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Implied Terms In A Contract

Through research, it is here established that what is a contract and what are the different types of a contract in how it can be performed in different situations. My research shows that how the implied contract arises, what is the difference between an implied contract and implied terms in a contract. This research reflects on types of contracts and how they are performed. It is here being stressed on which kind of contract will prevail if there is a dispute between implied contract and express contract and when will implied contract and express contract will applicable or in what situation.

Introduction:
A contract is defined under section 2(h) of the Indian Contract Act, 1872, as it is stated that an agreement enforceable by the law is termed as a contract[1] so, in this sentence, it can be understood by diving into two part two, first is what is an agreement and second is that what is enforceable by the law. Further, Section 2(e) of the Indian Contract Act, 1872, defines that:
Every promise and every set of promises, forming the consideration for each other, is an agreement[2], and what is enforceable by the law is being provided by section 10 which state that:
All agreements are contract if they are made by the free consent of the parties competent to the contract, for a lawful consideration and with the lawful object, and are not herby expressly declared to be void [3].

In contract, a contract can be performed by two methods, and they are:
  1. Express contract
  2. Implied contract[4]

both of these kinds of contracts are defined in section 9 of The Indian Contract Act, 1872 the section says that:
In so far as the proposal or acceptance of any promise is made in word, the promise is said to be express. In so far as such proposal or acceptance is made otherwise than in words, the promise is said to be implied[5].

Simplifying, if any proposal or any acceptance is made in word, here word means either in written or in oral or in gesture, it is termed as an expressed contract, and if any proposal or acceptance is made in another way than a word (written and oral) like it can be performed by any conduct, is termed as an implied contract.

For example:
A, a person is playing in the ground and suddenly he got cardiac attack and he fall down, B another person who is also a doctor come to him and give him instant treatment to save him, another day B went to A house and asked for his fees, so here A cannot deny to pay his fees, court will say that this is an implied contract, a contract which is conducted by an act, to get more clarity of this lets thave second example, A, a person enters into a hair salon, sits down in a chair, and ask for a haircut and the barber did the same, so here A, enters into a contract as soon as he ask for haircut, this is an contract which is performed by conduct of an act. Implied contract are items that a court will assume are intended to be include in a contract, even though they are not expressly stated. Here, on the above observation we can conclude that implied contract is a non-verbal and unwritten and exits on the behavior of the parties.

Implied terms in a contract:
On the other hand, if we discuss about implied terms in a contract then implied terms occur because all the contract has some uncertainty like if someone is buying some product so it is understood that the product is defect free, this is just a situation like wise their specification like quality, quantity, measurement, weight, price.

Basically, all contracts are incomplete, there is no contract that covers every possible unknown future circumstance that may arise and those might have relevance to that contract. It happens that parties full fill all the terms and conditions that are in contract but it is not possible to cover each and every possible details.[6]

Implied contract allows parties to skip many negotiations or writings certain terms in the contract because it is legally presumed at time of entering into a contract. Proposal or acceptance is made otherwise in words, the promise is said to be implied.[7]

One question may arise here that if implied terms in a contract are not explicitly agreed to by the parties when they enter into contract. So how they get incorporated into contract? So, answer to this question is like that implied terms in a contract are type of compulsion, for instance if the buyer of a product it buying product the buyer will assume that it will be free from general defects, if seller is aware of frequent mechanical issue with that product, implied terms in a contract term would compel them to make those issues clear with the party. If we see. [8]

The Sales and Goods Act 1979, we will find that contract implies terms that the goods are reasonably fit for their purpose, conform to their description, the seller has right to sell and party opposite to contract doesn't have undisclosed rights over the goods, if we look into [9]The Supply of Goods and Service Act 1982, in this type of contract it is implied that work or service carried out under reasonable. The most used to example for implied contract is that birth in a country is an implied contract because citizenship is implied. So, each and every contract be it written and oral there is implied contract that carried out with the contract itself.

