no means necessarily a consensus position.

1.23  The difficulties with seeing the use of such terms as an interpretative device become even greater when the law of agency is taken into account. In this case a principal is taken to agree to any practices or customs of the market concerned unless directly contrary to the express terms of the agency agreement. 17 It must often be the case that principals are not aware of what such terms might be, and the trouble of ascertaining them (even the chances against knowing what questions to ask to ascertain them) will generally be too great. Which of us, in instructing our stockbroker to buy or sell shares on our behalf is fully aware of the customs of the stock exchange in question?

1.24  Which leaves us with terms implied in fact. This category of implied term is perhaps the most debated, indeed contested. Here there is no resource of established terms; instead a term is devised from the ground up by the court, which deems it to have been a term the parties really intended to apply but didn’t actually discuss. This is not the place for a detailed consideration of the debates around terms implied in fact, the law on which has its own chapter in this book, where these matters can be discussed more fully. Nevertheless, some observations seem to be called for here.

1.25  The first leading case on terms implied in fact is The Moorcock . 18 It is the judgment of Bowen LJ that is best known, and it is known particularly for his test of necessity to give business efficacy to a contract. In Reigate v. Union Manufacturing (Ramsbottom) Ltd , 19 Scrutton LJ also adopted this business efficacy test, though in the slightly different phrase ‘necessary in a business sense to give efficacy to the contract’ and went on to explain that this meant

if it is such a term that it can confidently be said that if at the time the contract was being negotiated some one had said to the parties, ‘What will happen in such a case,’ they would both have replied, ‘Of course, so and so will happen; we did not trouble to say that; it is too clear’. 20

And in Shirlaw v. Southern Foundries (1926) Ltd , 21 Mackinnon LJ adopted the same formula with ‘some one’ replaced by an ‘officious bystander’. 22 Whether the business efficacy test and the ‘officious bystander’ test are two tests or one, and how best the test(s) can be described is discussed in detail in Chapter 7. But the thrust is clearly that terms implied in fact are implied from some sort of ‘necessity’ and must be ‘reasonable’ (again, this requirement is discussed in Chapter 7).

1.26  Bowen LJ asked himself this question in The Moorcock :

how much of the peril of the safety of this berth is it necessary to assume that the shipowner and the jetty owner intended respectively to bear – in order that such a minimum of efficacy should be secured for the transaction, as both parties must have intended it to bear? 23

1.27  Three inferences are being made. First, that the parties intended the contract to have business efficacy. Secondly, what that business efficacy amounted to in fact: that is to say, what was the purpose of the contract. Thirdly, what term is then to be implied as the least which must have been intended by the parties to give effect to that purpose.

1.28  The first is natural enough and does not require discussion. The second is not always quite so clear. In Couturier v. Hastie , 24 for example, the purpose of the contract for sale of a quantity of corn in transit was disputed. One party argued that the purpose was the acquisition of corn; the other party argued that in fact it was simply a venture, and what was contracted for was the chance of corn or of receiving money under insurance covering the corn. The court concluded that the former was the true purpose of the contract and held that the contract was void, as we would say for mistake, on the basis that it was a contract for res extincta. But the argument might just as well have gone the other way, and surely the idea of a contract for an adventure is far the more realistic in the context of many modern day sales of goods in transit, an example being oil, which is often sold a hundred or more times while at sea.

1.    Implied terms and positive rules of law

1.29  The distinction between implied terms and positive rules of law is not, it is submitted, a clear one at all. It has, for instance, been suggested on occasion that a term implied in law is in actuality a positive rule of law. As mentioned above (para 1.10 ), Lord Steyn in Equitable Life Assurance Society v. Hyman , 25 for example, described terms implied by law as ‘general default rules’. 26

1.30  The default rules created by terms implied in law can usually be excluded by express terms inconsistent with the implied terms. Terms implied by statute can sometimes be displaced or excluded by express terms, and sometimes not. Default rules such as those in sections 17 and 18 of the Sale of Goods Act 1979 only take effect in the absence of express provision in the contract. A full discussion of this question would be a lengthy one, and beyond what is possible within the scope of a book of this length. A couple of observations will therefore have to suffice.

1.31  First, a term implied by law, custom or statute might (but not in all cases) be ousted by an express term inconsistent with the implied term. Similarly, default rules such as those in sections 17 and 18 of the Sale of Goods Act 1979, only apply where the contract is silent on the relevant point. To this extent, such implied terms operate in the same way as default rules. They are arguably, however, different from positive rules of law, in that we tend to think of such rules as being non-optional, as with the rule that a contract for immoral or illegal purposes is void. On the other hand, if the positive rule is expressed as ‘unless … then’, such a rule takes effect in precisely the same way as either implied terms or default provisions. Thus, implied terms could be expressed as positive rules of the ‘unless … then’ type.

1.32  Secondly, bearing the first point in mind, the distinction between a positive or default rule and an implied term is one without a difference at a practical level. This is only untrue where we say that one cannot resile from a positive rule. But this is also the case with some undoubted implied terms, for example the implied term in section 12 of the Sale of Goods Act 1979. It is fair to conclude, then, that discussion of whether a particular rule or term is an implied term or a positive rule of law is not only doomed to inconclusiveness in the case of at least some such terms or rules, but ultimately sterile in any case.

D. HISTORY OF IMPLIED TERMS

1.33  It is by no means easy to attempt to fix the date or method of entry into English contract law of the implied term. Part of the problem is conceptual: the first treatise on contract, as such, was that of Powell in 1790, followed first by Chitty in 1826 and then by a series of treatises starting with Addison in 1847 and culminating in Anson in 1879. Before the 19th century, what we should today call ‘the law of contract’ was not readily grasped as a discrete system at all.

1.34  Actions for what we would call a breach of contract took various forms, not just over time, but at any one time. Often the action was really tortious in nature: damages claimed for, say, injuring a horse while shoeing it. Wherein lay the duty not to injure it? In the promise of the farrier, or more precisely in the fact that the farrier had ‘taken it in hand’ (‘assumpsit’) to shoe the horse. Why should the farrier be held to that? The plaintiff had provided him a consideration.

1.35  So we cannot easily look for ‘contract’ cases, and it is hard to trace the ancestry of those we do identify, as the reported judgments frequently make no reference to the cases relied on in reaching the decision.

