Implied Terms

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  • Topic: Contract, Sale of Goods Act 1979, Contractual term
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  • Published : May 18, 2013
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Implied Terms

Terms can be implied to reflect the presumed intention of the parties, or for reasons of public policy. The different bases for implying terms are considered below.

Terms Implied to Give Effect to Presumed Intention of Parties

Term implied on the basis of business efficacy
Business efficacy means that the parties require that term in order that the contract will work (The Moorcock).

The following rules for implying a term on the basis of business efficacy were summarised by the Privy Council in BP Refiner v Shire of Hastings and later approved by the High Court in Codelfa v State. • The term must be reasonable and equitable;

• Implication must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it; • Term must be so obvious that it goes without saying; • Term must be capable of clear expression; and

• Term must not contradict any express term of the contract.

Terms implied from previous consistent course of dealings
In the circumstances of the case, is it reasonable to hold that the parties entered into the contract on the basis, and with the knowledge, that their agreement would be on the terms set out in previous contracts entered into (Henry Kendall & Sons v William Lillico & Sons).

The relevant term or terms must have been part of earlier agreements between the parties and the must be evidence of an earlier consistent course of dealings between the parties. Relevant in this assessment are – • the number of dealings between the parties; and

• the consistency of dealings between the parties.

The greater the number of prior dealings, the greater the likelihood of incorporating the term (cf Hollier v Rambler Motors with McCuthbert v David MacBrayne). Consistency of contractual dealings is also important as the argument for incorporation is less compelling if the terms are incorporated into earlier contracts on some occasions but not others (McCuthbert v David MacBrayne Ltd).

Terms implied from custom or usage
The parties to a contract are presumed to contract with reference to whatever customs that prevail in the trade or locality in question. In Con-Stan Industries of Aust Pty Ltd v Norwich Winterthur Insurance the High Court set out a number of rules that must be satisfied before a term will be implied on the grounds of custom or trade usage: 1. The existence of a custom or usage that will justify the implication of a term into a contract is a question of fact. In making the determination, the focus must be on the custom or usage in the particular trade or profession under construction. 2. There must be evidence that custom or usage relied upon is so well known and acquiesced in that everyone making a contract in that situation can reasonably be presumed to have imported that term into the contract, however, the custom need not be universally accepted. Firstly, there must be sufficient evidence that a custom of the kind alleged in the fact exists. Thus custom must be sufficiently widespread and consistent that it can be articulated with some certainty. Secondly, the custom must5 be so widespread that it is well known to the people within the trade or profession. 3. A term will not be implied on the basis of custom or usage where it is contrary to the express term of the agreement. As term implied must on custom and usage must reflect the presumed intention of the parties, if the parties expressly exclude such a term, or insert a term inconsistent with it, the term cannot be regarded as reflecting their intention. 4. A person may be bound to custom notwithstanding the fact that he or she had no knowledge of it. Unless the parties have agreed to the contrary, a term is implied provided the elements of the second limb above are met.

A term implied to complete agreement
The judiciary attempts to uphold agreements if at all possible. As a means of...
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