Devi prasad Khandelwal & Sons vs Union of India[10], AIR 1969 Bom 163.
It is observed that, it is matter of common experience that no contract can be made perfect, because parties to it may not at the stage of making it, provide for all the contingencies that may arise. It happens that parties to a contract may either through forgetfulness or through bad drafting fail to incorporate into the contract terms which had they adverted to the situation, they would certainly have inserted to complete the contract.

In such cases in order to give efficacy to the contract, the court will imply into a contract term which the parties have not themselves expressly inserted. The court are not to make or draft the contract between the parties, but only to interpret the contract already made. Only those rules and regulations will be implied on the parties whatever mentioned in the contract.[11]

Implied contracts can be performed in two ways:
  • Implied by fact
  • Implied in law
  • Implied by custom or trade usage

Implied by parties or implied by fact
Implied by parties or implied by fact means that performance of contract or judgement of contract is done on the basis of act or conduct of parties, or situation of fact. This is based on the common understanding of conduct done by the parties. For example, if you take an auto-rikshaw daily for your convenience and you are completely used to with driver of that auto-rikshaw then it might happen that you take sit on his vehicle, he will drop to your location without asking any things. Another instance is that if you arrive at the hair salon for your hair cut, it might be your usual hair salon, so here it expected that you will pay for the service that you will get from the salon, that things is implied in the fact only.
  1. Haji Mohd. Ishaq vs Mohd. Iqbal and Mohd. Ali & Co[12], 1978, 2, SSC 493: AIR 1978 SC 798
    In this case on the order of a go between man, certain goods were supplied by the plaintiff on his own account to the defendant. The defendant clearly and unerringly accepted the goods and paid to the plaintiff, a part of price. A liability to pay the balance was held to have arisen. The Apex court ruled that the defendant by the conduct of accepting the goods and never repudiating any of the numerous letter and telegram of the plaintiff demanding the money from them, clearly showed that a direct contract which in law was called an implied contract by the conduct.

To determine whether a term should be implied in fact, as summarized by Lord Simon in below case:
  • In BP Refinery Pty Ltd v. Shire of Hasting[13]
    1. It must be reasonable and equitable
    2. It must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it
    3. It must be so obvious that it goes without saying
    4. It must be capable of clear expression
    5. It must not contradict any express term of the contract.

Implied in law [14]
There are many instances or situation that is define in terms of contract by the drafting committee of Indian Contract Act, 1872. Implied law in contract rules a bit differently, actually this type of contract is called to 'quasi-contract'. Here, it is necessary to understand that what is meaning of 'quasi', it means almost or apparently but not really or as if it were.

A quasi contract exists by the order of contract of court but not by the agreement of the parties, courts create quasi contract to avoid the unjust enrichment of the party in a dispute owner payment for a goods or services or quasi contract is used when the court wishes to create an obligation upon a non-contracting party to avoid scuffle between parties, one things which very important to note in quasi contract is that here generally no consent is required, here obligation arises from the law. In legislation of contract quasi contract is defined in Chapter V which in itself state that Certain relation resembling those created by contract[15], in this chapter there are five section and they are from section 68 to 72 and they are as follows:
68. Claim for necessaries supplied to person incapable of contracting, or on his account.
69. Reimbursement of person paying money due by another, in payment of which he is interested.
70. Obligation of person enjoying benefit of non-gratuitous act.
71. Responsibility of finder of goods.
72. Liability of person to whom money is paid, or thing delivered, by mistake or under coercion.

And also,
In Transfer of Property Act, 1882[16], there are sections which help us to understand the implied law in contract and they are as follows:
55. Rights and liabilities of buyer and seller
65.Implied contract by mortgagor
108.Rights and liabilities of lessees

And also,
In The Sales of Goods Act, 1932[17] there are sections which help us to understand the implied law in contract and they are as follows:
14. Implied undertaking as to title, etc.
15. Sale by description
16. Implied condition as to qualify or fitness
17. Sale by sample

So, in all these conditions contract is created automatically or it obligatory in nature.

