GROUP 2 CONTRACTS

Implied Terms in Fact

• Impliedterms are provisions that, although
not explicitly stated in the contract, are
inferred from the circumstances surrounding
the agreement and the parties' conduct.
These terms are based on the presumed
intentions of the parties and are necessary to
give effect to the contract. The courts imply
these terms to ensure that the contract
operates effectively and fairly, filling gaps that
the parties may have overlooked during the
drafting process.
The Officious Bystander Test
• Under the "officious bystander" test the
proposed term will be implied if it is so
obvious that, if an officious bystander
suggested to the parties that they include it
in the contract, 'they would testily suppress
him with a common 'oh of course' " (Shirlaw
v Southern Foundries (1926) Ltd [1939] 2 KB
206). In other words, the proposed term
must be so obvious that it goes without
saying.
The Business Efficacy Test
• Another test commonly used to imply terms in fact is the
business efficacy test. This test asks whether the contract
would be workable or effective without the implied term. If the
absence of the term would make the contract unworkable or
nonsensical, the court may imply the term to give the contract
"business efficacy.“
• For instance, in The Moorcock (1889), the court implied a term
into a contract for the docking of a ship, requiring the dock
owner to ensure the safety of the ship while docked. Without
this implied term, the contract would have lacked business
efficacy because the ship owner would have no assurance of
safety. The court reasoned that both parties would have
assumed this responsibility was part of the contract, even
though it was not expressly stated.
Limits on Implied Terms in fact
• Reasonableness
• It is not sufficient for a term to be reasonable; it
must be necessary to give effect to the parties’
intentions. This avoids courts making contracts for
the parties based on what seems fair in hindsight.
• Consistency with express Terms
• The implied term cannot contradict any of the
express terms of the contract. The courts will not
imply a term that undermines or conflicts with the
language the parties explicitly agreed to.
• Clear Formulation
• The term must be clearly definable. The courts will
not imply vague or ambiguous terms. It must be
possible to articulate the implied term with
precision.
• Case by Case Basis
• Terms implied in fact are always specific to the
individual contract in question. The courts do not
apply these terms broadly or universally; instead,
they are implied based on the unique facts of each
case.
 TERMS IMPLIED BY CUSTOM OR
TRADE USAGE
• Terms implied by custom or trade usage are terms that are
implied by the courts based on the regular practice within the
field of specialization in which that particular contract has
been made
• For a term to be implied by custom and practice, it must be
reasonable, well-known (notorious), and certain. This means
that the practice must be fair, widely recognized, and
consistently applied over a significant period.

• Case Law: Hutton v Warren

Sources of Terms Implied by Custom
or Trade Usage

• Industry Standards
• Workplace Norms
• Trade Customs
 INDUSTRY STANDARDS

• In many industries certain practices become so

entrenched that they are considered part of the
contractual relationship. For example, in the shipping
industry, it is customary for shipowners to ensure
that vessels are seaworthy. Such practices are
implied in contracts to reflect the standard
expectations within the industry.
 WORKPLACE NORMS

• Within a specific workplace, certain practices may

become implied terms of employment contracts. For
instance, if employees have consistently been
allowed to leave early on Fridays over several years,
this practice may become an implied term of their
employment contracts.
 Trade Customs

• In commercial transactions, trade customs can

imply terms in contracts. For example, in the
diamond trade, it is customary for buyers to
inspect the goods before finalizing the purchase.
Such customs are implied in contracts to ensure
that the parties’ expectations align with industry
practices.
 TERMS IMPLIED IN LAW
• Terms implied in law are inserted into the contract
regardless of the wishes of the parties, typically to
regulate a particular sort of agreement. Some examples
include:
• Employment contracts
• Sale of goods contracts
• Consumer contracts
• Landlord tenant contract
 SIGNIFICANCE OF IMPLIED
TERMS IN LAW
 Ensuring Fairness
 Promoting confidence
 Reducing Disputes
• Land mark case in context: Liverpool city council v Irwin
 STATUTORY IMPLIED TERMS

