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Negotiating and entering into commercial contracts is fundamental to running your business successfully. Complying with your contractual obligations is also critical to avoiding legal disputes. Your obligations and duties are likely specified in clear language, otherwise known as express terms of the contract. However, your contract may also have implied terms. This article will explain implied terms and how best to approach these in your commercial contracts.
What is a Contract Term?
When you enter into a written contract with another party, you usually set out the contract terms. Any term you agree to will form part of the contract, and failing to comply with the term may lead to a breach of contract dispute.
The name ‘express terms’ refers to the fact that you expressly agree to them.
At the same time, there are some contract terms that you will not have expressly agreed to, otherwise known as implied terms. Nonetheless, these terms still form part of the contract. If you breach these terms, you can still be liable to pay compensation in court.
What are Implied Terms?
Implied terms are those you do not expressly agree to when entering the commercial contract. A classic example is an implied warranty when you are selling goods. An implied warranty tells the other party that the product you are selling is suitable for the purpose for which you are selling it. It means that you are promising that your product is free of any defects. Similarly, if you are aware of any defects in the product, you must make them known to the other party.
An implied warranty is not usually expressly written into a contract because it is a given that goods will be in good condition and free from defects. No business would reasonably agree to receive faulty goods. Therefore, even if you do not explicitly include this term in your contract, it will likely be implied.
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How Do I Find Implied Terms in My Contract?
There are two types of implied terms: implication by custom and implication by ‘statute.’
Implication by Custom
A court has the flexibility to determine some of the implied terms of a contract, known as ‘implication by custom.’ Since it is up to the judge in the court, your implied terms can vary depending on the factual context. Importantly, a judge will consider standard practice within the business area you are working in. For example, a court may interpret your contract to include a term if it is standard practice within the industry in which you are operating, especially if it is taken for granted by most people within that sector.
Implication by Statute
At the same time, you can find some of the implied terms within statutes. For example, the Sales of Goods Act 1979 implies that a service provider will carry out the service with reasonable care and skill and within a reasonable time.
If you are unsure whether a term will be implied in your business contracts, it is a good idea to seek professional legal advice. Notably, written terms will not always cover all of your obligations. Sometimes, you may have further requirements imposed by statute in certain types of commercial contracts.
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What Are the Benefits of Implied Terms?
Implied terms play a crucial role in commercial contracts. They offer several benefits that contribute to business relationships. Firstly, they provide a way to fill in gaps or uncertainties in a contract, ensuring that the agreement remains comprehensive and adaptable to unforeseen circumstances. This flexibility is particularly valuable in commercial transactions, where business conditions and requirements may change over time. Implied terms also keep the parties’ mutual assumptions, aligning the contract with their original intentions and expectations.
Furthermore, these terms contribute to legal enforceability, offering a basis for recourse in the event of contractual breaches. Overall, including implied terms in commercial contracts mainly promotes fairness and clarity.
Can I Exclude Implied Terms?
Naturally, you may want to exclude the implied terms within your contract because it can give rise to liability in sometimes unpredictable situations. In general, parties to a contract can explicitly exclude or modify implied terms by including clear and unambiguous language in the contract. Commonly, you would add specific clauses or provisions addressing the exclusion of certain implied terms. However, you can only exclude implied terms if it would be ‘reasonable’ to do so in England and Wales. For example, in some instances, you cannot exclude liability for personal injury or death as part of your contract.
Key Takeaways
Contracts will contain a mix of both express and implied terms. The implied terms in your contract can vary depending on the business context.
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Frequently Asked Questions
A contract term is a condition of your contract, which you have either impliedly or expressly agreed to with the other party.
Statutory terms are parts of your contract that England and Wales law imposes on your commercial agreement.
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