Contracts are the foundation of business dealings and personal agreements, setting out the rights and duties of everyone involved. When you think of a contract, you probably picture a written document spelling out all the agreed terms – these are express terms that the parties specifically agreed on.
But not every obligation is written down. Some terms apply automatically, even if they never appear in the contract. These are known as implied terms, and they can have a major effect on your contractual rights and obligations.
Understanding implied terms – how they arise, how they work alongside express terms and when they can be enforced – is crucial to avoiding unwelcome surprises.
What are implied terms?
Implied terms are provisions that do not appear on the face of a contract but are implied into it. This can happen in different ways – for example, through statute, established usage or custom, decisions of the courts or previous course of dealings between the parties.
A brief history of implied terms
The concept of implied terms has been part of English law for well over a century. Courts recognised early on that some agreements would be meaningless unless certain ‘obvious’ promises were assumed.
Two key tests were developed by courts:
- The Moorcock (1889) 14 PD 64 (CA): The owners of a ship contracted with the wharf owners to dock and unload cargo. When the tide went out, the ship was damaged because the riverbed beneath the wharf was unsafe. The contract did not mention anything about the condition of the riverbed, but the court decided it was obvious that the wharf owners had to take reasonable care to ensure it was safe. Without this, the contract would have made no sense.
This became known as the business efficacy test: a term may be implied if it is necessary to make the contract work.
- Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206 (CA): Mr Shirlaw was employed as managing director under a ten-year service contract. After new owners changed the company’s rules to allow directors to be removed, he was dismissed before the ten years were up. The court held that to make the contract workable, it was necessary to imply a term preventing his removal in this way.
In explaining why such a term could be implied, MacKinnon LJ introduced what became known as the officious bystander test. The idea is that if, during negotiations, an imaginary bystander had asked the parties whether the contract included the missing term, they would both have instantly replied: “of course, that goes without saying.” This test illustrates when a term is so obvious that, even if it is not written down, the court can treat it as part of the contract.
Parliament has also stepped in. Statutes such as the Sale of Goods Act 1979 and the Consumer Rights Act 2015 automatically imply terms about quality and fitness of goods, while employment legislation implies minimum rights for workers.
How can terms be implied into a contract?
There are four main ways a term can be implied:
1. By statute
2. By custom and practice
3. By courts
4. By previous course of dealings
1. Terms implied by statute
Certain laws automatically build key obligations into contracts. If these terms are breached, it is treated as a breach of contract, not a breach of the statute itself.
Examples:
- Sale of goods: The Sale of Goods Act 1979 implies several important terms into contracts for the sale of goods between businesses. For example, the seller implicitly promises that they have the right to sell the goods (good title), that the goods will match any description given, and that they will be of satisfactory quality and reasonably fit for purpose. We discuss these in more detail in our blog here.
- Employment contracts: Employment legislation implies certain basic terms into every contract of employment, for example under the Employment Rights Act 1996 and the Equality Act 2010. These include rights to be paid at least the minimum wage, limits on working hours, minimum notice periods and rest breaks. Even if the contract does not mention them, the law treats them as part of the employment contract.
Some statutory implied terms can be excluded by agreement (for example, businesses can agree to exclude certain Sale of Goods Act terms, if reasonable), whereas others cannot be excluded at all, such as minimum wage or discrimination protections.
2. Terms implied by custom and practice
Another way terms can be implied is through custom or usage in a particular trade, industry or location. If there is a well-established practice that both parties are assumed to know, the law may treat that practice as part of the contract.
For a custom to be implied, it usually needs to be:
- reasonable – fair and consistent with the contract
- notorious – widely known and accepted within the trade or location
- certain – clear enough that the parties would naturally have expected it to apply
Courts recognise custom because it reflects what both parties are taken to have understood as part of their deal. Importantly, a party can still be bound by a custom even if they were not actually aware of it, so long as it is well-established in the industry.
Example: in an old case Hutton v Warren [1836] EWHC Exch J61, a farm tenant was entitled to a customary allowance for seed and labour at the end of his tenancy, even though the lease said nothing about it. The court implied the local agricultural custom into the contract.
3. Terms implied by courts
Courts sometimes imply terms into a contract to make sure it works as the parties must have intended. These are not set out in statute or custom but are implied by judges where necessary.
The modern position was confirmed by the Supreme Court in Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC 72. The Court held that a term will only be implied if it satisfies the test of business necessity or it is so obvious that ‘it goes without saying’. Any implied term must also be capable of being clearly expressed and must not contradict the written terms of the contract.
This approach was reaffirmed in Wells v Devani [2019] UKSC 4, where the Supreme Court emphasised again that courts cannot imply terms simply to achieve fairness – implication depends entirely on necessity and obviousness.
Courts have also recognised specific implied duties in certain contexts. For example, in employment contracts, there is an implied term of ‘mutual trust and confidence.’ This means neither the party should act in a way that destroys the employment relationship, even if the contract is silent on this.
4. Terms implied by previous course of dealings
Sometimes, terms can be implied based on the way the parties have consistently done business with each other in the past. If the same term has been applied over and over again in earlier contracts, a court may decide it is implied in later contracts too – even if it is not written down.
Example: if a supplier always delivers goods on 30-day payment terms and the buyer always pays that way, the court might imply a 30-day payment term into their latest contract, even if the contract is silent on payment timing.
The key is consistency: the past dealings must show a clear and regular pattern that both parties would reasonably expect to continue. If the history is mixed or uncertain, the court is less likely to imply the term.
Can you exclude implied terms?
In some situations, you can. Many contracts include clauses that try to limit or exclude implied terms – for example by saying: ‘this agreement contains the entire agreement, and no terms will be implied.’
However, the law draws the line:
- In B2B contracts, some implied terms (such as those in the Sale of Goods Act 1979) can be excluded only if the exclusion is reasonable.
- In consumer or employment contracts, key protections cannot be excluded. For example, an employee cannot agree to be paid less than the minimum wage.
So, while businesses often have more flexibility, certain implied rights are mandatory and will apply no matter what the contract says.
What if express and implied terms conflict?
If an implied term clashes with something written in the contract, the express term normally prevails. Courts see their role as filling gaps, not rewriting contracts.
That said, a contract cannot override statutory protections that are mandatory (such as employment rights or consumer protections). In those cases, the implied term will still apply, and the conflicting clause may be invalid.
Get in touch
Implied terms are the ‘hidden rules’ of contracts. They can come from law, custom, the courts, or the way you have done business before. Even if you never wrote them down, they can shape your rights and obligations in important ways.
If you are unsure which implied terms might affect your contracts or whether they can be excluded, our team can help. We regularly advise SMEs, employers and investors on drafting and reviewing contracts.
Get in touch with us to make sure your agreements say (and imply) exactly what you intend.
