Introduction
Contracts are complex at the best of times. But when you delve into the jargon and legal terminology, you can find yourself even more confused. Drafting watertight contracts requires an understanding of how a contract is actually structured and formed, especially when it comes to different types of terms. Express and implied terms are both key ingredients for contracts. But since implied terms essentially operate ‘behind the scenes’, it can be difficult to understand how they work. That’s why we’ve put together a simple and easy-to-read guide about express and implied terms.
What is a contract?
Let’s start by looking at the big picture. A contract is a legally binding agreement between parties. A contract doesn’t have to be written to be legally enforceable.
What is a contract term?
A contract’s terms set out the specific conditions, duties, responsibilities, and provisions that make up the agreement in question. Contract terms help to define and outline the nature of the contractual relationship.
There are different types of contract terms that fall under three categories: conditions, warranties and innominate terms.
What is an implied term?
An implied term is a contract term that isn’t explicitly included or written into a contract but is automatically implied into it because of:
- Common law
- Statute
- Common practice or custom
- Previous dealings between the contracting parties
- Implied in fact based on the intention of the contracting parties
You can think of these as default terms that are silently written into relevant contracts.
Examples of implied terms
Here are some examples of implied terms that you may encounter:
- Health and safety obligations
- Good faith (fidelity)
- Duty of care
- Expected quality of service or goods for sale
Additionally, terms can be implied if the contracting parties have been in business together consistently on the same terms. This can happen when they draft a new contract that doesn’t expressly include these previous terms but also doesn’t contradict or annul them.
Deciding whether a term is implied
The court uses two tests to decide whether a term will be implied into a contract: The Business Efficacy test and The Officious Bystander Test.
Under the business efficacy test, the court looks at whether the term in question is vital in ensuring the contract operates correctly.
The officious bystander test asks whether the parties would have agreed to a term suggested by a bystander at the time of the contract.
Can you exclude an implied term?
The ability to exclude an implied term depends on the origin of the implied term. For example, if the implied term arises from a statute, you will have to look at the statute itself to see whether it is excludable. Meanwhile, implied terms from common law, common practice or custom, and previous dealings can all be excluded.
What is an express term?
By contrast, an express term is a contractual term that has been specifically agreed upon by both parties. Express terms can be agreed orally or in writing if the contract itself is verbal.
Express terms need to be easy to understand, and unambiguous. Achieving this balance can be a challenge.
Contract Lawyers
It can be tempting to draft and negotiate your own contracts, especially if you’ve got substantial business experience under your belt. But the value of working with a specialist contract lawyer can’t be understated. Whether it’s supporting you in negotiating, drafting, querying or claiming breach of contract, it’s always best to have an expert team by your side.