Let's, understand the implied law of contract by an instance, suppose A, a person is walking across the road, suddenly he saw a purse lying on the road, so till this moment there is no liability arises for him, now he picks up that purse, so at the moment he picked it up he is booked under section 71 which state responsibility of finder of goods.

It is noticeable that now person A, is obliged to keep the responsibility of that purse rather there was no contract between the real owner of that purse and A. If there is no quasi-contract then this situation might turn into a dispute, how? The real owner of the purse may file a suit against person A, for theft, so this is how quasi-contract prevents from arising the disputes.

Here, we have some cases which will make you more clear about implied by law.
  • Upton-upon-seven RDC vs Powell, 1942, 1, AII ER 220
    A fire broke out in the defendant's house. He believes that he was entitled to the free services of Upton Fire Brigade and therefore, summoned it. The brigade put out the fire. It then turned out that the defendant's house was not within the free services zone of Upon, which, therefore claimed compensation for the services. The court here held that, The matter is that the defendants wanted the services of Upton, he asked for the services of Upton and Upton, in response to that request, provided the services. Hence the services were rendered on an implied promise to pay for them.
     
  • The Moorcock
    In this the defendant was a wharf fingers, he agreed to let the claimant land and store his ship's cargo at their jetty on the river Thames. In return, the claimant would pay fees for the service, the defendant did not have any right to the riverbed adjoining the jetty, had not assessed whether it was safe for vessel to berth there. The riverbed was uneven and because of this the claimant's vessel got damages.

    The claimant here sued the defendant for breach of contract. The argument was that the defendant had implicitly warranted that the riverbed was safe and suitable for their use.
    From here we got a rule that is of business efficacy which say:
    A term can only be implied if it necessary to give business efficacy to a contract to avoid such a failure of consideration that the parties cannot as reasonable businessmen have intended. But only the most limited term should then be implied the bare minimum to achieve this goal. If the contract makes business sense without the terms, the courts will not imply the same.

    The business efficacy test, therefore should be applied only in cases where the term that is sought to be read as implied is such which could have been clearly intended by the parties at the time of making of the agreement[18].

Express contract will prevail over implied contract:
While a contract is being constructed or drafted the court must look at the terms or words in used in the contract unless they do not convey the intention correctly. If a term is not express then it will be implied only if the will leads to business efficacy to a contract. An express term will always give preference over an implied term of a contract.[19]

Let's understand with this a landmark case
Luxor Ltd. Vs Cooper, 1941, 1 AC 108
The plaintiff had an agreement to provide prospective purchasers for sale of two cinemas on behalf of the defendants for which he was due to receive 10,000-pound commission. Having provided prospective purchasers, the defendants refused to complete the contract on the basis that the agreement was made with unauthorized person of the company and hence it was ultra vires.

The primary issue was raised in whether there is an implied term in the contract that the agent should receive remuneration where the principal chooses not to proceed with the contract.
The court here held that this is not available where the principal employs an agent and subsequently revokes the agreement on the basis that the agent is only due to be paid on completion there by finding that there was no implied term for remuneration until the contract had been completed. This was irrespective of the contract not being pursued by the principal.

Implied contract by custom or trade Usage
In this type of contract a term is implied by custom of a locality or by the usage of a specific trade. But it is very necessary that the custom must be proved strictly, it should be as certain as a written contract, recognized as legally binding, reasonable and consistent with the express of the term. And the custom should not offend against any legislative enactment.
  • Hutton v. Warren 1836, 1 M & W 466
    In this, the question was raised that whether custom could become an implied term of a lease where the lease is silent? In this Hutton was a farmer and used to work on the land of Warren. He gave Hutton notice to stop and insisted he continued to farm the land through the notice period. But Hutton continued to farm the last during the last year of tenancy expending his own expenses and by his own labor. But when he quit and asked for his expenses, Warren refused to pay him. The court held that custom was implication imported into the lease. Where a commercial contract is silent, extrinsic evidence of customary practice and usage is admissible. And Hutton was successful in his claim.
     