1.36  Nonetheless, there do appear to be some promising lines of inquiry. First, implied contracts, properly so called; these were often a device of lawyers to bring another kind of case under the umbrella of assumpsit. For instance, a case of debt might be brought within the ambit of assumpsit by alleging an implied promise to pay the debt. A debt could not be recovered in assumpsit; it must be recovered through an action in debt, but the breach of the promise to pay the debt was a breach of undertaking and was therefore actionable in indebitatus assumpsit. The idea of the implied contract also permitted recovery in what became known as quasi-contract, or more commonly today, restitution. And though restitutionary claims no longer need to hide behind a fiction of implied contract, implied contracts remain of significance in shipping law, as with the implied contracts between the shipowner and the buyer in a c.i.f. sale, the shipowner and the seller in an f.o.b. sale, the shipowner and shipper where the ship is let on a time charter, and so on. Sales law offers another promising line of enquiry. One could also consider landlord and tenant cases, but only at the risk of clouding the issue of contractual terms with property law issues, manorial rights and so on.

1.    Sales

1.37  Simpson states that ‘in sale of goods the original position was caveat emptor’ and that ‘on an express warranty if one had been given, it was possible to sue in tort for deceit’. 27 The caveat emptor rule applied as much to title as to quality or conformity with description. Simpson records that the earliest reported case where an action was brought on the contract for breach of an express warranty was Stuart v . Wilkinson , 28 as late as 1778, but that the practice began around 1750. However, he also notes that the insistence on express terms began to be eroded from the case of Medina v . Stoughton as early as 1700, 29 and that ‘by the time of the decision in Eichholz v . Bannister (1864) 30 the exception had for all practical purposes eaten up the rule’. 31

1.38  The implied term as to title (so called) has its origin in the common law. As already noted, the original position appears to have been caveat emptor, 32 but as early as 1688 it was held that a warranty of title was to be inferred from mere affirmation and circumstance. In Crosse v . Gardner , 33 a case concerning a sale of oxen, it was held that mere affirmation amounted to a warranty (though the plaintiff had failed to allege a warranty) that the defendant was entitled to sell, since the oxen were in his possession and the plaintiff had no way of knowing of the rights of another (the true owner having recovered the oxen from the plaintiff). Shortly after, in Medina v . Stoughton the defendant sold a lottery ticket to the plaintiff, affirming it to be his own. In fact it belonged to a third party. It did not avail the defendant to say that he bought it bona fide then sold it to the plaintiff. Holt C.J. held that ‘where one having the possession of any personal chattel sells it, the bare affirming it to be his amounts to a warranty, and an action lies on the affirmation, for his having the possession is a colour of title, and perhaps no other title can be made out’. 34 This is not quite what we mean by an implied term, since there is an affirmation involved, but it required a sort of implication in the law at the time, and the case represented an inroad into the caveat emptor principle in respect of entitlement to sell a chattel.

1.39  The rule was still being stated as caveat emptor in 1849, but with extensive exceptions which had clearly developed over time and in part amounted to an extension of Crosse v . Gardner and Medina v . Stoughton , and had to a large extent nullified the rule itself in the ordinary commercial context at least. In the case of Morley v . Attenborough, 35 which concerned the sale of a harp, the headnote explains:

There is no implied warranty in the contract of sale of a personal chattel; and in the absence of fraud, a vendor is not liable for a defect of title, unless there be an express warranty or an equivalent to it, by declaration or conduct. A warranty may be inferred from usage of trade, or from the nature of the trade being such as to lead to the conclusion that the person carrying it on must be understood to engage that the purchaser should enjoy that which he buys, as against all persons; as where goods are bought in a shop professedly carried on for the sale of goods …

1.40  By 1864, the implied term was clearly established. Eichholz v . Bannister 36 involved a sale of cloth by the defendant warehouseman in Manchester for £18/4s. 37 The plaintiff purchaser then resold them a few days later for £19/15s. The goods, however, were recognized as stolen goods and returned to the plaintiff from whom they were in turn taken by the police. The defendant argued that there was no warranty of title in a sale of goods and a plaintiff in such cases would be confined to an action in deceit, if deceit there had been. The old authorities were said to support this strongly, though it was noted that Blackstone J. (presumably in his Commentaries ) had said that ‘in contracts for sale it is constantly understood that the seller undertakes that the commodity he sells is his own’, 38 indicating an early view as to implied warranty of title. The court, Erle C.J., Byles J. and Keating JJ., held that there was a warranty of title. The judgment of Byles J. is short and pithy and representative of the views of his brother judges, and it warrants reproduction here almost in full.

[…] It has been said over and over again that there is no implied warranty of title on the mere sale of a chattel. But it is certainly as [Erle C.J.] has observed, barren ground; not a single judgment has been given upon it. In every case, there has been, subject to one single exception, either declaration or conduct. Chancellor Kent, 2 Com. 478, says: “In every sale of a chattel, if the possession be at the time in another, and there be no covenant or warranty of title, the rule of caveat emptor applies, and the party buys at his peril;” for which he cites the dicta of Lord Holt in Medina v . Stoughton … and of Buller, J., in Pasley v . Freeman [ 39 ]

… “But,” he goes on, “if the seller has possession of the article, and he sells it as his own, and not as agent for another, and for a fair price, he is understood to warrant the title .” Thus the law stands that, if there be declaration or conduct or warranty whereby the buyer is induced to believe that the seller has title to the goods he professes to sell, an action lies for a breach. There can seldom be a sale of goods where one of these circumstances is not present. I think Lord Campbell was right when he observed that the exceptions had well nigh eaten up the rule.

1.41  Simpson traces an implied term that goods sold by description be merchantable, even where the seller was not proven to have known of the defect, to the case of Laing v . Fidgeon . 40 This case involved the sale and purchase of, among other goods, 48 saddles from a manufacturer in Birmingham, for reasonable prices between 24 s. and 26 s. each. 41 The goods were shipped to North America and on inspection there were found to be unmerchantable without being restuffed and relined. Although it was contended by counsel for the defendant that the price was one at which merchantable goods of that description could not have been supplied, that the plaintiff must have known this and that, therefore, there could be no warranty of merchantable quality, the court (Gibbs C.J.) held that this was no argument: the defendant could have declined the order if he thought the price inadequate; accepting the order meant undertaking to supply goods of merchantable quality. Neither Taunton’s report nor Campbell’s report, however, mentions any prior authority at all.

1.42  The case of Jones v . Bright 42 concerned the sale of copper for sheathing a ship. The defendants knew the purpose for which the copper was required. A mutual acquaintance of the parties, one Fisher, told the defendants ‘Mr Jones is in want of copper for sheathing a vessel and I have pleasure in recommending him to you, knowing that you will sell him a good article,’ to which one of the defendants replied ‘Your friend may depend on it, we will supply him well.’ The actual copper sheets were selected by the plaintiff’s shipwright and the price paid was that commanded by top quality sheet copper. The copper, however, lasted only about four months, rather than the four or five years normally expected. The evidence differed as to whether the problem was extrinsic (‘the inveteracy of the barnacles in the river at Sierra Leone’ 43 ) or intrinsic (perhaps too much oxygen during the process of manufacturing the sheets 44 ). This question was left to the jury, which found that the defect was intrinsic. Judgment was then directed in favour of the plaintiff.