• These are terms imposed by acts of parliament rather than by choice

• NB: Terms implied by law-court decisions
• Terms implied by statute-acts of parliament
• Relates to how one of the elements of a contract is legality (should be
legally enforceable)
• These implied terms cannot contradict the express terms. In any case where
an express term contradicts the statutory implied terms, the statute takes
precedence.
• The most common statutory implied terms include
• The consumer rights act
• The sales of goods act
 The Sales of Good Act Cap 31 Laws of
Kenya

• An act in Kenya that regulates the sale of goods by defining the rights
and obligations of both the buyer and the seller.
• Functions
• Establishes the rules for the sale of goods
• Protects the buyers and the sellers
• Implies terms in the contract
• Stipulates the remedies for the breach of a contract
Conditions as to Title

• The seller must have the right to sell

the goods. This condition ensures that
the buyer obtains good title to the
goods, free from any third-party claims
• Case: Rowland v Divall
Conditions as to Description

• When goods are sold by description they

must correspond to that description. This
condition protects buyers from receiving
goods that do not match what was
advertised or agreed upon
• Case: Pradip Enterprises(EA) Limited v Magic
Chemicals Inc
 Consumer Rights Act Cap 501
Laws of Kenya
 This Act consolidates and updates various consumer
protection laws, implying terms into consumer contracts
to ensure that consumers receive fair treatment.
 Goods to be as Described -Goods must match the
description provided by the seller .
 Goods to be of Satisfactory Quality-Similar to the Sale of
Goods Act, goods must be of satisfactory quality . In the
case of Egan v Motor Services Bath.
 Goods to be Fit for Particular Purpose -Goods must be fit
for any particular purpose made known to the seller .
Significance of Statutory Implied
Terms
 Ensuring Fairness
 Providing Minimum Standard
 Reducing Disputes
 Promoting Confidence
 ENSURING FAIRNESS
 Statutory Implied terms ensure that contracts are fair and balanced,
preventing one party from exploiting the other. For example, the requirement
for goods to be of satisfactory quality protects consumers from receiving
defective products.
 In the case of Woods Products Limited b Rufus Kithela Kodia , Rufus Kithela
Kobia (the respondent) filed a suit against Wood Products Limited (the
appellant) claiming a refund of Kshs. 77,800 for goods that allegedly failed to
meet the required standard or fit the purpose for which they were purchased.
Additionally, he sought Kshs. 78,000 for expenses incurred. The initial judgment
by the Chief Magistrate’s Court at Milimani Commercial Courts, Nairobi, ruled in
favor of the respondent, awarding him the claimed amounts.
 The High Court partly allowed the appeal, affirming the lower court’s decision in
favor of the respondent but making adjustments to the awarded amounts. This
case underscores the importance of ensuring that goods sold meet the required
standards and fit the intended purpose, as well as the necessity of providing
adequate evidence to support claims for damages
 Providing Minimum Standard
 These terms set minimum standards that must be met in contractual
relationships. This is particularly important in consumer contracts, where
there is often an imbalance of power between the parties.
 In the case of Noa Investment Ltd v County Government of Nyamira , Noa
Investment Limited (the plaintiff) filed a suit against the County
Government of Nyamira (the defendant) seeking payment of KES
24,408,481. This amount represented the outstanding balance for
accountable documents delivered to the defendant on various dates from
2013 to 2015. The plaintiff claimed that despite delivering the goods, the
defendant had failed to settle the payment.
 The court dismissed the plaintiff’s claim, reinforcing the principle that
contracts with government entities must strictly adhere to statutory
procurement procedures. This case underscores the critical importance of
following legal requirements in government contracts to ensure their
enforceability.
Reducing Disputes

 By providing clear and enforceable

standards, statutory implied terms help
to reduce disputes between parties.
When the terms of a contract are clear
and fair, there is less room for
disagreement and litigation.
Promoting Confidence
 Statutory implied terms promote confidence in the market by
ensuring that parties can rely on certain basic protections. This is
particularly important for consumers, who may otherwise be
hesitant to enter contracts with businesses.
 In the case of Mary Wakhabubi Wafula v British Airways PLC , Mary
Wakhabubi Wafula (the plaintiff) was employed by British Airways
PLC (the defendant) as a Customer Service Assistant starting on
April 1, 1989. The employment contract, which is central to this
litigation, was detailed in a letter from British Airways. The
plaintiff’s employment was terminated on grounds that she
contested, leading her to file a suit against British Airways for
wrongful termination and other related claims.
 The court ruled in favor of Mary Wakhabubi Wafula, highlighting
the necessity for employers to follow due process and ensure
fairness in employment termination. This case underscores the
importance of adhering to contractual and legal obligations in
employment relationships to avoid wrongful termination claims.
THE PAROLE EVIDENCE RULE