  • Les Affreteurs Reunis Societe Anonyme v. Leopold Walford 1919, AC 801
    In Walford acted as a broker for a charter party. Les Affreteurs were owners of a ship. A time charter party was effected between the shipowners and the Lubricating and Fuel Oils Company as charters. Walford charged a 3% commission which was specified in the charter party contract which was agreed to in 1916 and was a continuation of an early agreement on similar terms.

    In 1917, after Les Affreteurs' ship was recommissioned, the charter party expired. Les Affreteurs refused to pay Walford's commission, holding that commission was only payable in respect of hire duly earned under the charter party. The honorable court found that the charter party contract between the owners and the charters was relevant to brokers (which had also long been custom). And appeal by Les Affreteurs was dismissed.

No Implied contract can be constructed under Article 299 of the Indian Constitution [20]
This article state, Contracts (1) All contracts made in the exercise of the executive power of the Union or of a State shall be expressed to be made by the President, or by the Governor of the State, as the case may be, and all such contracts and all assurances of property made in the exercise of that power shall be executed on behalf of the President or the Governor by such persons and in such manner as he may direct or authorize.

(2) Neither the President nor the Governor shall be personally liable in respect of any contract or assurance made or executed for the purposes of this Constitution, or for the purposes of any enactment relating to the Government of India heretofore in force, nor shall any person making or executing any such contract or assurance on behalf of any of them be personally liable in respect thereof.[21]

The crux of this article here is that any government body will have only a written contract or expressed contract.

The implied terms generally in all contracts
There are many things which are itself exist in a contract, generally, there is no need to express such terms in a contract and they are:
Not to prevent performance
It may be that a term is implied in a contract that neither party will prevent each other from performing a contract. It is mostly not mentioned in a contract that parties are not allowed to perform a contract.[22]
  • Rhodes v. Forwood 1876-1 App Cas 256
    In this case, the contract was of sole agency, the agent was confined to a specific area, the agent was to sell for commission, the contract was fixed for a fixed period determinable earlier by either party on notice and there was no express term obliging the principal to send any goods to the agent for sale in his area. The House of Lords held that under this type of contract no implied contract binding the principal to supply the agent with goods could be discovered.

    Duty to Co-operate[23]
    If there is a contract, then it appears that both parties have agreed to perform it and they have cleared all the concern regarding the same. A contract cannot be effective unless both concur in doing it, though there may be no express words to that effect. A contract should be fair. Parties are obliged to perform that contract.
     
  • Dick & Stevenson v. Mackay 1881, 6 App Cas 251
    Mr. Mackay was a contractor for the construction of a railway branch line of Carfin Cutting, having a contract with Dick and Stevenson, an engineering company for excavating machines. One term i.e. of the testing machine of a machine, however, Mackay was not ready to test the machine after it was manufactured. After this flaw in the machine, Mackay denied payment of purchase price alleging non-conformity to the contract.

    The company sued for the price, alleging the fault of the contractors for not testing at Carfin.
    It was held that a term will be read into a contract as a matter of law to prevent one contracting party from frustrating the performance of an obligation by the other contracting party where it was dependent on the action being taken or not taken by the first party.

    And also, when a written contract provides obligations that are dependent on both parties, each agrees to do all that is necessary to be done on his part for the carrying out of that thing, though there may be no express words to that effect. The Court held that the buyer, Mackay, did not fulfill his duty of cooperation concerning the testing of the machine at Carfin, preventing the seller from fulfilling the condition of sale accordingly, the seller, Dick, and Stevenson, fulfilled their part and the contract must be considered satisfied with payment due accordingly.

Payment of price[24]
Price is a material term of the contract, but it is not expressed, a term may be implied that a fair and reasonable price was intended by the parties. For instance, a contract with a government regarding the purchase of several tons of iron scrap is not being possible to weigh such quantities to the last ounce, it was an implied term that if it is found that quantity is more or less then price will be adjusted accordingly.

