Contents of a contract - Terms implied by common law and statute

Learning Outcomes

After studying this article, you will be able to identify when and how terms are implied into contracts under English law, distinguish between terms implied in fact and in law, explain the business efficacy and officious bystander tests, and state the main statutory implied terms under the Sale of Goods Act 1979, the Supply of Goods and Services Act 1982, and the Consumer Rights Act 2015. You will also be able to apply these principles to SQE1-style MCQs.

SQE1 Syllabus

For SQE1, you are required to understand how and why terms may be implied into contracts, both by the courts and by statute. In your revision, focus on:

• the distinction between terms implied in fact and terms implied in law
• the business efficacy and officious bystander tests for implication in fact
• the circumstances in which terms are implied in law as a necessary incident of a type of contract
• the key statutory implied terms in contracts for goods and services (SGA 1979, SGSA 1982, CRA 2015)
• the classification of implied terms (condition, warranty, innominate) and the consequences of breach

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. What are the two main common law tests for implying a term into a contract in fact?
2. Which statute implies terms as to satisfactory quality and fitness for purpose in business-to-business sales of goods?
3. True or false? Terms implied in law are based on the presumed intentions of the parties.
4. What statutory term is implied into all consumer contracts for services under the Consumer Rights Act 2015?

Introduction

Most contracts contain both express and implied terms. Implied terms are not written down or expressly agreed but are inserted into the contract by the courts or by statute. These terms can be just as important as express terms, and their breach can lead to serious consequences. For SQE1, you must know when and how terms are implied, the tests used by the courts, and the main statutory implied terms in contracts for goods and services.

Terms Implied by Common Law

Implied terms at common law fall into two categories: terms implied in fact and terms implied in law.

Terms Implied in Fact

A term may be implied in fact to reflect what the parties must have intended, judged objectively, in the specific circumstances of their contract. The courts use two main tests:

Key Term: terms implied in fact
Terms inserted by the court into a particular contract to give effect to the presumed intentions of the parties, based on necessity.

Business Efficacy Test

The court will imply a term if it is necessary to make the contract work in practice. If the contract would be unworkable or commercially nonsensical without the term, the court may insert it.

Key Term: business efficacy test
A test for implication in fact: is the term necessary to make the contract effective and workable?

Officious Bystander Test

A term may also be implied if it is so obvious that both parties would have agreed to it, had it been suggested at the time of contracting.

Key Term: officious bystander test
A test for implication in fact: would both parties have agreed the term was obviously part of their bargain if asked by a bystander?

The courts apply these tests strictly. A term will not be implied just because it seems reasonable or fair. It must be necessary for the contract to function as intended.

Worked Example 1.1

A business leases a warehouse for storage. The contract is silent on whether the landlord must repair the roof. A leak develops, damaging the tenant’s goods. Can the tenant argue there is an implied term requiring the landlord to keep the roof in repair?

Answer: Possibly. If the lease would be unworkable without the landlord repairing the roof, the court may imply such a term for business efficacy. If both parties would have agreed that the landlord should be responsible if asked, the officious bystander test may also be satisfied.

Terms Implied in Law

Some terms are implied into all contracts of a certain type, regardless of the parties’ intentions, as a matter of legal policy.

Key Term: terms implied in law
Standard terms inserted by the court into all contracts of a particular type (e.g., employment, tenancy) to ensure fairness or proper functioning.

A classic example is the implied term in residential leases that the landlord must take reasonable care to keep common parts in reasonable repair (Liverpool City Council v Irwin). In employment contracts, there is an implied term of mutual trust and confidence.

Revision Tip

For SQE1, remember: terms implied in fact are about necessity in the specific contract; terms implied in law are about policy in a class of contracts.

Terms Implied by Statute

Statutes imply terms into many contracts, especially those for the sale of goods, supply of services, and consumer contracts. These terms are often conditions, so breach may entitle the innocent party to terminate the contract.

