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Implied Tems Essay

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Paper type: Essay

“To what extent do Implied Terms offer protection to contracting parties? ” Case-Study assignment The simplest definition of the contract is a “legally binding agreement”[1]. However, we need to understand that not all agreements are contracts, only those that are legally enforceable. Terms of a contract specify the promises, obligations and penalties that both parties agree to while formulating that contract.

We distinguish between two specific types of these terms: express and implied. Express terms are those specifically agreed and mentioned by at least one of the parties, either in writing or by word of mouth, when the contract is being formulated. However, if the problem arise and it cannot be solved upon the express terms of the contract it can be argued that this term can be implied.

Implied terms are not stated in the contract, but they are introduced by implication. In other words the implied terms are not actually written into the contract, but parties to the contract will be expected to adhere to it. They can be implied into the contract: • By statue (In law) (for example Sale of Goods Act 1979 applies terms into contract of sale of goods that the good should be of satisfactory quality and should fit for the purpose), By custom (“there may be contractual terms which are implied on the basis that they are customary in a particular trade, profession or locality”[2], in an example of Hutton v Warren (1836), it was held that customary usage permitted a farm tenant, who was about to quit his tenancy, to claim an allowance for the seed and labor, even if that had not been a part of the contract[3]) • By court (In fact) (courts may imply some necessary terms to give business efficacy to the contract, terms that are necessary to make the contract workable).

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This approach of implied terms in fact is based on unexpressed intention of both parties and in addition the “officious bystander” test can also be applied. The test basically means that the court will ask itself whether someone observing the making of the contract would have believed that the particular term was a part of the contract. [4] For the purpose of this essay we will focus on the terms implied by statue, terms implied by the Sale of Goods Act 1979, to examine the extent to which the buyer and a seller can be protected.

To classify a contract as a contract of sale of goods particular requirements need to be fulfilled and we can find these required conditions in the SGA 1979 s. 2(1): ` A contract of sale of goods is a contract by which the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration, called the price` Under the Sale of Goods Act 1979 Sections 12-15 the terms listed below do not need to be stated into a contract, as the will always be implied by the Act: • Seller has the right to sell the goods S. 2(1) • Warranties that goods are free from encumbrances and that the buyer will enjoy quiet possession of the goods S. 12(2) • Goods sold by description will correspond with the description S. 13(1) • Goods sold are of satisfactory quality (only sold in a course of business) S. 14(2) • Goods are fit for the buyer`s purpose (only sold in a course of business) S. 14(3) • Goods sold by a sample will match the sample in quality and will be free from defects that could not have been detected by examination of the sample S. 15. 5] We will now look into all of the stated above terms implied by the Sale of Goods Act 1979 and examine the examples of court cases in order to illustrate the different approaches to these terms, and to understand when the terms might actually be implied. We will note that they can protect especially the buyer but also in some cases seller will be able to argue the breach of the particular implied term. Section 12 of Sale of Goods Act 1979 implies two terms into the contracts: • a condition that the seller has the `right to sell` S. 2 (1) • the warranties of quiet possession and freedom from encumbrances and that the buyer will enjoy quiet possession of the goods S. 12 (2) (a) and (b). Condition goes to the root of contract and is a fundamental part of the agreement, while warranty is a subsidiary obligation which is not vital to the overall agreement and doesn`t destroy its efficacy. Case between Rowland and Divall (1923) 2 KB 500 (Court of Appeal) illustrates the situation in which the ownership is not transferred; therefore there is a total failure of consideration.

A claimant, a motor dealer, bought the car from the defendant, who however did not obtain legal ownership of that car, as the car has been previously stolen by a thief and sold to the defendant. Because the defendant did not have the `right to sell` the car there was a breach of S. 12 and the claimant had recovered the full price paid for that good, even though he have used it for some time. [6] Terms implied by Section 13 of Sale of Goods Act 1979 applies to all sales made by description, which means that there is an implied condition that the goods must correspond with the description. 7] Sales by descriptions occur when either “the buyer does not see the goods but relies on a description of them, or the buyer sees the goods but relies on the terms describing features of the goods or a description on the goods themselves”. [8] Usually words like “good condition” or “1996 model” indicates that the sale is made by description, but sometimes it might not be that obvious. Case between Harlington & Leinster Enterprises Ltd and Christopher Hull Fine was about a sale of painting of Munter made between two art dealers.

Because both parties were not experts and had no knowledge of a German expressionist school, buyer had not relied on the seller`s attribution but only on his own judgment and assessment. After it was revealed that the painting is a fake, buyer could not reject it under S. 13 as the description was not essential to the contract. [9] Section 13 also applies to “sale by sample as well as by description” S. 3 (2), while Section 13 (3) states that “a sale of goods is not prevented from being a sale by description by reason only that, being exposed for sale of hire, they are selected by the buyer”[10]. The perfect example of that sale is any supermarket sale where a customer relies on the description on the label when choosing a product. Section 14 of the Act – states that good must be of satisfactory quality (S. 14 (2)) and need to fit for the purpose (S. 14(3)). These two term may be implied only if the sale is made in a course of business, does not apply for any private sales.

Satisfactory quality is when goods “meet the standard that a reasonable person would regard as satisfactory, taking into account of any description of the goods, the price (if relevant) and all the other relevant circumstances”[11] Under the definition of satisfactory quality we can list five aspect of quality of the goods that can be taken into an account: • Fitness for all the purposes for which goods of the kind in question are commonly supplied, • Appearance and finish • Freedom from minor defects, • Safety, • Durability.

These are not requirements which means an absence of any of them does not mean the good in unsatisfactory, they only give a direction in which a quality should be examined. Section 14 (2) is not breached if any of these circumstances occur: • defects of the selling good has been pointed out to the buyer, • buyer examines the good before the purchase and the feature that he complains about could easily be revealed during this examination, • sale by sample, any defect that could have been found by the reasonable examination, even if examination didn`t take place.