Termination of a contract[25]
It might happen that parties to the contract have not mentioned the date of the termination in a contract but it is implied that the contract will be terminated automatically when it will get over like. It has been held that even in absence of a specific clause, the parties to the contract can terminate the contract relating to a commercial transaction. A provision of the termination by reasonable notice has been implied in a contract where there was no provision of determination.
  • Winter Garden Theatre (London) Ltd. Vs Millennium Production ltd. 1948 AC 173
    In this case, the appellant was a company that owned a theatre, and which had given the respondent a license to occupy the theatre for an initial period of six months, with an option to continue to occupy for a further period of six months at an increased rent. It was also necessary for the rental payment to be made to be four weeks in advance. The license did not contain any provision for notice of termination by the appellant.

    The respondent company took up the options contained within the license, but on 11th September 1945, the appellant served notice on the respondent to terminate the license on 13th October 1945. The appellant did not assert that the respondent had breached any of the terms of the license.

    The respondent company asserted that the license was only revocable by the appellant if the respondent was in breach of its terms, or alternatively, the license was valid for a reasonable period after notice of its termination had been given and that this period had not expired.

Conclusion:

If any proposal or any acceptance is made in word, here word means either in written or in oral or in gesture, it is termed as an expressed contract, and if any proposal or acceptance is made in another way than a word (written and oral) like it can be performed by any conduct, is termed as an implied contract. An implied contract is non-verbal and unwritten and exits on the behavior of the parties.

Implied terms in a contract are not explicitly agreed to by the parties when they enter into a contract. Implied terms in a contract are types of compulsion. Implied contracts can be performed in three ways, one is implied by the fact and the second one is implied by the fact another is implied by custom or usage of trade.

An express term will always give preference over an implied term of a contract. No Implied contract can be constructed under Article 299 of the Indian Constitution, any government body will have only a written contract or expressed contract. There are many things which are itself exist in a contract, generally, there is no need to express such terms in a contract

End-Notes:
  1. Section 2(h), The Indian Contract Act, 1872, Bare Act, 2021
  2. Section 2(e), The Indian Contract Act, 1872, Bare Act, 2021
  3. Section 10, The Indian Contract Act, 1872, Bare Act, 2021
  4. Contract Act & Specific Relief by Avtar Singh, 12th Edition
  5. The Indian Contract 1872, Bare Act, 2021
  6. Contract Act & Specific Relief by Avtar Singh, 12th Edition
  7. Contract Act & Specific Relief by Avtar Singh, 12th Edition
  8. The Sales and Goods Act 1979
  9. The Supply of Goods and Service Act 1982
  10. The Indian Contract Act, 1872, Pollock and Mulla, Volume 1 15th Edition
  11. The Indian Contract Act, 1872, Pollock and Mulla, Volume 1 15th Edition
  12. Mulla, The Indian Contract Act, 15th edition
  13. Treitel, 14th edition, P. No.- 245
  14. The Indian Contract Act, 1872, Pollock and Mulla, Volume 1 15th Edition
  15. The Indian Contract, 1872, Bare Act
  16. Transfer of Property Act, 1872, Bare Act
  17. The Sales of Goods Act, 1932, Bare Act
  18. https://www.legalserviceindia.com/
  19. The Indian Contract Act, 1872, Pollock and Mulla, Volume 1, 15th edition
  20. The Indian Contract Act, 1872, Pollock and Mulla, Volume 1, 15th edition
  21. Article 299 of The Constitution of India, 1950, Bare Act 2021
  22. The Indian Contract Act, 1872, Pollock and Mulla, Volume 1, 15th edition
  23. The Indian Contract Act, 1872, Pollock and Mulla, Volume 1, 15th edition
  24. The Indian Contract Act, 1872, Pollock and Mulla, Volume 1, 15th edition
  25. The Indian Contract Act, 1872, Pollock and Mulla, Volume 1, 15th edition

Award Winning Article Is Written By: Mr.Snehil Prakash - BA.LLB, 2nd year, Lloyd-Law-College
Awarded certificate of Excellence
Authentication No: FB205038335823-19-0222

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