1.43  On appeal, counsel for the plaintiffs argued that ‘when an article is sold for a particular purpose, a warranty is implied that it is fit for that purpose’. 45 The case of Fisher v . Samuda 46 was alluded to as a case where the quality of the goods had not been allowed to be raised, but it was distinguished on the grounds that the problem there had been procedural, because the defendant (being sued for the price of beer) had not raised the quality in his defence to the original action. In fact, in that case Lord Ellenborough clearly indicated that poor quality was a legitimate defence which should have been raised in the first place. 47 While in Gardiner v . Gray , 48 a case concerned with waste silk that was not saleable under that denomination, the same judge held that:

The purchaser has a right to expect a saleable article answering the description in the contract. Without any particular warranty, there is an implied term in every such contract. Where there is no opportunity to inspect the commodity, the maxim of caveat emptor does not apply. He cannot, without a warranty, insist that it shall be of any particular quality or fitness; but the intention of both parties must be taken to be, that it shall be saleable in the market under the denomination mentioned in the contract between them. 49

The same principle appears to have been adopted by Lord Ellenborough in Bluett v . Osborne . 50

1.44  In Parkinson v . Lee, 51 however, it was held that there was no implied warranty of merchantable quality in sales by sample, presumably on the application of the other side of the same principle: where there is no inspection there is a warranty, where there is an inspection, as with a sale by sample, then there is no warranty as to merchantable quality since the buyer is able to make up his own mind on this point. Though in Okell v . Smith , 52 a case concerning the sale of 16 copper pans, Bayley J. held that a buyer was entitled in appropriate circumstances to make a reasonable trial use of goods and if they were not fit for the purpose for which they were sold the seller would be obliged to take them back.

2.    Implication of assumpsit

1.45  Of course, the implied terms discussed above are nothing like the first implications. Mediaeval sales were enforced through the actions of debt and detinue. The first allowed the seller to recover the price as a debt; the second allowed a buyer to oblige the seller to deliver up the goods. Both were problematic as the mode of trial was wager of law. This meant that a defendant could escape liability by swearing and getting 11 others (compurgators) to swear likewise, that he did not owe the money or was not obliged to deliver the goods. Assumpsit, on the other hand, came with trial by jury. The problem was that there was no outstanding promise to sue on in assumpsit. The lawyers got around this by claiming an implied promise to pay the debt. So, the sale contract raised the debt, but the assumpsit was the promise to pay the debt.

1.46  Whether this should properly be seen as an implied term, however, seems doubtful: it is clearly more in the nature of an implied contract: the whole assumpsit, that is to say the ‘taking in hand’ or what we would today call the contract, is implied from the debt. That said, what is clear is that there was no room for implied terms in debt or detinue, or in covenant (an action on a sealed document which seems, for reasons unknown, never to have been popular) either, as requirements in covenant were formal in the extreme. 53 The development of implied terms was, at any rate, a development belonging to the actions of special and indebitatus assumpsit.

3.    Summary

1.47  We can conclude, it is submitted, that while sales seem to have given rise to implied contracts at a very early date, the technique of implication as such may well have first arisen in the implication of the assumpsit arising from a debt. Sales, however, may well have provided the main arena for the development of implication of terms, since implication of terms is, in its character, oil for the wheels of commerce. However, the difficulties in tracing clear genealogies through judgments, particularly because so many older judgments cite no prior authority for what is being held to be the law, mean that it is unlikely that it will ever be possible to say with any certainty or even with reasonable confidence.

 1 [1975] Q.B. 303; [1974] 2 W.L.R. 856 (C.A.).

 2 Unfair Contract Terms Act 1977, ss. 6(1)(a) and 6(2)(a). The implied term in s. 12 SGA 1979 cannot be excluded against any buyer, consumer or otherwise: s. 6(1)(a) UCTA 1977 while the terms in ss. 13 to 15 cannot be excluded as against a consumer, and can only be excluded against a buyer in the course of business if exclusion is reasonable: s. 6(3).

 3 See below, Chapter 3.

 4 See below, Chapter 5.

 5 See below, Chapter 7.

 6 However, implied terms may still live in otherwise civilian-style legal environments. Japanese law, for example, has a Civil Code and a Commercial Code, yet also uses terms implied from course of performance and from trade usage: seeZ. Kitigawa, ‘Use and Non-Use of Contracts in Japanese Business Relations’ in H. Baum (ed), Japan, Economic Success and Legal System (deGruyter: Berlin and New York, 1997).

 7 J. Carter and E. Peden, ‘Good Faith in Australian Contract Law’ (2003) 19 Journal of Contract Law 155, E. Peden, ‘Policy Concerns in Terms Implied in Law’ (2001) 117 L.Q.R. 459.

 8 Insurance contracts are contracts uberrimae fidei , and the Unfair Terms in Consumer Contract Regulations 1999 (originally 1994), implementing an E.U. directive, makes reference to good faith in the terms of consumer contracts.

 9 UCC §1–203: ‘Every contract or duty within this Act imposes an obligation of good faith in its performance or enforcement.’ This provision should be read together with § 1–102(3):The effect of provisions of this Act may be varied by agreement, except as otherwise provided in this Act and except that the obligations of good faith, diligence, reasonableness and care prescribed by this Act may not be disclaimed by agreement but the parties may by agreement determine the standards by which the performance of such obligations is to be measured if such standards are not manifestly unreasonable.

10 [1976] 1 Q.B. 319 (C.A.).

11 [1977] A.C. 239. See especially at 258 per Lord Cross and at 254 per Lord Wilberforce.

12 See G.M. Cohen, ‘Implied Terms and Interpretation in Contract Law’ in B. Bouckaert and G. deGeest (eds), Encyclopedia of Law and Economics (Edward Elgar: Cheltenham, UK and Northampton, Mass, 2000) 78 at p. 84.

13 Discussed below in Chapter 7.

14 [2002] 1 A.C. 408, 458 and 459.

15 McMeel points out that the origin of Lord Steyn’s terminology is in fact North American: see G. McMeel, The Construction of Contracts (OUP: Oxford, 2007) at 10.04 n. 7.

16 H. Beale and T. Dugdale, ‘Contracts Between Businessmen’ (1975) 2 Brit. Jo. Law & Society 45.

17 See, for example, Cunliffe-Owen v . Teather & Greenwood [1967] 3 All E.R. 561; [1967] 1 W.L.R. 1421 (Ch.D.).

18 (1889) 14 P.D. 64.

19 [1918] 1 K.B. 592.

21 [1939] 2 K.B. 206.

23 (1889) 14 P.D. 64, 69.

24 (1856) 5 H.L.C. 673.

