What are implied terms in this context?
Implied terms are rules the law adds to contracts, even if you never mentioned them. They apply to contracts for selling goods, providing services, or doing both (like a building job that involves materials and labour). These rules come from two main pieces of legislation, and are similar if not identical in both:
- The Consumer Rights Act 2015 - when you’re dealing with a consumer
- The Sale of Goods Act 1979 as amended (SOGA 1979)- when you’re dealing with another business
Probably the biggest distinction is that when the contract is business to consumer, the terms implied by CRA 2015 cannot be altered or excluded, whereas when it’s business to business, these can be amended or removed by agreement between both parties.
Implied terms for goods
Here are the key ones you should know:
- Good Title
You must have the right to sell the goods. In other words, they can’t be stolen or still owned by someone else.
- Satisfactory Quality
Goods should be of a standard that a “reasonable person” would be happy with. This includes:
- Fitness for usual use.
- Nice appearance and finish.
- Free from small defects.
- Safe to use.
- Durable.
Things like price and advertising are taken into account, so if you’re selling a high-end item, higher quality is expected. Buyers also can’t complain about faults they already knew about or should have seen when inspecting the item.
- Fit for a Particular Purpose
Goods must be fit for the purpose they are sold. In addition, if a buyer tells you what they need the goods to do, and you supply something to meet that need, it must do the job.
- Match the Description, Sample or Model
If you sell goods based on a description or a sample (like something shown on the shop floor or website), the final product must match. If there are differences, you must tell the customer before the sale.
Implied terms for services
The most important rule here is that you must carry out the service with reasonable care and skill. This means you must do the job to the same standard as any other competent person in your trade. It doesn’t mean it has to be perfect, but you need to do it properly.
A recent case
A recent case looks at how the courts deal with contracts where a price was not agreed up front. It’s important to note that this was a business-to-business contract, so SOGA 1979 applied. The Court of Appeal was asked to decide whether a contract for the supply of orange juice pulp wash (OJPW) was valid, even though no price had been agreed.
The buyer and seller had a long business relationship. They agreed on the quantity and terms, but left the price “to be agreed later.” When things went wrong, the seller claimed there was no binding contract because the price wasn’t nailed down.
The court looked at Section 8 of SOGA 1979, which says:
- If no price is agreed, the buyer must pay a reasonable price.
- A “reasonable price” depends on the facts and circumstances.
The court decided:
- The parties clearly meant to form a full contract.
- They had worked this way before and had experience with flexible pricing.
- Even though OJPW pricing wasn’t crystal clear, it could still be based on known market values (about 70% of the price of frozen orange juice concentrate).
As such, the court implied a term into the contract - that if no price was agreed, the buyer must pay a reasonable market price.
For small business, this means that if you ever make a deal without setting the price, or if you agree to “sort it later”, you may very well still have a legally binding contract, and the law may step in and fill the gap by saying a reasonable price applies. However, not every arrangement to “agree later” is enforceable, and courts will only accept that a contract exists, and therefore imply terms if:
- There is an offer made by one party.
- Acceptance of that offer by the other party.
- It’s clear both sides intended to be bound, and
- Consideration (that is to say both parties are getting something specific out of the deal).
Conclusion
This case demonstrates the need to be clear in your contracts. Always agree on the price if you can, as well as any other details, such as particular specifications, timescales etc, and make sure everything is in writing. If you don’t discuss every detail, UK law fills in the blanks. As the recent orange juice case shows, courts can and will step in to save a deal from falling apart, even when the price is missing.