In the case Barlett v Sidney Marcus Ltd. (1965) a second-hand car has been sold to the buyer and the defective clutch has been brought to his attention. After the buyer paid much more he expected for the replacement of the broken part he claimed damages for breach of S. 14 (2). The claim has been rejected as the buyer was aware of the problem and still chose to purchase the car. Similar decision has been made about the case Thain v Annieslan Trade Centre (1997) where a used car has been bought from the ealer. Because the car was five- or six-year-old Renault 19 and had already done 80. 000 miles, the major defect that developed two weeks after the purchase was not considered as an unsatisfactory quality of the good sold. This kind of defect and the features of the car itself were the reasons why the court decided that any reasonable person would take a risk of this defects occurring when buying a second-hand car rather than the new one. [12] S. 4 (3) provides that: “Where the seller sells goods in the course of a business and the buyer, expressly or by implication, makes known… to the seller… any particular purpose for which the goods are being bought, there is an implied [condition] that the goods supplied under the contract are reasonably fit for that purpose, whether or not that is a purpose for which such goods are commonly supplied, except where the circumstances show that the buyer does not rely, or that it is unreasonable for him to rely, on the skill or judgment of the seller”[13] To imply this term the buyer needs to expressly or impliedly let the seller know the purpose for which the goods are being bought, needs to rely on the skill and judgment of the seller and this relying must be reasonable. This conditions don`t need to be mentioned in the contract, they can also be implied. Grant v Australian Knitting Mills Ltd[14] case shows an example where there is a breach of S. 14 (3). Dr Grant bought a pair of woolen underpants and later contracted dermatitis condition and he was hospitalized for several months. Although the buyer did not state expressly the purpose for which he was purchasing the item (this term can be implied as there is only normal use of this good), he relied on the seller`s skill and judgment, assuming that the tradesman had chosen his stock with care and skill.

Section 15 define sale by sample as a sale “where there is an express or implied term to that effect in the contract” It also states that “the bulk will correspond with the sample in quality and that the goods will be free from any defect, making their quality unsatisfactory, which would not be apparent on reasonable examination of the sample”[15] Therefore under S. 15 (2) the buyer will not be able to claim damages for defects which he could reasonably have discovered upon examination of the sample. In E& S Ruben Ltd v Faire Bros & Co Ltd (1949) a material called Linatex did not match with the sample in terms of texture and therefore it was held that there had been breach of S. 15 (2). [16] With every contact, especially such a common act like the Act of Sale Goods implied term are very well established and it would be really hard to dispute them.

If there is a sale made by two parties and no date of delivery is set up in the contract, seller will not be able to deny that there is an implied term stating there is a reasonable date of delivery (depending on weather the item comes straight from the shop or need to be manufactured, or was order from foreign country etc. ) After looking into same case examples and the particular terms implied into the Act of Sale of Goods we could see that the implied terms might be applied differently in different circumstances. In some cases the buyer would have the right to sue the seller by reason of a breach by the seller of any term of the contract, however if there is a breach of condition the buyer can also reject the good and recover the full price. The doctrine of implied terms is very flexible one and it has developed over the years showing us how the standard outlook of contracts has changed.

Development can be seen as the courts became more active to reassure justice to the parties and preventing one party from the other to take advantage due to omissions or any errors. The idea of implied terms should be therefore developed carefully to prevent unnecessary problems in the future. [17] Implied terms are necessary for the fairness of the contracts, they protect both parties of the agreement. Bibliography: • D. Kelly, A. Holmes, R. Hayward “Business Law” (2006) 5th edition • Ewan Maclntyre “Brusiness Law” (2008) 4th edition • C. Elliot, F. Quinn “Contract Law” (2007) 6th edition • S. Wheeler & J. Shaw “Contract Law” (2001) Dobson P & R Stokes (2008) Commercial Law” (2008) 7th edition • L. Koffman E. Macdonald “The law of contract” (2007) 6th edition • www. vanuatu. usp. ac. fj/Courses/LA313_Commercial_Law/Cases/Grant_v_Australian_Knitting_Mills. html • www. legalservicesindia. com ———————– [1] D. Kelly, A. Holmes, R. Hayward “Business Law” (2006), p. 104 [2] L. Koffman E. Macdonald “The law of contract” (2007) p. 132 [3] D. Kelly, A. Holmes, R. Hayward “Business Law” (2006), p. 142 [4] C. Elliot, F. Quinn “Contract Law” (2007) 6th edition, p. 51 [5] Ewan Maclntyre “Business Law” (2008), p. 242 [6] Ewan Maclntyre “Business Law” (2008), p. 243 [7] S. Wheeler & J.

Shaw, “Contract Law” (2001), p. 590 [8] D. Kelly, A. Holmes, R. Hayward “Business Law” (2006), p. 196 [9] Dobson P & R Stokes (2008) Commercial Law, 7th ed. P. 106 [10] Dobson P & R Stokes (2008) Commercial Law, 7th ed. P. 106 [11] Ewan Maclntyre “Business Law” (2008), p. 250 [12] Ewan Maclntyre “Business Law” (2008), p. 252 [13] Ewan Maclntyre “Business Law” (2008), p. 254 [14]http://www. vanuatu. usp. ac. fj/Courses/LA313_Commercial_Law/Cases/Grant_v_Australian_Knitting_Mills. html [15] Dobson P & R Stokes Commercial Law, (2008) 7th ed. P. 120 [16] D. Kelly, A. Holmes, R. Hayward Business Law (2006), p. 196 [17] www. legalservicesindia. com

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