Sale of Goods Act 1979 (SGA 1979)

The SGA 1979 applies mainly to business-to-business (B2B) contracts and some private sales. Key implied terms include:

Key Term: sale of goods act 1979 (sga 1979)
Statute implying terms as to title, description, satisfactory quality, and fitness for purpose in contracts for the sale of goods (mainly B2B).

• The seller has the right to sell the goods (s 12).
• Goods sold by description will correspond with the description (s 13).
• Goods sold in the course of a business are of satisfactory quality (s 14(2)).
• Goods are fit for any particular purpose made known by the buyer (s 14(3)).
• Where goods are sold by sample, the bulk will correspond with the sample (s 15).

These terms are usually classified as conditions. Breach gives the buyer the right to reject the goods and terminate the contract, subject to certain statutory exceptions.

Supply of Goods and Services Act 1982 (SGSA 1982)

The SGSA 1982 implies terms into contracts for services and for work and materials (mainly B2B). Key implied terms:

Key Term: supply of goods and services act 1982 (sgsa 1982)
Statute implying terms as to reasonable care and skill, reasonable time, and reasonable price in contracts for services (mainly B2B).

• Services will be carried out with reasonable care and skill (s 13).
• Services will be performed within a reasonable time (if not fixed) (s 14).
• A reasonable charge will be paid (if not fixed) (s 15).
• Any goods supplied with the service will be of satisfactory quality and fit for purpose (as under SGA 1979).

The terms as to reasonable care and skill, time, and price are usually innominate terms. The terms as to goods supplied are usually conditions.

Key Term: reasonable care and skill (sgsa 1982 / cra 2015)
The statutory standard that services must be performed with the care and skill expected of a competent professional in that field.

Consumer Rights Act 2015 (CRA 2015)

The CRA 2015 applies to contracts between traders and consumers. It consolidates and updates consumer protection law, implying key terms into contracts for goods, digital content, and services.

Key Term: consumer rights act 2015 (cra 2015)
Statute implying non-excludable terms into trader-consumer contracts for goods, digital content, and services.

Implied Terms for Goods (ss 9–11, 17)

• Goods must be of satisfactory quality (s 9).
• Goods must be fit for any particular purpose made known by the consumer (s 10).
• Goods must match their description (s 11).
• Trader must have the right to supply the goods (s 17).

Implied Terms for Services (ss 49, 51, 52)

• Services must be performed with reasonable care and skill (s 49).
• Services must be performed within a reasonable time (if not fixed) (s 52).
• A reasonable price must be paid (if not fixed) (s 51).

These terms are statutory rights and cannot generally be excluded or restricted by the trader.

Worked Example 1.2

A consumer hires a plumber to fix a leaking pipe. The plumber completes the job, but the leak returns within a week due to poor workmanship. What statutory term has been breached, and what remedy is available?

Answer: The implied term under s 49 CRA 2015 (reasonable care and skill) has been breached. The consumer can require repeat performance or a price reduction under the CRA 2015.

Exam Warning

For SQE1, be careful to distinguish between terms implied in fact (necessity in the specific contract), terms implied in law (policy for a class of contracts), and terms implied by statute (Parliament’s rules for certain contracts).

Summary

Key Point Checklist

This article has covered the following key knowledge points:

• Contracts may contain both express and implied terms.
• Terms can be implied by the courts (in fact or in law) or by statute.
• Terms implied in fact are inserted only if necessary for the contract to work, using the business efficacy and officious bystander tests.
• Terms implied in law are standard terms for a class of contract, based on policy.
• Statutes such as SGA 1979, SGSA 1982, and CRA 2015 imply key terms into contracts for goods and services.
• Statutory implied terms in consumer contracts are usually non-excludable.
• The classification of an implied term (condition, warranty, innominate) affects the remedies available for breach.

Key Terms and Concepts

• terms implied in fact
• business efficacy test
• officious bystander test
• terms implied in law
• sale of goods act 1979 (sga 1979)
• supply of goods and services act 1982 (sgsa 1982)
• reasonable care and skill (sgsa 1982 / cra 2015)
• consumer rights act 2015 (cra 2015)