25 [2002] 1 A.C. 408; [2000] 3 All E.R. 961.

26 [2002] 1 A.C. 408, 459. McMeel suggests, no doubt correctly, that the terminology of ‘default rules’ (terms implied in law, by statute, or custom, etc.) and ‘ad hoc gap-fillers’ (terms implied in fact) is North American in origin, citing T.D. Rakoff ‘Implied Terms: Of “Default Rules” and “Situation Sense”’ in J. Beatson and D. Friedmann (eds.), Good Faith and Fault in Contract Law (OUP: Oxford, 1995): McMeel, 10.02 n. 7.

27 A.W.B. Simpson, ‘Historical Introduction’ in M. Furmston, Cheshire, Fifoot & Furmston’s Law of Contract , 15th edn (OUP: Oxford, 2007), p. 17.

28 (1778) 6 Doug. K.B. 18.

29 (1770) Holt 208; 1 Salk. 210; 1 Ld Raym. 593; 90 E.R. 1014.

30 17 C.B.N.S. 708; 144 E.R. 284.

31 Simpson, n.27, above, p. 17.

32 See, for example, Deering v . Farrington (1675) 3 Keble 303; 84 E.R. 734.

33 (1688) Carthew 90; 90 E.R. 656.

34 (1770) 1 Salk. 210, 210; 91 E.R. 188.

35 (1849) 3 Exch. 500; 154 E.R. 943.

36 (1864) 17 C.B.N.S. 708; 144 E.R. 284.

37 Apparently, at least. The invoice shows a price of £19/0/0d, less a 1.5 per cent cash reduction rounded to 6 shillings, but a total of £18/4/0d, which should, of course, have been £18/14s.

38 (1864) 17 C.B.N.S. 708, 713.

39 (1789) 3 T.R. 51; 100 E.R. 450.

40 (1815) 6 Taunt. 108; 128 E.R. 974.

41 Though according to Campbell’s report, the contract was for ‘50 saddles, to be charged about 28 s. each’: 4 Camp. 169; 171 E.R. 55. Campbell was counsel for the plaintiff in this case.

42 (1829) 5 Bing. 533; 130 E.R. 1167.

46 (1808) 1 Camp. 190; 170 E.R. 925.

48 (1815) 4 Camp. 144; 171 E.R. 46.

50 (1816) 1 Stark. 384; 171 E.R. 504.

51 (1802) 2 East 314; 102 E.R. 389. There was in this case, incidentally, an express warranty that the bulk (of hops) would correspond with the sample.

52 (1815) 1 Stark. 107; 171 E.R. 416.

53 See, generally, A.W.B. Simpson, A History of the Common Law of Contract, (OUP: Oxford, 1975), pp. 281ff.

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Contract Law: Text, Cases and Materials (10th edn)

• Preface to the Tenth Edition
• New to this Edition
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• 1. Introduction
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p. 328 10. Implied Terms

• Ewan McKendrick
• https://doi.org/10.1093/he/9780192856548.003.0010
• Published in print: 23 May 2022
• Published online: September 2022

This chapter discusses implied terms. Terms may be implied into contracts from three principal sources: statute, custom, and the courts. Parliament has, on a number of occasions, implied terms into contracts. The precise reason for the implication of the term depends upon the particular statute. It may be to give effect to the presumed intention of the parties; it may be to reduce uncertainty by enacting a default rule out of which the parties can contract if they do not like the term that Parliament has seen fit to imply; or it may be to protect one party to the transaction from the superior bargaining power of the other. Terms can also be implied into contracts by custom where the custom is certain, reasonable, and notorious. Customs and usages are an important source of obligations in commercial contracts. Terms implied by the courts can be divided into two groups, namely terms implied in fact and terms implied in law. A term is implied in fact when it is implied into the contract in order to give effect to what is deemed by the court to be the unexpressed intention of the parties and is implied because it is necessary to make the contract work. Terms implied in law ‘are those terms that are consistently implied into all contracts of a particular type because of the nature of the contract, rather than the supposed intentions of the parties’.

• English contract law
• contract terms
• implied terms
• terms implied in law
• terms implied in fact

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Express and implied terms

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A practical guide to implied terms

An implied term is a contractual term which has not been recorded in the written provisions of a contract, because it has not been expressly agreed. Parties should be mindful of the terms capable of being implied, as well as whether or not they can be expressly excluded. Catherine Simpson looks at some common implied terms in construction contracts, relating to quality, fitness for purpose, skill and care, and good faith.

The parties to a contract will often not give much thought to the fact that terms can be implied, usually by common law or by statute. 1  Terms can also be implied by trade or industry custom and use, based on the conduct of the parties, or based on the intentions of the parties at the time the contract was entered into (although not if they are unreasonable or at odds with the express contract provisions).

Quality of goods and materials

Most construction contracts will contain an express term that the materials used are to be new and of satisfactory quality. However, where express wording has not been used, common law has found that a contractor will impliedly warrant that the materials supplied will be of good and proper quality. This will be the case unless it can be shown that the parties intended otherwise, which might be where, for example, the contractor is specifically directed to use a particular material and they have no control over its suitability.

There may be building standards or legislative requirements against which “quality” can be assessed, but generally it can be inferred that goods/materials will not be of satisfactory quality if they have been used for their normal or intended purpose and fail shortly after use. The implied obligation to use good and proper materials will be breached even if the contractor was unaware at the time of supply that they were inappropriate or defective. This is a key point to note for contractors, who will be unable to use, as a defence, the fact that they had no reasonable basis for knowing that the supplied materials were defective. In such circumstances, a contractor who is found liable would need to pursue their supplier.

There is similarly legislation which provides that contracts for the sale or supply of goods are subject to an implied term that they will be of satisfactory quality – see, for example, Sale of Goods Act 1979, section 14(2) and Supply of Goods and Services Act 1982, section 4(2). However, there are usually qualifications. Focusing on the sale of goods, an implied term of satisfactory quality might be qualified if the seller makes any limitations in the physical characteristics of the goods known to the purchaser, and the purchaser still chooses to accept the goods. Similarly, if the purchaser examined the goods before the contract for sale was entered into, or purchased on the basis of a supplied sample and any limitations in the goods were apparent at the time, the implied term as to quality may be qualified to the extent of the limitations.

Fitness for purpose

At common law, if the contractor assumes responsibility for design, there will usually be an implied warranty that the result of the work will be reasonably fit for the agreed or known purpose, provided the contractor was aware of the purpose at the time the contract was entered into. Such a warranty may also be implied where it is apparent that the employer is relying on the contractor to exercise skill and judgement to achieve a particular result.

