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Elements in a Contract XI - Terms implied by law

Updated on July 12, 2017

There are certain terms that are implied in a contract by law, especially for public policy reasons. A landlord for example is required to keep his property in a state of good repair. In Liverpool City Council v Irwin (1977) the tenants in a block of flats rented out by the City Council refused to pay the rent because the flats were in a state of disrepair and some of the basic amenities were either not available or were unusable. The council sued for the outstanding rent and in their claim they argued that the duty to keep the flats in good repair was not a term of the contract.

The House of Lords held that the landlord (the council) should take reasonable care to ensure that the facilities were kept in a good state of repair and that the terms to do so were implied into the contract. The plaintiffs were unsuccessful in their claim.

In Spring v Guardian Assurance Plc (1994), an employee was about to leave his company and his employer who discovered his employee’s intention to leave terminated his contract. The employee then applied to join another firm and gave his previous employer as a reference. When the new firm contacted the employer, the disgruntled employer gave him an unfavorable reference and as a result the employee remained unemployed for a certain period of time. The unfortunate employee brought the matter before the courts.

It was held that there was an implied term in most employment contracts that an employer when giving another prospective employer a reference with regards to a previous employee will exercise due care in giving the reference. Accordingly the courts decided that the disgruntled employer was negligent and as a result of his negligence the employee was unable to secure a job.

In Malik v Bank of Credit and Commerce International (1997), the plaintiffs sued their former employers, a bank, after it went under following allegations of money laundering, misappropriation of funds and various other offences. The plaintiffs argued that because of the circumstances under which the bank collapsed, they could not find suitable employment elsewhere and that there was a term implied in their employment contract that nothing would be done to undermine the mutual trust and confidence that existed in an employer-employee relationship.

The House of Lords held that the bank had breached the implied term i.e. not to undermine the trust and confidence in an employer-employee relationship and as a result the plaintiffs’ future job prospects had significantly narrowed. The plaintiffs were successful.

Certain statutes, for example s13 of the Sale of Goods Act 1893 imply certain terms into a contract. The section reads as follows: - “Where there is a contract for the sale of goods by description, there is an implied condition that the goods shall correspond with the description; and if the sale be by sample, as well as by description, it is not sufficient that the bulk of the goods corresponds’ with the sample if the goods do not also correspond with the description”.

Similarly the Sale of Goods Act 1979 also implies terms into a contract. Listed below are some examples of implied terms with regards to the Sale of Goods Act 1979:-

- s.12 (1) “In a contract of sale, other than one to which subsection (3) below applies, there is an implied (term) on the part of the seller that in the case of a sale he has a right to sell the goods, and in the case of an agreement to sell he will have such a right at the time when the property is to pass”.

- s13 (1) “Where there is a contract for the sale of goods by description, there is an implied (term) that the goods will correspond with the description”.

- S14 (2) “Where the seller sells goods in the course of a business, there is an implied term that the goods supplied under the contract are of satisfactory quality”.

- S15 (2) In the case of a contract for sale by sample there is an implied (term) - (a) that the bulk will correspond with the sample in quality; ….

Under the Consumer Rights Act 2015 there are certain implied terms that are read into a contract for the sale of goods, for example, the goods will be fit for its purpose, be of merchantable quality, the goods must fit the description and goods must match the sample, to name a few.

© 2017 Kathiresan Ramachanderam and Dyarne Jessica Ward

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