Express and implied contracts

 

A contract can be either an express contract or an implied contract. An express contract is one in which the terms are expressed verbally, either orally or in writing. An implied contract is one in which some of the terms are not expressed in words.

Implied in fact or implied in law

An implied contract can either be implied in fact or implied in law . A contract which is implied in fact is one in which the circumstances imply that parties have reached an agreement even though they have not done so expressly. For example, by going to a doctor for a physical, a patient agrees that he will pay a fair price for the service. If he refuses to pay after being examined, he has breached a contract implied in fact.

Quasi-contract

A contract which is implied in law is also called a quasi-contract , because it is not in fact a contract; rather, it is a means for the courts to remedy situations in which one party would be unjustly enriched were he or she not required to compensate the other. For example, an unconscious patient treated by a doctor at the scene of an accident has not agreed (either expressly or by implication) to pay the doctor for emergency services, but the patient would be unjustly enriched by the doctor's services were the patient not required to compensate the doctor.

Incorporation of terms

Course of dealing

If two parties have regularly conduct business on certain terms, it may be reasonable to presume that in future dealings where there is no contract, the parties wish to incorporate the terms of the previous contracts. However, if a party wishes to incorporate terms by course of dealing, the original document must have been contractual in nature, and delivery receipts may not fit this description. In Australia, there is a further requirement that the document was procured after formation.

Express and implied terms

Different types of statements

Whether a statement is a term of a contract is important because only if a promise is a term of the contract can a party sue for the breach of the contract. Statements can be split into the following types:

* Puff (sales talk): If no reasonable person hearing this statement would take it seriously, it is a puff, and no action in contract is available if the statement proves to be wrong.

* Representation: A representation is a statement of fact made to induce another person to enter into a contract and which does induce them to enter into a contract, but it is one that the maker of the statement does not its truth. If the statement proves to be incorrect, it cannot be enforced, as it is not a term of the contract, but it may prove to be a misrepresentation , whereupon other remedies are available.

* Term: A term is similar to a representation, but the truth of the statement is d by the person who made the statement. The test is an objective test.

Factors that a court may take into account in determining the nature of a statement include:

* Timing: If the contract was concluded soon after the statement was made, this is a strong indication that the statement induced the person to enter into the contract.

* Content of statement: It is necessary to consider what was said in the given context, which has nothing to do with the importance of a statement.

* Knowledge and expertise: In Oscar Chess Ltd v. Williams [1957] 1 WLR 370, a person selling a car to a second-hand car dealer stated that it was a 1948 Morris, when in fact it was a 1939 model car. It was held that the statement did not become a term because a reasonable person in the position of the car dealer would not have thought that an inexperienced person would have d the truth of the statement.

Terms implied in fact

The Privy Council proposed a five stage test in BP Refinery Western Port v. Shire of Hastings :

1. Reasonableness and equitableness: The implied term must be reasonable and equitable.

2. Business efficacy: The implied term must be necessary for the business efficacy of the contract. For instance, if the term simply causes the contract to operate better, that does not fit this criterion.

3. Obviousness: The term is so obvious that it goes without saying. Furthermore, there must be one and only one thing that would be implied by the parties. For example, in Codelfa Construction Pty Ltd v. State Rail Authority of New South Wales (1982) 149 CLR 337, a term regarding the inability of construction company to work three shifts a day could not be implied because it was unclear what form it would have taken.

4. Clear expression: The term must be capable of clear expression. No specific technical knowledge should be required.

5. Consistency: The implied term may not contradict an express term.

In Australia, the High Court has ruled that the test in BP Refinery applies only to formal contracts , while the test in Byrne and Frew v. Australian Airlines Ltd (1995) 185 CLR 410 shall apply to informal contracts :

* Necessity: The term must be necessary to ensure reasonable or effective operation of a contract of the nature before the court.

* Consistency: The implied term may not contradict an express term (same as for formal contracts).

* Clear expression: The term must be capable of clear expression (same as for formal contracts).

* Obvious: McHugh and Gummow JJ have stated that it must also be obvious.

Terms implied in law

These are terms that have been implied into standardized relationships. The other difference between this and terms implied in fact is that the test is one of necessity ( Liverpool City Council v. Irwin [1976] 2 WLR 562); a necessary term is one where the contract is rendered worthless or nugatory if it is without it.

Terms implied by custom or trade

You are generally bound by the custom of the industry that you are in. To imply a term due to custom or trade, you must prove the existence of the custom, which must be notorious, certain, legal and reasonable ( Con-stan Industries of Australia Pty Ltd v. Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226). See also Frigaliment Importing Co., Ltd., v. B.N.S. International Sales Corp. , 190 F. Supp. 116 (S.D.N.Y. 1960) (plaintiff failed to prove what he meant by "chicken") and U.C.C. ยง 1-205.

Agreements to negotiate

It is common for lengthy negotiations to be written into a heads of agreement document that includes a clause to the effect that the rest of the agreement is to be negotiated. Although these cases may appear to fall into the category of agreement to agree, courts nowadays (at least in Australia) will imply an obligation to negotiate in good faith provided that certain conditions are satisfied ( Coal Cliff Collieries Pty Ltd v. Sijehama Pty Ltd (1991) 24 NSWLR 1):

* Negotiations were well-advanced and the large proportion of terms have been worked out; and

* There exists some mechanism to resolve disputes if the negotiations broke down.

The test of whether one has acted in good faith is a subjective one; the cases suggest honesty, and possibly also reasonably.

"Subject to" contracts

If a contract specifies "subject to contract", it may fall into one of three categories ( Masters v. Cameron (1954) 91 CLR 353):

1. The parties are immediately bound to the bargain, but they intend to restate the deal in a formalized contract that will not have a different effect; or

2. The parties have completely agreed to the terms, but have made the execution of some terms in the contract conditional on the creation of a formalized contract; or

3. It is merely an agreement to agree, and the deal will not be concluded until the formalized contract has been drawn up.

If a contract specifies "subject to finance", it imposes obligations on the purchaser ( Meehan v. Jones (1982) 149 CLR 571):

* The purchaser must seek finance; and

* When offers of finance arrive, the purchaser must make a decision as to whether the offers of finance are suitable.

Once again, there is an element of good faith involved.

This article is licensed under the GNU Free Documentation License. It uses material from the Wikipedia article "Contract"