Where a contractor is aware of the general purpose of the design but is not made aware of specific requirements as to the final performance or specification, the contractor will be required to exercise reasonable skill and care in performing its obligations. It is possible for a contract to expressly provide that the contractor does not warrant fitness for purpose, and that it only undertakes to exercise reasonable skill and care in performing its obligations. This is often the case where a contractor’s insurance policy does not cover the contractor against any liability it may have for breach of a fitness for purpose obligation. Few insurers cover this, so many parties will expressly exclude any fitness for purpose warranty. 

If the contractor does not assume design responsibility, the implied warranty as to fitness for purpose will usually only relate to the supplied materials and the workmanship, to the extent that they are within the contractor’s control. An implied warranty to ensure that materials are reasonably fit for purpose is usually more onerous than an implied obligation that they be of satisfactory quality.

Quality of work

It will generally be an implied obligation of a contractor to perform and complete its work in a good and workmanlike manner. The contractor will typically be required to carry out its work with the skill and care of an ordinarily competent contractor in the circumstances of the actual contractor. Although the obligation will be implied at common law, it is often set out in an express contractual term (such as clause 2.1 of the JCT Standard Building Contract, 2016 edition and clause 7.1(b)of the FIDIC Red Book (2nd edition, 2017).

A contractor might be in breach of this obligation if they have used unsatisfactory materials. The fact that a contractor supplies labour, but not materials, does not excuse them should the works turn out to be defective due to the use of incorrect materials, or use of materials in an incorrect manner, where the contractor knew, or ought to have known, that by performing the work in the manner they did, there would be a defect. Nor does the fact that the contractor was not responsible for the preparation of the design excuse them from responsibility for defects in the works, where it ought to have been clear that the design was materially deficient.

Of important note is that it is the duty of the contractor to draw to the attention of the employer the fact that they are unable to perform the work satisfactorily. So, where a contractor knows, or ought to know, that the works they have been asked to perform will be defective or unsatisfactory for their known purpose, the contractor should draw this to the attention of the employer and seek instructions on how to proceed before carrying out any work.

Duty to exercise reasonable skill and care

At common law, it is the implied contractual duty of a professional person who holds themselves out as possessing a particular skill that, when employed to do work that requires the application of that skill, they will exercise reasonable skill and care in the art they profess.

Similarly, under the Supply of Goods and Services Act 1982, where services are supplied pursuant to a contract as part of a business, it will be an implied term that the supplier will carry out their services with reasonable skill and care – see section 13.

Duty to act in good faith

Although there is no overarching principle of good faith applying to contracts governed by English law, the obligation to act in good faith may be inferred into construction contracts on a piecemeal basis. This is namely to overcome problems of unfairness. An obligation to act in good faith generally requires the parties to cooperate to achieve the contractual objectives and compliance with honest standards of conduct or those that are reasonable having regard to the interests of the parties.

There have been moves to introduce the concept of good faith into construction contracts by express terms. For example, the NEC4 contains a requirement on the parties to act “in a spirit of mutual trust and cooperation” (clause 10.2). However, the law will not usually fill gaps in the contract by implying a term that the parties are to act in good faith where the contract already contains detailed terms setting out the respective rights and obligations of the parties. Accordingly, this will be rare in practice.

Are there other terms which may be implied?

The common law does not generally imply an obligation into construction contracts that the contractor is required to perform its works in accordance with all applicable laws. Such a term may, however, be implied ad hoc in the particular circumstances of the parties. For example, it may be an implied term that  the contractor’s works, when completed, will be of sufficient quality to comply with the applicable building laws or regulations concerning such work.

There are a number of other terms which may be implied by common law, including a duty to co-operate, a duty to give possession of the site within a reasonable time for certain types of contract, and an obligation on the employer not to hinder or prevent the contractor from carrying out its obligations and executing the works. Many of these terms can be excluded expressly or by surrounding circumstances.

What does this mean?

The fact that terms can be implied is a valuable reminder of the need for careful negotiation and drafting. Parties should be mindful of the terms capable of being implied and consider whether any can, or should, be expressly excluded. If they can be excluded, the contractual exclusion terms must be clear and unambiguous to minimise the risk of a later dispute. It is also worth noting that an express term will only be upheld if it is reasonable for the purposes of the Unfair Contract Terms Act 1977.

The parties would also be wise to consider an entire agreement clause. Entire agreement clauses provide that only those terms set out in the signed agreement form part of the contract. However, note that the inclusion of an entire agreement clause will not always preclude the bringing of a claim for implied terms.

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• 1. Such as the Late Payment of Commercial Debts (Interest) Act 1998 implying the right to interest on late payments at the rate of 8% over base unless the contract already contains a “substantial contractual remedy for late payment”, the Contracts (Rights of Third Parties) Act 1999 implying a right for a third party to enforce a contractual term if the contract expressly provides for it, and the Defective Premises Act 1972 implying for the provision of a new dwelling a term that the dwelling, when completed, will be reasonably fit for human habitation.

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Implied terms: when can a term be implied into a contract?

Marks and Spencer v BNP Paribas Securities Trust

The Supreme Court has clarified the law on implied terms: to be implied it must be necessary for business efficacy or alternatively be so obvious as to go without saying. The court held that given the widespread misinterpretation of the decision in Attorney General of Belize and others v Belize Telecom Ltd  ( Belize ), it should no longer be treated as authoritative guidance on the law.

Although the facts relate to a property transaction, the underlying test will be adopted when implying terms into a contract of employment. This appeal concerned a tenant’s break clause in a lease. The lease had been granted for a term expiring in February 2018 and the rent was payable in advance in quarters. The tenant exercised its right under the break clause to determine the lease in January 2012, after it had already paid the full quarter’s rent which was due in December.

The issue was whether the tenant could recover the apportioned rent in respect of the period from January to March. The resolution of this issue turned on the interpretation of the lease and required the court to consider the principles relating to when a term is to be implied into a contract.

Pre- Belize tests for implying terms

The following two tests have been most commonly used when determining whether a term should be implied into a contract:

• business efficacy test: the proposed term will be implied if it is necessary to give business efficacy to the contract ( The Moorcock )
• officious bystander test: the proposed term will be implied if it is so obvious that, if an officious bystander suggested to the parties that they include it in the contract, ‘they would testily suppress him with a common ‘oh of course’’ ( Shirlaw v Southern Foundries ). In other words, the proposed term must be so obvious that it goes without saying.

The test in Belize

The most recent commonly cited test is taken from Belize, where Lord Hoffman said “there is only one question: is that what the instrument, read as a whole against the relevant background, would reasonably be understood?”

The Supreme Court held that this formulation in Belize has been misinterpreted as suggesting that reasonableness is a sufficient ground for implying a term. The court confirmed that business necessity is required for a term to be implied into a contract and that the decision in Belize has been misinterpreted as diluting this requirement.

