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You can use contractual agreements to ensure that parties have legal remedies available if the other party to an agreement does not uphold their obligations. Without a contract, you cannot require a party to follow up on what they initially agreed. For a contract to be legally enforceable, it must satisfy several elements. One of these elements is for the terms of the contract to be specific and unambiguous. This means there cannot be confusion or a dispute about what the parties agreed to. Indeed, parties can agree to the terms of a contract differently, whether through writing or a verbal agreement. However, a verbal agreement is sometimes a risky way to form a contract. Importantly though, a contract does not need to expressly state a term for it to be valid. This article will explain whether you should rely on implied contractual terms in New Zealand.

What Are Implied Contractual Terms?

Implied contractual terms come up in an agreement that arises because of the conduct or language of the parties. Implied terms are not expressly stated. However, they are implicit due to the party’s behaviour. There are different ways in which contractual terms can be implied. These include:

  • terms by custom;
  • terms by law; and
  • terms by fact.

Implied contractual terms can also include omissions. This is where a party doesn’t do something that causes an implied term to be suggested.

Terms by Custom

A term implied by custom is where a contractual term is implicit due to the type of contract parties are negotiating. Certain industries will have such commonplace customs that the parties will not have to discuss it as a contractual term. There are specific requirements for a term to be implied by custom. These are:

  1. the custom must be so commonplace that the parties must have known and intended for it to be part of the contract;
  2. it must be certain;
  3. it must be reasonable;
  4. there must be clear and convincing evidence of the custom; and
  5. it must not be contrary to an express term of the contract.

A term could be implied through custom even if the party was unaware of the custom. This is because there are situations in which the parties should have known that it was a custom of that particular industry. 

Terms Implied by Law

Courts can enforce certain implied terms through the law. This means they are either present in legislation or common law. It is common for a court to enforce terms that are implied by both custom and law. The legislation also allows terms to be implied so that parties are protected even if there has not been an express declaration of a particular term. law. For example, in New Zealand, whenever you buy something, the Consumer Guarantees Act protects you. This means the good must be of quality and fit for purpose. Therefore, this is an implied term whenever you buy something. As such, the seller cannot contract this term out. 

Terms Implied in Fact

The last way the court can imply a contractual term is through fact. This means you can imply a term through a matter of course, such as body language or conduct. This is contrary to terms implied through legislation or industry norms. In New Zealand, the test for whether a term can be implied via fact is determined by five criteria. The table below explains these factors.

Reasonable and equitable

This means it must be fair for both parties and must not disadvantage one party.

The term must be necessary to give effect to the contract

The courts have to determine that but for the implied term the contract would not be able to be properly performed.

The contract cannot be undertaken without the term

If the contract can be undertaken without the term, then it would not be considered implied.

The term must be obvious to both parties at the time of contract formation

If it is not obvious, it will not be implied.

The implied term cannot be contradictory to any express terms in the contract

This means that express terms take precedence over implied terms in a contract. 

Key Takeaways

Having a valid contract will save you a lot of time and money in the future if you end up having a dispute with your contracting party. For your contract to be valid, you must have met all the elements of an enforceable contract. One of these is to make sure that the terms of your agreement are unambiguous. A common dispute that occurs between parties is whether they can rely on implied terms. Indeed, parties can rely on these terms as long as they eventuate through custom, law or fact and also meet the criteria for each element. If they do not meet the criteria, then they will not be considered valid under the contract. 

If you need any legal assistance with the implied contract terms, contact LegalVision’s contract lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

What is the best way to make sure implied contractual terms are enforceable?

If you think something is a given because the contract implies it, you should always expressly state it in the contract to make sure. Even though implied contractual terms are enforceable, it is much easier to prove if it is in the contract.

Can a term still be implied by custom if the other party doesn’t usually deal in that particular industry?

If the other contracting party were not to have known that it was a custom, then it will not be held to be enforceable.

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