Implied Terms: Filling in “Gaps” in a Contract
Let’s say you own a restaurant, and you have just ordered 100 kg of salmon from a new supplier.
Your order arrives, and you check the goods. To your horror, the salmon is rotten!
You ask the supplier what’s going on. However, he merely shrugs at you. “The contract didn’t say that the salmon had to be edible.”
You check the contract. True enough, while the contract says that the supplier will supply you with “salmon”, nowhere in its 20 pages does it say that the supplier has to supply you with “edible” salmon.
You are hopping mad. To you, of course you meant edible salmon. There is no way you can sell rotten salmon to your customers, no matter how well it’s cooked!!
Is there anything you can do?
The Power of Implied Terms
Sometimes, what is expressly stated in a contract may not be sufficient to cover a particular scenario. However, it may be possible to fill in such “gaps” in the contract by implying terms which do so into the contract.
This effectively adds extra terms to the contract (even if the contract contains an entire agreement clause). You will then be able to sue the other party to the contract if it breaches these implied terms.
There are a few methods of implying terms into contracts:
- By the court
- By statute
- By custom
Read on to find out how these methods work.
Terms Implied by the Court
The court can imply terms into a contract in 2 ways: in law, and in fact.
Terms implied in law
If the court implies a term in law into a particular contract, then that term will also be implied into all other (existing and future) contracts of the same type. The court does this as a matter of reasonableness and public policy.
For example, the Singapore Court of Appeal has stated that it is an implied term that employees are to use reasonable care and skill when performing their duties under their employment contracts. Therefore, employees in Singapore will be legally required to do so even if this has not been stated in their employment contracts.
Terms implied in law will be enforceable even if they go against what the parties are presumed to have intended for their contract.
Terms implied in fact
The court can also imply terms into a contract, based on the facts of a particular case, to reflect the parties’ intentions for their contractual relationship (even if these intentions had not been made explicit).
These terms are implied on the basis that the parties had definitely wanted to include such terms in their contract. However, they hadn’t done so because they e.g. forgot or didn’t have time to.
For a term to be implied in fact, 2 tests have to be satisfied:
- Business efficacy test. The term to be implied must be objectively necessary to give “business efficacy” to the contract, i.e. to allow the parties to properly conduct the business that they had contracted for.
- “Officious bystander” test. If a third-party (i.e. the “officious bystander”) asked the parties if they intended to include that term into their contract, both of them would reply with “Oh, of course!”
When applying these tests and determining whether to imply a term(s) in fact into a contract, the court will also have to ensure that the term(s) does not contradict any of the contract’s express terms.
Terms Implied by Statute
Implying a term by statute is straightforward – the term will be implied into a contract if a statute states that it is to be implied into that type of contract.
Common categories of contracts which contain terms implied by statute include contracts for:
For example, in relation to contracts for the sale of goods, section 14(2) of the Sale of Goods Act states:
“Where the seller sells goods in the course of a business, there is an implied condition that the goods supplied under the contract are of satisfactory quality.”
Therefore if goods supplied under a contract in the course of a business are not of “satisfactory quality”, the purchaser will be able to sue the supplier for breach of contract.
Terms Implied by Custom
Terms may be implied by the custom, usage or practice of a particular trade, market or area in which the contract is made. Terms may also be implied from the parties’ previous courses of dealing with each other.
An example of a term implied by custom could be how if you contracted with a baker for a “dozen” loaves of bread in England, you could expect to receive 13 instead of 12 loaves.
This is because of the custom among bakers in England where a “dozen” refers to 13 instead of 12.
For a term to be implied by custom, it has to be:
- Well-known and of universal practice by people in that trade. Even if an outsider to the trade hadn’t been aware of the custom, he would be able to find out about it if he were to make reasonable inquiries on them.
- Recognised to be legally binding on the parties.
- Certain. i.e. identifiable and largely consistent.
- Consistent with the contract’s express terms.
In practice however, terms are rarely implied by custom in Singapore as the practice of doing so is not well-established here.
It is therefore possible to imply terms to fill in “gaps” not covered by express terms in a contract. However, convincing a court that it should do so (and how these terms should be worded in the first place) may require you to make some expert legal arguments.
If you need legal advice on whether it may be possible to imply a term into your contract, feel free to get in touch with one of our experienced corporate and commercial lawyers.
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