Furthermore, the court considered whether the processes of contract interpretation and implication of terms are separate. The court held that they are and that it is, therefore, important that the terms of the contract are construed before the process of implying terms.

The test for implying terms into contracts

The court held that Belize should no longer be treated as authoritative guidance on the law of implied terms. Instead, the pre-Belize authorities should be considered, notably the summary of the conditions in BP Refinery v Shire of Hastings (BP Refinery), as extended in Philips Electronique v British Sky Broadcasting Ltd (Philips). Lord Neuberger also added six comments to theses authorities.

The summary of conditions for implication in BP Refinery

In BP Refinery , Lord Simon said that for a term to be implied, the following conditions (which may overlap) must be satisfied:

• it must be reasonable and equitable
• it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it
• it must be so obvious that “it goes without saying”
• it must be capable of clear expression
• it must not contradict any express term of the contract.

C onditions in Philips

In P hilips , the conditions in BP Refinery were described as a summary whose simplicity could be misleading. The court stated it is difficult to infer with confidence what the parties to a lengthy and carefully drafted contract must have intended. An omission may be the result of the parties’ oversight or their deliberate decision. It is tempting, but wrong, for a court, with the benefit  of hindsight, to imply a term which reflects the merits of the situation as they then appear. The term to be implied must be either the only contractual solution or the one which would, without doubt, have been preferred.

Lord Neuberger’s six comments on the test for implying terms

Lord Neuberger offers six comments on the requirements for implication set out in BP Refinery  as extended in P hilips . These are as follows:

• what matters is not the hypothetical answer of the actual parties, but that of notional reasonable people in the position of the parties at the time at which they were contracting.
• a term should not be implied into a detailed commercial contract merely because it appears fair.
• the requirement from BP Refinery that implied terms must be reasonable and equitable adds nothing. If a term satisfies the other requirements, it is hard to think that it would not be reasonable and equitable
• business efficacy and the officious bystander tests are not cumulative. Only one of these requirements needs to be satisfied (although the other requirements in BP Refinery are cumulative)
• it is important to correctly formulate the question asked by the officious bystander. Lord Neuberger cited Lewison in The Interpretation of Contracts, 5th ed (2011), para 6.09; the book criticises questions which suggest only one answer
• necessity for business efficacy involves a value judgment. The test is not one of “absolute necessity”. A term can only be implied if, without the term, the contract would lack commercial or practical coherence (Lord Sumption’s suggested reformulation of the business efficacy test).

Points to note

This is an important judgment which re-states the law on implied terms and is therefore relevant to drafting contracts or contractual disputes.

This case reinforces the current judicial trend against implying in terms into a contract unnecessarily. The judgment confirms that courts and litigants can safely argue for an implied term on the basis of “business efficacy” or the “officious bystander” test, without inciting an appeal about the correct formulation for finding an implied term.

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Supreme Court Clarifies Test for Implied Terms

By Jonathan Hew

The Supreme Court has clarified that, for a term to be implied into an agreement, it must be either necessary for business efficacy or so obvious that it goes without saying. This is a significant judgment for commercial practitioners and for those drafting or dealing with contracts generally.

Under English law, a court can imply terms into a contract to supplement its express provisions. However, the Privy Council’s decision in Attorney General of Belize and others v Belize Telecom Ltd and another [2009] UKPC 10 had led to uncertainty about the appropriate test for the implication of terms. The test has since been clarified by the Supreme Court in Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Limited and another [2015] UKSC 72.

The test for implied terms

Certain academics and judges had interpreted Belize as having diluted the requirements for the implication of a term so that a term can be implied into a contract, provided that it would be reasonable to do so.

In Marks and Spencer , the Supreme Court rejected this interpretation and affirmed the approach of judicial observations prior to Belize . Accordingly, the following requirements must be satisfied before a term can be implied:

• The term must be reasonable and equitable.
• The term must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it, or the term must be so obvious that it goes without saying.
• The term must be capable of clear expression.
• The term must not contradict any express term of the contract.

In addition, a court should not use hindsight to fashion a term that reflects the merits of the situation as they then appear. It is also not enough that the parties would have made provision for the eventuality which in fact occurred, unless it can be shown either that there was only one contractual solution or that one of several possible solutions would without doubt have been preferred.

Trendspotting

The Supreme Court’s decision represents a further attempt in recent years to refine the correct approach to be taken when determining the scope and meaning of a contract. This appears to involve: (i) the emphasis on the words contained in (or omitted from) the agreement and their natural meaning and (ii) the imposition of limits on the use of concepts such as reasonableness and business common sense that tend to invite judicial creativity and intervention. As stated in Arnold v Britton [2015] UKSC 36 in relation to the interpretation of contracts:

“ … it is not the function of a court … to relieve a party from the consequences of his imprudence or poor advice. Accordingly, … a judge should avoid re-writing it in an attempt to assist an unwise party or to penalise an astute party. ”

Thus, in Marks and Spencer , the Supreme Court ruled that the appellant was unable to reclaim the proportion of a quarterly rent paid in advance to the respondents under a lease, despite the fact that the lease had been determined part-way through the quarter.

What does this mean for you?

Courts will be slow to imply a term into a contract unless the test for implied terms can be strictly satisfied. More generally, courts will give primacy to the express provisions of the contract. This will be the case even if the result would be unduly harsh (or advantageous) to a party from a commercial perspective. Accordingly, when preparing contracts, parties should take care to include all relevant provisions and to ensure that such provisions are drafted clearly.

You can read the full judgement here

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Contract Law Essay - Implied Terms

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2012 International Journal for Private Law 293

Steve Cornelius

When parties conclude a written contract, there is much which inevitably remains unsaid. Language is imprecise, with the result that the parties often express themselves in terms that are less than clear. It is also impossible to foresee all possible eventualities at the time when a contract is concluded. As a result, the laws in most jurisdictions have recognised that the express terms of a contract must be supplemented with unexpressed terms. The nature and extent of the terms vary greatly. In most Common law jurisdictions, courts have only a limited discretion to imply terms in a contract. These terms can be incidental terms which the law imports into all contracts of a particular kind. Or they can be based on the assumed or actual intention of the parties. In Civil law jurisdictions, complimentary interpretation is largely based on the significance of good faith in the law of contract and courts have a much wider discretion to compliment the terms of a contract to ensure a fair and effective contract.

The Modern Law Review

Leon Trakman

The ascertainment of parties’ intentions in a contract under English law is largely dictated by several clear distinctions, namely, the interpretation of express terms, the implication of terms, and the rectification of the contract. In recent times, those distinctions have begun to weaken, as illustrated by the recent English High Court decision of Procter & Gamble Co. v. Svenska Cellulosa AB, [2012] EWHC 498 (Ch). This paper uses Procter & Gamble to examine the weakening distinctions in English law before turning to consider whether the traditional distinctions remain (and should remain) intact in Singapore. It also makes some broader observations on the Singapore courts’ approach in the specific area of contract law in light of increasing English recourse to broad, unifying concepts.