• The Parol evidence rule is a fundamental principle in contract law that

governs the admissibility of external evidence when interpreting
written contracts. Key case: J. Evans & Son Ltd v. Andrea Merzario Ltd
• The Court of Appeal’s decision in J. Evans & Son Ltd v. Andrea Merzario
Ltd underscores the principle that oral assurances can override written
contract terms if they are made to induce agreement and are relied
upon by the other party.
IMPORTANCE OF THE PAROLE EVIDENCE RULE

 Promoting Certainty and Predictability

 Encouraging Thorough Contract Drafting
 Protecting the Written Agreement
LEGAL EFFECTS OF PAROLE
EVIDENCE RULE
 Exclusion of extrinsic evidence
 Preservation of Contract Integrity
 Limitation of Contractual Claims
Exclusion of extrinsic evidence
 Extrinsic evidence refers to any information relevant to
a contract that is not contained within the document
itself (e.g. early negotiations, oral conversations,
letters, and earlier drafts of the contract). This type of
evidence originates from outside sources and includes
details about the circumstances under which the
contract was negotiated. It is often used in legal
settings to interpret, explain, or clarify the terms of a
contract when the language within the document is
ambiguous or incomplete.
 The primary effect of the parole evidence rule is to
exclude extrinsic evidence that contradicts, varies, or
adds to the terms of a written contract.
 Preservation of Contract Integrity
 What is the integrity of a contract?
 The integrity of a contract refers to its overall
validity and reliability, ensuring that it remains
legally binding, complete, and enforceable
 By excluding extrinsic evidence, the rule ensures
that the written contract remains the definitive
record of the parties’ agreement. This helps
prevent disputes over what was agreed upon and
provides certainty and predictability in contractual
relationships .
Limitation of Contractual Claims

 What is a contractual claim? A Contractual Claim is An

amount that by legal agreement must be paid
periodically to the buyer of a security; contractual
claim may also specify the time at which the principal
must be repaid and other details.

 The rule limits the ability of parties to make claims

based on prior negotiations or agreements that are
not reflected in the final written contract. This
encourages parties to carefully draft and review their
contracts to ensure that all essential terms are
included
EXCEPTIONS OF PAROLE EVIDENCE

 Ambiguity
 Fraud, Duress, or Mistake
 Collateral Agreements
 Subsequent Modifications
 Condition Precedent
 Implied Terms
AMBIGUITY
 Extrinsic evidence may be admitted to resolve ambiguities in the
contract. If a term in the contract is unclear or has multiple
meanings, external evidence can help clarify the parties’ intentions.
 CASE LAW
 Pacific Gas & Electric Co. v. G.W. Thomas Drayage & Rigging Co., the
plaintiff, Pacific Gas & Electric Co. (PG&E).
 - The primary issue was whether extrinsic evidence could be
admitted to interpret the indemnity clause, which appeared
unambiguous on its face.
FRAUD, DURESS, OR MISTAKE

 This exception ensures that parties cannot use the parol evidence
rule to enforce a contract that was formed under improper
circumstances.
 CASE LAW
 Sherrold Inc. vs Morrison –knudsen co.
COLLATERAL AGREEMENTS

Evidence of collateral agreements, which are

separate agreements that do not contradict the
main contract, may be admitted.
SUBSEQUENT MODIFICATIONS

Refer to changes made to an agreement or

contract after it has been signed. It is an exception
because it occurs after the contract’s execution.
CONDITION PRECEDENT

This refers to an event or condition that must occur

before a contract can be valid or before any party
is obligated to perform. It is an exception because
it is not viewed as modifying the contract but
rather explaining when the contract becomes
effective.
IMPLIED TERMS

 Terms implied by law, custom, or previous dealings

between the parties can be introduced to supplement the
written contract.
 CASE LAW
 Baker vs Bailey (Mont.1989)