Implied term

2. Reasonable
Definition No definition in act (refer to common law) Preston Corporation Sdn Bhd v Edward Leong & Ors
Generally
Content that a court will assume are intended to be included Fact ● Appellant: a publishing co
in a contract, even though they are not expressly stated. ● Respondent: firm of printers
● Respondent claimed that the films were
Reason 1. Court are aware that many contracts are drafted in haste theirs and would only give ownership if the
with insufficient attention to detail A paid for them.
2. Public policy interest in upholding commercial contract
3. Common law principle Held to claim the existence of a trade custom entitling
4. Statutory implied terms – S.7 Hire Purchase Act 1967 the party (firm of printers) to ownership of the
film positives was unreasonable.
General may be implied if it does not contradict with the express
Principle terms in the contract. Ground
it conflicts with justice, the alleged usage is
completely unilateral thus beyond the need to
Ways term ca be implied protect the party’s business interest
Sababumi (Sandakan) Sdn Bhd v Datuk Yap Pak Leong
Peh Swee Chin FCJ:
3. Consistent with the express term
1. Terms implied by custom (see proviso e to s 92 EA 1950)
The imp of usage of assumption rest on assumption
2. Terms implied by courts
that it represents the wishes of the parties, but it must
3. Terms implied by law (CL & Statute) be excluded if otherwise stated to the contrary.
Case: Les Affreteurs Reunis Societe Anonyme v Walford
Term implied by custom
- if a custom exists, it can be implied into the contract.
Requirement 1. Certain and Notorious London Export Corp Ltd v Jubilee Coffee Roasting Co [1958]
the practice is clearly established and well know in the Lord Jenkins:
“An alleged custom can be incorporated into a contract only if
market
there is nothing in the express or necessarily implied terms of the
contract to prevent such inclusion and, further, that a custom will
Cunliffe-Owen v Teather & Greenwood only be imported into a contract where it can be so imported with
- If it is reasonable (though certain and notorious), party the tenor of the document as a whole.”
will be bound even if he is not aware of it.
- HOWEVER, if the practice is unreasonable, it cannot
constitute a usage unless party knows of it and agrees
to it
HOWEVER
De Cruz v Seafield Amalgamated Rubber Co Ltd
- HC took position, a party must be aware of a custom
or trade usage before it can bind him
2. Terms implied by courts
Sometimes the point at issue has been overlooked or the parties have failed to
express their intention clearly
Test
1. The business efficacy test
2. The officious bystander test
3. A combined test
1. The business efficacy test
The basis is that the contract is unworkable without it
The Moorcock
Fact ● D, wharfingers (pelawat) agreed to allow the Pl shipowner to
discharge his vessel at D’s jetty.
● The vessel sustained damage. The COA implied into the
contract a term that a defendant should take reasonable care to
Held implied into the contract a term that a defendant should take
reasonable care to ascertain the safety of the vessel’s berth.
2. The officious bystander test (‘Oh, of course!’)
‘is something so obvious that it goes without saying’
MacKinnon LJ in Shirlaw v Southern Foundries (1926) Ltd
“while the parties were making their bargain, an officious bystander
were to suggest some express provision for it in their agreement, they
would testily suppress him with a common, ‘Oh, of course!’.”
Yong Ung Kai v Enting [1965]
Fact ● the written agreement did not provide for obtaining a license.
● The D tried his best to get license but was unsuccessful.
Held There was an implied term that the sale of timber was to be
subject to license. It must have been in the mind of the parties
that the agreement required the obtaining of a license.
3. A combined test
Used both tests
Reigate v Union Manufacturing Company (Ramsbottom) Ltd and
Elton Cop Dyeing Company Ltd
Scrutton LJ stated :
A term can only be implied if it is necessary in the business sense to give
efficacy to the contract, that is, a term that if can confidently be said by both
parties ‘Of course, so and so will happen, we did not trouble to say it’.
Sababumi v Datuk Yap Pak Leong [1998]
Fact ● Sandakan Turd Club (the 'club') was granted a license to
operate 3D and 4D lotteries.
● On November 26, 1987, the club entered into a written
agreement with the appellant (Sababumi). The material terms
were as follows:
(a) the appellant was to buy 100 acres of land and to
construct a race course on the land at its own expense;
(b) the club in turn agreed to sublease the land and the race
course to the appellant for a period of 20 years;
(c) the appellant was given the exclusive rights to conduct
and manage all bettings on the races at the race course
and to conduct and manage all 3D and 4D lottery
operators throughout the state of Sabah; and
(d) the appellant was to pay 20% of all its gross sales
takings to the club on joint venture basis.
● In Sabah, gaming generally was prohibited under the Sabah
Gaming Ordinance but the club was exempted from this
prohibition. A license was also granted to the Club to carry
on public lotteries in the state. (‘original license’).
● 1992 – original license was cancelled and an amended
license was issued with a new condition the the license
shall not be transferable to other people.
● 1992, Pool Betting Act 1967 was enforced in Sabah
which makes a license under the Act is necessary for
gaming activities.
 ● A new license was thereafter issued to the club in
January 1995. The appellant continued to carry on
off-course betting activities after the 1995 license was
issued. However, the activities were stopped by the
police.
● The appellant then filed an originating summons, seeking
declarations that the 1995 license was within the scope of
agreement between the club and the appellant (i.e. the
1995 license was within the scope of the agreement by
way of the implied term), and that the appellant had the
exclusive right to conduct and manage all 3D and 4D
lottery operations in and throughout the state of Sabah as
intended in 1987.