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Implied Terms in Contract of Sale

Info: 2977 words (12 pages) Essay Published: 25th Jun 2019

Reference this

Jurisdiction / Tag(s): UK Law

In advising George the first thing that must be identified is the cause of action that he may have against Farmworks in respect of the tractor supplied. As the facts indicate that the tractor was sold to George there will have been a contract of sale between the two parties. The main causes of action that George may pursue against Farmworks is breach of contract for the implied terms under the Sale of Goods Act 1979 (SOGA) or a claim in misrepresentation. Each cause of action will be discussed below in relation to the law and remedies that might be available to George.

Implied Terms:

Section 14(3) of the SOGA 1979 implies into contracts of sale a condition that the goods supplied under the contract will be reasonably fit for any purpose which the buyer expressly or impliedly made known to the seller. When a buyer asks a seller for advice or further information on the product being purchased it is considered reasonable for the buyer in that situation to rely on the skill of the seller. The implied condition under section 14(3) is confined to situations where the seller sells in the course of his business and the buyer must have relied upon the advice in making the sale. The facts indicate that George specifically asked Andrew from Farmworks whether the TX model of tractor is suitable for ploughing all types of soil. The representation made by Andrew indicated that many major agribusinesses had bought the tractor which suggested the tractor was versatile. Additionally George sought information on the weight of the tractor which Andrew had specifically pointed out the size of the tyres which distributed the weight of the tractor so that it would not be too heavy. It is also important to point out that Andrew knew George in a personal capacity which would suggest that he may well have known the specific use George had bought the tractor for. For George to establish a breach of section 14(3) he must prove that he communicated the specific purpose of the tractor either expressly or impliedly and then went on to rely on the advice provided by Andrew in making the purchase. Therefore George’s case will turn upon two key issues, firstly whether George sufficiently communicated to Andrew either expressly or impliedly the particular purpose and secondly whether George relied upon the response making the purchase.

On the first issue the approach of the courts in interpreting the ‘particular purpose’ has been wide and does not require that the buyer should disclose all the purposes which the goods are to be used. However, in George’s case it seems that the soil is of a particularly fine and dusty nature which may be very specific to George. Additionally George did not expressly make Andrew aware of his intentions of using the tractor to plough in such fine and dusty soil, although he did asked questions relating to ploughing. Where there is a particular eccentricity within the purpose the courts have found that there must be some disclosure to the seller. It will be for the courts to decide whether George should have disclosed the fact that the soil is a particularly light and dusty light and whether this is a particular eccentricity only applicable to George. The issue will turn upon whether George can assert that as Farmworks is a local supplier of agricultural machinery they would have or at least should have constructive knowledge about the soil types in the locality within which they carry on trade. Further the fact that Andrew knew George personally it may indicate he would have been or should have been fully aware of the type of works that George had intended the tractor for. Although ultimately it will be for the courts to determine whether section 14(3) can be relied upon, it can be asserted that as Farmworks is a local supplier, that Andrew knew George and George asked a number of pertained questions – it all points to a particular purpose which may point to the courts accepting the particular purpose was known to Farmworks.

On the second issue of whether George actually relied upon the response given by Andrew the courts have tended to find that the buyer must ‘bring home’ to the seller that they are relying upon the information given to such an extent that the seller is selling the goods on those terms. However, in essence there must be a ‘reasonable reliance’ made by George. Reasonable reliance involves considering the expertise of the buyer and the seller. It is evident from the facts that Andrew is a farm machinery agent selling agricultural machinery to individual customers and businesses. It is there line of trade and therefore it may be reasonably expected they should know the suitability of their tractors and be able to advise their customers appropriately. However, as the TX model is a new line of tractor it may be sufficient for Farmworks to abrogate their responsibility in that it may considered by the courts as being unreasonable for Farmworks to have been able to advise the suitability of the TX model. It must be noted that as George knows the nature of the soil on his farm and has arguably communicated this to Andrew indirectly through his questions and through the fact that they know each other, it may be reasonable to argue that Farmworks knew the nature of the soil and was being asked to comment on the suitability of the TX on George’s farm. Additionally, by George directly questioning Andrew about the weight of the tractor and Andrew response as to the wide nature of the tyres to even distribute the weight of the tractor, it may be argued that it was reasonable for George to rely upon the information given by Andrew during the course of the sale in deciding to purchase the tractor.

In summary if George can prove that he communicated the particular purpose he required the TX tractor for and reasonably relied upon the information provided he will be able to rely upon section 14(3) of the SOGA 1979. The remedies he may be entitled to claim are the right of rejection of the goods, damages for non-delivery and damages for breach of warranty.

In dealing with the right to reject goods a non-consumer, such as George, is not allowed to reject the goods under section 14 of the SOGA 1979 for trivial reasons but rather the courts allows the buyer under section 15A of the SOGA 1979 to sue for damages under a breach of warranty. This only applies where the breach is so slight that it would be unreasonable to allow George to reject the tractor. It will be a matter for the court to decide whether in this particular case the breach is so slight that it would be unreasonable to allow George to reject the goods. It can be submitted that if the courts accept that the breach is so serious that it detrimentally affects George’s ability to operate sufficiently which damages would not compensate adequately, they may allow a right to reject. But as George is not a consumer it must be accepted that the likely remedy would be damages for breach of warranty.

In dealing with damages for non-delivery under section 51(1) of the SOGA 1979 it provide for compensation where the goods delivered where rightfully rejected by the buyer. The key question will be whether George can now eight weeks post-purchase ‘rightfully reject’ the goods. Under section 34 of the SOGA 1979 the buyer is allowed a reasonable period of the time to examine to the goods to assess their compliance with the contract of sale. Under section 35 of the SOGA 1979 a buyer will only have deemed to accepted the goods after a lapse of a reasonable period of time. In Clegg v Anderson (2003) and Truk (UK) v Tomakidis GMgH (2000) a reasonable period of time for inspection was held to be 6 months post-purchase plus a further three some for investigation. On the basis of these two cases, it can be submitted that in George’s case eight weeks is perfectly reasonable period of time to assess the compatibility of the goods in comparison to the contract. Under section 51(2) of the SOGA 1979 it allowed the buyer to sue for compensation which is in the ‘ordinary course of events from the seller’s breach of contract’. In George’s particular case he will be entitled to sue under the principles set out in Hadley v Baxendale (1854). The statute and case law allows compensation for loss of profit, loss of goodwill or for general damages which they incurred directly resulting from the loss. However, it is important to note that the buyer in these circumstances must take all reasonable steps to mitigate any losses. The facts indicate that George is seeking compensation for the loss of profits resulting from his lower yields of wheat. This loss appears to be directly related to the breach by Farmworks and would reasonably have been contemplated by the parties considering if the tractor had not been suitable for George’s farm.

