In contract law, the Doctrine of Implied Terms addresses provisions not expressly stated but inherently understood to be part of an agreement, ensuring fairness and reflecting the parties’ true intentions.
MEANING AND EXPLANATION OF IMPLIED TERMS IN CONTRACTS
Implied terms are provisions that, though not explicitly articulated within a contract, are considered integral to the agreement. These terms arise from the conduct of the parties, the nature of the transaction, or legal statutes. They ensure that the contract functions effectively and justly, filling gaps that the parties may have overlooked during formation.
For instance, when a person boards a bus, there’s no written contract, but it’s implied that the passenger will pay the fare, and the bus company will transport them to their destination.
HISTORICAL BACKGROUND AND EVOLUTION
The concept of implied terms has its roots in common law, evolving to address situations where the strict application of express terms would lead to unjust outcomes. Over time, courts recognized that not all contractual obligations could be captured in writing, leading to the incorporation of terms based on customary practices, the nature of the relationship, or statutory requirements. This evolution reflects the judiciary’s role in ensuring contracts remain fair and functional, even as societal norms and commercial practices change.
TYPES OF IMPLIED TERMS
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Implied by Fact: These terms are derived from the specific circumstances and conduct of the parties involved.
- Example: If a person regularly delivers goods to a retailer without a formal agreement, and the retailer consistently accepts and pays for them, it’s implied that there’s a contract governing these transactions.
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Implied by Law (Quasi-Contracts): Certain terms are imposed by law to uphold fairness and prevent unjust enrichment.
- Example: If a person receives services in an emergency (like medical assistance) without a prior agreement, the law may imply a contract obliging payment for those services.
ESSENTIALS AND PRECONDITIONS FOR IMPLIED TERMS
For a term to be implied into a contract, certain conditions must be met:
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Necessity: The term must be essential to ensure the contract’s efficacy. If the contract can function without the implied term, courts are less likely to incorporate it.
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Obviousness: The term should be so evident that it “goes without saying.” If an impartial observer were to consider the contract, they would naturally assume the inclusion of such a term.
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Consistency: The implied term must not contradict any express terms within the contract. Implying a term that conflicts with the written agreement would undermine the parties’ explicit intentions.
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Fairness: The term should promote fairness and prevent unjust enrichment, ensuring that neither party gains an undue advantage.
LEGAL PROVISIONS AND DOCTRINES RELATED TO IMPLIED TERMS
The Indian Contract Act, 1872, provides a framework that acknowledges implied contracts. Sections 68 to 72 deal with “quasi-contracts,” where obligations are created without explicit agreements to prevent unjust enrichment.
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Section 68: Addresses claims for supplying necessities to individuals incapable of contracting, such as minors or individuals of unsound mind.
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Section 69: Pertains to reimbursement of payments made by one person on behalf of another, under certain conditions.
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Section 70: Concerns obligations of a person enjoying the benefit of a non-gratuitous act.
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Section 71: Deals with the responsibilities of a finder of goods towards the true owner.
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Section 72: Relates to the liability of a person to repay money or goods received by mistake or under coercion.
These provisions ensure that even in the absence of explicit agreements, parties are bound by duties that uphold equity and prevent unjust enrichment.
CASE LAWS ILLUSTRATING IMPLIED TERMS
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Nabha Power Limited (NPL) v. Punjab State Power Corporation Limited (PSPCL) and Another (2017):
- The Supreme Court of India emphasized that terms can only be implied if they are necessary to give business efficacy to the contract.
- The court held that an implied term should not contradict any express terms and must be essential for the contract’s effective operation.
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Jyotsna K. Valia vs. T.S. Parekh And Co. (2007):
- The Bombay High Court discussed the distinction between implied contracts and implied terms within express contracts.
- The court clarified that while an implied contract arises from the conduct of parties without any express agreement, implied terms are unstated provisions read into an existing contract to reflect the parties’ presumed intentions.
PRINCIPLES AND MAXIMS RELATED TO IMPLIED TERMS
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Business Efficacy Test: A term can only be implied if it’s necessary to ensure the contract’s effective operation. If the contract is functional without the implied term, courts will refrain from incorporating it.
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Officious Bystander Test: This principle posits that a term should be implied if it’s so obvious that both parties would agree to its inclusion were an impartial observer to suggest it during contract formation.
DEFENSES AND EXCEPTIONS TO IMPLIED TERMS
While implied terms play a crucial role in ensuring contractual fairness, there are defenses and exceptions to their incorporation:
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Express Terms Superseding Implied Terms: If a contract’s express terms clearly address a particular issue, no contradictory term can be implied. The explicit provisions take precedence over any unstated assumptions.
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Comprehensive Contracts: In agreements where the terms are exhaustively detailed, courts are less likely to imply additional terms unless absolutely necessary.