In this brief note we take a look at express and implied terms in commercial contracts, explaining when you might come across them and what you can do about them.
If, after reading this, you are unsure on what terms should go into your business contract or whether to exclude an implied term then you should seek legal advice. Our commercial contract solicitors are highly experienced in this area and can provide you with commercial and practical advice at all stages of the contractual process.
Remember, clarity is key!
What are express terms and implied terms?
When you’re asked to sign a contract on behalf of your business, you’d think it would be reasonable to assume that the contract contains all the commercial terms. However, contracts can contain both express and implied terms.
An ‘express’ term is a term of the contract between you and the other party, which is clear, unambiguous and agreed upon. It’s usually in writing but it can be verbal if the contract itself is verbal.
An ‘implied’ term is one that a court has implied into a contract because it has not been expressly included. This may be because the parties did not consider it, did not think that the issue would arise or simply omitted to include the term.
Where might I come across them?
You’ll find express terms in the contract.
It’s unlikely that you’ll come across implied terms unless there has been some sort of court action and the court has found that an implied term exists, even though it does not appear in the written contract.
The express terms and any implied terms together create the legally binding obligations on the parties.
How do implied terms arise?
When something is found to be ‘missing’ from the express terms, a court can imply additional terms to ensure
- compliance with statue or common law eg. Consumer Rights Act 2015 / Sale of Goods Act 1979 states that goods will be reasonably fit for purpose.
- custom and usage in a particular trade or industry - the way things are done in that line of business.
- previous dealings between the parties - how they have acted towards each other over several years.
- the intentions of the parties eg. to make the contract ‘work’ by implying the existence of a termination clause.
- ‘in fact’ implied terms, such as the need for cooperation between the parties, any discretion is to be exercised in good faith, the existence of mutual trust and confidence.
How could I deal with implied terms?
It is obviously better to make all terms of the contract ‘express’ - as clear and comprehensive as possible to reduce the risk of a party arguing that there are additional implied terms.
- Exclusion clauses - one party may attempt to reduce the risk of implied terms arising by the use of an ‘entire agreement’ clause. Such clauses state that only the terms set out in the contract form part of the agreement. For additional information, read our article: Entire agreement clauses in contracts.
Any form of exclusion, whether in a specific clause or in an entire agreement clause, needs to be clear and specific.
Again, clarity of the parties’ intentions is crucial, and best reflected in the express terms of a written contract.
What if an implied term contradicts an express term?
Generally speaking, in the event of a conflict between an express term and an implied term, the express term will prevail.
Points to note
- Courts are reluctant to interfere with arrangements between parties so it is by no means a foregone conclusion that they will do so.
- It is not possible to anticipate all the situations which may arise during the course of a business arrangement so there is a place for the implied term.
- Litigation is extremely expensive and time-consuming and the court’s decision is uncertain.
The moral of the story is…. it is far better to rely on
- up-to-date and
- clearly drafted written contracts,
- which include all the necessary express terms and
- in which any exclusion of implied terms is also clear (but reasonable in all the circumstances).
Even if your business has an excellent working relationship with the other contracting party or your business has been consistently dealing with them for several years, do not under-estimate the importance of having a clear written contract in place with them.
Similarly, if the way that you work with the other contracting party changes, the terms of any existing contracts should be reviewed and updated to reflect the new relationship.