In summary if George can successful establish a claim under section 14 of the SOGA 1979 he will be entitled to damages for breach of warranty and damages for non-delivery.

Other Causes of Action:

A further basis for a breach of contract would be under section 13 of the SOGA 1979 where a sale has taken place by description. When George entered the premises of Farmworks he saw an advertisement on the window which claimed that the TX tractor was ‘suitable for all types of ploughing’. Under section 13(1) there is an implied term into a contract of sale where goods are sold by description the goods delivered must correspond to that description. The courts have held that the description must relate substantially to the identity of the goods and the buyer must rely upon that description. It is only where the buyer relies upon that description does it become actionable under section 13. (Harlington & Leinster Enterprises Ltd v Christopher Hull Fine Art Ltd (1991)). The courts have also held that the standard to which the goods must correspond with that description is substantially high in that buyers are generally allowed to reject goods which do not correspond to the description. (Re Moore & Co Ltd and Landauer & Co Ltd (1921)). In George’s case it would depend upon the exact wording used within the advertisement, whether there were any further explanations and whether any exclusion was made on the advertisement. Ultimately whether there is a breach of contract under the implied terms under section 13 will be determined by the courts, however, it may be argued that as the poster specifically stated ‘suitable for all types of soil’ and the tractor subsequently turns out that it is not suitable George may be able to use section 13 to further strengthen his claim against Farmworks. It should be noted, however, as with section 14 discussed above the courts have generally not allowed rejection of the goods for breach of description in non-consumer cases, opting to allow claims for damages.

Closely linked to section 13 is section 14 of the SOGA 1979 which deals with whether goods are of a satisfactory quality. When a seller sells goods in the course of their business under section 14 there is an implied term that those goods will be of a satisfactory quality. In order to determine whether Farmworks were acting in the course of their business and whether George could be considered as not acting in the course of his business, consideration must be given to the way in which the sale was transacted. It is evident from the facts that Farmworks is in the business of regularly selling farm machinery such as tractors in an on-going business capacity. As George is a farmer and may be considered a business entity also, the facts indicate that a tractor is not within his regular daily business but rather it is just a tool of his trade. In such circumstances, it can be argued that Farmworks dealt in the course of their business and George did not deal within his course of business. (Feldaroll Foundry plc v Hermes Leasing (London) Ltd (2004). Section 14(2A) and (2B) lists a number of factors to consider when assessing whether goods are of a satisfactory quality. The statute states that goods are not of a satisfactory quality if they are not as a reasonable person would regard as being satisfactory taking into account the description of the goods and their price in addition to any other relevant circumstances. Factors to help determine whether goods are of a satisfactory quality is whether the goods are fit for all the purposes which the goods are commonly supplied, their appearance and quality, their freedom from minor defects, their safety and their durability. The most relevant factor for George is the freedom from minor defects; the courts have held goods not to be of a satisfactory quality where engine faults were found six months post-purchase. (Rodgers v Parish (1987)). The key question for George’s action will be whether the courts would consider the failure of the TX tractor in being unable to plough George’s land as being more than a minor defect which affects the satisfactory quality of the goods. It may considered that as Farmworks advertised the TX tractor’s suitability for ploughing all soil types and the other relevant circumstances surrounding George’s questions to Andrew, Andrew’s likely knowledge of George’s farm and the location of Farmworks being in the locality of George’s farm, all seem to point towards the delivery of a tractor which is not of satisfactory quality.

In summary it may be considered that George may succeed in a claim under section 13 for sale by description and section 14 for satisfactory quality if the court considers that George relied upon the advertisement advertising the fact that the tractor was suitable for all types of soil and the fact that the tractor is not suitable for George’s farm may be more than a minor defect which affects the satisfactory quality of the tractor.

One further additional claim that George may bring against Farmworks is a claim for misrepresentation by the advertisement stating the tractor’s suitability for all soil types and Andrew further information relating to George’s questions. There are three stages to successfully establishing a claim in misrepresentation: firstly there must be an actionable misrepresentation, secondly the statements must be made prior to the contract, and finally the statements made must have induced the contract.

An actionable misrepresentation is a statement of material fact, made prior to a contract which is either false or misleading but induced the other party to enter into the contract. The basis of this claim is that the advertisement coupled with Andrew’s further information form together to represent a statement of material fact likely to be considered an opinion made by Farmworks as to the suitability of the TX tractor’s use on George’s farm. The key issue here is that in general a false opinion cannot give rise to a misrepresentation as to a fact and in this case the fact that the tractor is suitable for all types of soil. (Bissett v Wilkinson (1927). However, where the party making that statement has special knowledge or skill which gives weight to that opinion, in these circumstances an opinion may give rise to an implied representation of fact which is capable of being an actionable misrepresentation. (Smith v Land and House Property Corp (1884)). It is also unlikely that the opinion in George’s case would be considered mere sales talk or puffs made by Farmworks as the representation goes to the core use George intends for the TX tractor and it is central to George’s reason for entering into the contract of sale. The facts also make clear these statements were all made prior to the contract. (Roscorla v Thomas (1842)).

In considering the final aspect of a claim for misrepresentation the statements made must have induced George to enter into the contract, which can be evidenced by George’s reliance on the statement. The facts indicate that the statement is made by Farmworks and George does appear to have relied upon that statements as to the tractor’s suitability for ploughing all soil types. (Attwood v Small (1838)).

In considering the facts it is likely that the type of misrepresentation made by Farmworks is either innocent misrepresentation or negligent misrepresentation. It does not appear that Farmworks actually were aware of the tractor’s unsuitability for light and dusty soils however, it may be considered negligent for making such claims without proper investigations made by Farmworks as to the tractor’s suitability. If George can successfully establish a claim under misrepresentation he will be entitled to claim rescission of the contract and/or damages. Rescission is an equitable remedy which the courts can grant which would allow the contract to be set aside and terminated as if it never existed. Damages may be recoverable under negligent or innocent misrepresentation for losses which are reasonably foreseeable. (Hedley Byrne v Heller (1963)). If successful it would be likely that George would be able to recover the loss of profits as this would have been reasonably foreseeable.

In summary it is likely that George would be able to establish a claim under the implied terms of the SOGA 1979 if he can establish the necessary requirements discussed above. Additionally he may have a claim in misrepresentation. The advantage of the implied terms is that they are usually easier to prove in that they are perceived in strict liability terms whereas misrepresentation will have to be proved on a balance of probabilities. However, the misrepresentation claim would allow him to rescind the contract and return the goods in addition to claiming damages for loss of profits.

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