Held the 1995 license could be implied into the agreement. When both
parties negotiate the agreement, they intended to give the joint
venture agreement business efficacy for 20 years. The essence of
the intention of both parties was for the club to grant an exclusive
right to the appellant to conduct betting or gaming activities on a
long-term basis and if officious bystander had asked about
possible change of law, parties who benefit would have answered
‘Of course’.
Two tests must be satisfied before a court could infer them
1. subjective in nature, and it is that such a term to be implied
must be “something so obvious that it goes without saying,
so that, if, while the parties were making their bargain, an
officious bystander were to suggest some express provisions
for it in the agreement, they would testily suppress him with
a common ‘Oh, of course’.”

2. The second test is that the implied term should be of a kind

that will give business efficacy to the transaction of the
contract of both parties.
 3. Terms implied by law
S.16 As to the quality or fitness for purpose of goods supplied
a. Through Common Law
- eg: employment contract, landlord & tenants, bankers & S.17 As to goods supplied, that they correspond to the sample where a
customers. sale of goods is by sample
- There is an implied term that the employer will provide a
safe system of work. ● As to time
Depends on the terms of the contract
b. Through Statutes
- Many specific implied terms have incorporated into statutes S 11 stipulation as to time of payment are not deemed to be of the
essence of the contract.
- eg: S 14 & 16 of the SOGA 1957
an implied condition that the vendor has the right to sell
the goods and that the goods are fit and merchantable. ● Seller’s obligation
A second-hand car is ‘reasonably fit for the purpose’ if it is S 14 implied condition as to title, quiet possession & free from
in a roadworthy condition, fit to be driven in safely, even
though not as perfect as a new car. S 15 sale by description

S 16 implied condition as to quality or fitness

Example of statute
- The Sale of Goods Act 1957 S 17 sale by sample
- The Hire-Purchase Act 1967
- National Land Code 1965
S 14(a)- implied condition as to title
an implied condition on the part of seller that in the case of a sale, he has the
a. SOGA
right to sell the goods, and that, in the case of an agreement to sell, he will
● statutory terms in SOGA
have a right to sell the goods at the time when the property is to pass.
○ goods of merchantable quality
○ seller has title to the goods Nemo Dat rule
○ goods fit for purpose Nemo dat quod non habet
Means: "no one gives what he doesn't have"
○ goods correspond to their description
It is a legal rule

