Implied Terms

1
Implied Terms

• Contracts

2
Implied Terms

• What are implied terms?
• Why do we study them at this point in the course?
• What are the problems with misrepresentation
• Why does the law do this?

3
Implied Terms (contd)

• There are three different ways to imply terms
• Terms implied in fact (Saint John Tug Boat)
• Business efficacy
• Does the contract make any sense without it?
• If you had asked the parties about the issue
  before the contract was made, would the answer
  have been obvious to both of them?
• You are concerned about the intentions of the
  parties

4
Implied Terms (contd)

• Section 14 of the Sale of Goods Act
• 14 In a contract of sale, unless the
  circumstances of the contract are such as to show
  a different intention, there is
• (a) an implied condition on the part of the
  seller that, in the case of a sale, he has a
  right to sell the goods, and that, in the case of
  an agreement to sell, he will have a right to
  sell the goods at the time when the property is
  to pass
• (b) an implied warranty that the buyer shall
  have and enjoy quiet possession of the goods and
• (c) an implied warranty that the goods shall be
  free from any charge or encumbrance in favour of
  any third party, not declared or known to the
  buyer before or at the time when the contract is
  made.

5
Implied Terms (contd)

• Terms implied by custom and usage (New Zealand
  Shipping Co. Ltd. v. A.M. Satterthwaite Co. Ltd.)
• Some industries have a notorious set of implied
  terms that have developed over a long period of
  time, such that anyone who deals with anyone else
  in the industry must know what they are getting
  themselves into

6
Implied Terms (contd)

• Terms implied by law (severance pay)
• In certain cases, public policy demands that
  notwithstanding the freedom of the parties to
  create their own contract, and to agree on its
  terms, there are certain things out of which they
  cannot contract
• Vacation pay to employees
• The obligation to tell people how much it is
  actually going to cost to borrow money (Consumer
  Protection Act Interest Act)

7
Implied Terms (contd)

• Machtinger v. HOJ Industries Ltd.
• 1992 Supreme Court of Canada
• Facts
• Two guys made contracts with the respondents.
  Both contracts referred to the fact that 0 weeks
  notice was required on termination. Basically,
  there was no notice provision. The relevant
  legislation made this illegal.
• The trial judge sought to imply a term requiring
  reasonable notice to the employees, which equaled
  14 and one-half months notice between the two.
  The Court of Appeal reversed.

8
Implied Terms (contd)

• Different types of terms (already discussed)
• Types of terms implied at law
• Necessary
• For the fair functioning of the agreement
• Not reasonable
• Express contrary agreement

9
Implied Terms (contd)

• Wood v. Lucy, Lady Duff-Gordon
• 1917 New York Court of Appeals
• Facts
• The defendant is a fashion designer, who, it
  appears, can create trends with the use of her
  very name. The plaintiff was hired by the
  defendant to negotiate deals with others to have
  the defendants name put on designs and products
  created by others.
• The plaintiff was to have the exclusive right to
  do this.

10
Implied Terms (contd)

• Wood v. Lucy, Lady Duff-Gordon (contd)
• Facts (contd)
• The problem is that the contract did not
  explicitly say that the plaintiff had to do
  anything in return for this exclusive right.
• Therefore, the defendant argued that the
  plaintiff had not granted any consideration for
  the promise of the defendant to grant the
  exclusive license to the plaintiff. Therefore,
  there is no contract.

11
Implied Terms (contd)

• Wood v. Lucy, Lady Duff-Gordon (contd)
• Facts (contd)
• A demurrer (paragraph 1) is simply the old name
  for the motion to strike out a statement of claim

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Implied Terms (contd)

• Wood v. Lucy, Lady Duff-Gordon (contd)
• Judgment
• Paragraph 2
• It is true that he does not promise in so many
  words that he will use reasonable efforts to
  place the defendants endorsements and market her
  designs. We think, however, that such a promise
  is fairly to be implied. The law has outgrown
  its primitive stage of formalism when the precise
  word was the sovereign talisman, and every slip
  was fatal. It takes a broader view today. A
  promise may be lacking and yet the whole writing
  may be instinct with an obligation, imperfectly
  expressed

13
Implied Terms (contd)

• Wood v. Lucy, Lady Duff-Gordon (contd)
• Judgment (contd)
• In other words, if the court thinks that the
  parties objectively intended that a term be
  included in the contract, then such a term will
  be implied
• Paragraph 3
• The said Otis F. Wood possesses a business
  organization adapted to the placing of such
  endorsements as the said Lucy, Lady Duff-Gordon,
  has approved.

14
Implied Terms (contd)

• Wood v. Lucy, Lady Duff-Gordon (contd)
• Judgment (contd)
• There was a promise to pay one-half of the
  revenues earned to the defendant, and to take out
  intellectual property rights in the designs
• Since the document clearly implied that the
  parties intended that the plaintiff was under an
  obligation to use his best efforts to sell the
  defendants designs to others, this term was
  implied.

15
Implied Terms (contd)

• Tobias v. Dick T. Eaton
• 1937 Manitoba Court of Kings Bench
• Facts
• This is to confirm that A.M. Tobias of Morden,
  Manitoba has the exclusive selling agency, to
  sell and organize territory and appoint his own
  agents for the John Dick Crushers, from the above
  date, April ___th, 1935 to December 31st, 1937,
  for all Manitoba, Saskatchewan and Alberta.
• John Dick reserves the right to sell in the
  district and tributary of Emerson, Manitoba, and
  for a radius of 30 miles east, West, North and
  South of the Town of Emerson, Manitoba.

16
Implied Terms (contd)

• Tobias v. Dick T. Eaton (contd)
• Facts (contd)
• The cost of the grain grinders to A.M. Tobias is
  43.00 F.O.B. Emerson. If, after making twenty
  five grinders, the cost of manufacturing said
  implement can be reduced in price. it will be
  done, and a percentage of the lower cost
  production will be placed unto A.M. Tobias.
  The above is for a 10 and one half-inch plate
  machine.
• The cost of the other styles of grinders, the 7
  or 8 inch and corn grinders has not yet been
  determined, but same percentage will be allowed.

17
Implied Terms (contd)

• Tobias v. Dick T. Eaton (contd)
• Facts (contd)
• At no time must there be more than five machines
  unpaid for, and all machines must be paid for in
  cash, unless with the consent of John Dick.

18
Implied Terms (contd)

• Tobias v. Dick T. Eaton (contd)
• Judgment
• Obtained by trickery
• No control by Dick over Tobias, and therefore,
  there was no agency
• There was an offer made by Dick to sell the
  machines to Tobias.

19
Implied Terms (contd)

• Tobias v. Dick T. Eaton (contd)
• Judgment (contd)
• This offer was accepted and the machines were
  delivered. Since Tobias has not requested any
  more machines, there is no breach, because there
  is no consideration for the promise of
  exclusivity.
• How is this different from the previous case?