● Provided the parties have not excluded or modified them Example: When a person sells the goods by infringing the copyright or
trademark of the others, he is considered as not having the right to sell the
○ S.14 to S.17 of SOGA
goods. (even though he has title to goods)

S.14 As to the title, namely the seller has the right to sell and the buyer Rowland v Divall [1923]
has the right to enjoy quiet possession and to have the goods free
from charge or encumbrances Fact ● P bought a car and after using it for some four months,
discovered that it was stolen.
S.15 As to goods supplied, then they correspond with their description ● He had to return it to the true owner..
or sample
 Held the D had breached the condition as to title and allowed the P
to recover the full price on the basis of total failure of
consideration.
Scrutton L.J
“ the buyer is entitled to recover… as the seller didi not give
that which he contracted to give, namely the legal ownership
of the car and legal right to possession of it.”
S 14(b)- implied warranty
implied warranty that the buyer shall have and enjoy quiet possession of the
goods.
Covering not only situation where a title is defective at the time of sale but
also a subsequent future disturbance of possession of the goods.
Microbeads A. G. v Vinhurst Road Markings Ltd [1975]
Fact ● The patentee, a had brought an action v the buyer alleging
the use of certain road marking machines was in breach of
their patent, two years after sale of the machines by the P
to the D. The buyer did not enjoy the future quiet
enjoyment of the goods.
Held s 14(b) is not limited to physical disturbance of the buyer’s
possession.
S 14(c)- implied warranty
Implied warranty that the goods are free from any charge or encumbrance in
favour of any TP not declared or known to the buyer before or at the time
when the contract is made.
Lloyds & Scottish Finance Ltd v Modern Cars & Caravans Ltd [1964]
Fact ● Debtor sold to caravan dealer (D).
● D resold to P.
● Later seized by the sheriff
Held Breach of implied warranties as to quiet possession and free
from encumbrance.
No breach if the encumbrance is disclosed before the contract
is entered into
S 15 SOGA- implied condition that goods correspond with description
“If you contract to sell peas, you cannot oblige a party to take beans.”
if the sale is by sample + description, the bulk must correspond not only with
the sample but also must correspond with the description.
Wallis v. Pratt, (1911­)
Fact ● contract for the sale of a quantity of the sale of seed
described as “common English Sainfoin”, the seed
supplied was of a different kind, though the defect was not
discoverable except by sowing the defect also existed in
the sample.
Held the buyer was entitled to recover damages for the breach of
contract.
Applicable in private sale as well. (individual seller)
Definition of description
Joseph Travers & Sons Ltd v Longel Ltd (1964)
Characteristic
i) unascertained future goods;
ii) Specific goods which have not been seen by buyer
iii) Specific goods which have been seen by buyer.
ii) Specific goods which have not been seen by buyer
- Goods identified upon at the time a contract of sale is made.
- Example: based on advertisement, mail order, sale from catalogue.
(may be existing or future goods)
 Varley v Whipp [1990]

Fact ● W bought a reaping machine which he had never

seen.
● V the seller described it as new the previous year and
used to cut only 50 to 60 acres
● W found the machine to be extremely old .

Held W could return the machine as it did not answer to the

description.

iii) Specific goods which have been seen by buyer

Grant v Australian Knitting Mills Ltd [1936]
- specific goods have been seen, there can still be a sale by description
- as long as it is sold not merely as the specific thing but as a thing
corresponding to a description

Beale v Taylor [1967]

Fact ● car did not correspond to the ‘description’ as

advertised
● Describe as white 1961 model w 1200 c.c.

Held it was a sale by description even though the sale was of a

particular car as seen, tried and approved.

where goods have been seen by the buyer, the sale can only be a sale by
description if
a. There is some description relating to the goods; and
b. Reliance by the buyer on such description.
(i.e. description has to be influential in the sale so as to become a
term/condition of the contract)

SLIDE 41
Exclusion of the implied terms
- S 62 – by express agreement or by previous dealings or by usage.
- Disadvantaged to the average consumers – not of equal bargaining
power.