It’s implied! Tacit contractual terms

It’s implied! Tacit contractual terms
01 Jul 2020

It is commonly believed that when entering into a contractual arrangement that the resulting relationship is to be governed by the terms as they appear in the relevant contract and those terms only. This is not entirely incorrect. With both written and oral contracts (with certain exceptions) considered valid by our courts, this appears to be a safe assumption to make.

However, what are implied or tacit terms to a contract and how do they operate?

In the case of Alfred McAlpine and Son (Pty) Ltd v Transvaal Provincial Administration 1974 (3) SA 506 (A), a tacit term was referred to as an unexpressed provision of a contract, inferred by the court from the express terms of the contract and the surrounding circumstances. The aforementioned case further referred to the common law test for determining whether a tacit term exists. Referred to as the ‘officious bystander’ test. The test poses the question as to whether the tacit term applies to an “officious bystander” – if both parties to the contract answer in the affirmative then the tacit term is deemed to apply to the parties.

However, before performing hypothetical experiments regarding the application of the test of the “officious bystander”, let us consider the types of tacit or implied terms which have been identified in a contractual arrangement.

Types of Tacit/ Implied Terms

Terms implied by trade or industry­ – These are terms which apply to a contractual relationship due to them being established practice in a particular trade. By assumption, these terms then form part of the contract.

Terms which are implied by law – These are terms which form part of a contractual arrangement by operation of law and unless specifically excluded in the contract, will automatically apply. An example of such an implied term can be seen in the case of Starways Trading v Pearl Island Trading (232/2018) [2018] ZASCA 177. The case illustrates a scenario where the parties agreed in their contract that the laws of South Africa will apply to their contractual arrangement.

Their contract was for the purchase of sugar, which was then distributed to a third party. In this matter the supplier was allowed certain discounts on the duty of sugar. Section 59 of the Competition Act states that “Whenever any duty is imposed or increased, directly or indirectly, by amendment in any manner of any Schedule to this Act, on any goods and such goods, in pursuance of a contract made before such duty or increased duty became payable, are thereafter delivered to and accepted by the purchaser, the seller of the goods may, in the absence of agreement to the contrary, recover as an addition to the contract price a sum equal to any amount paid by him by reason of the said duty or increase.

…Whenever any duty is withdrawn or decreased, directly or indirectly, by amendment in any manner of any Schedule to this Act, on any goods, and such goods in pursuance of a contract made before the withdrawal or decrease became effective are thereafter delivered to the purchaser, the purchaser of the goods may, in the absence of agreement to the contrary, if the seller has in respect of those goods had the benefit of the withdrawal or decrease, deduct from the contract price a sum equal to the said duty or decrease.

This implied that the seller of the sugar would have to reduce the price of sugar in line with the reduction that it received. The seller argued against this both in the High Court and the Supreme Court of Appeal. However, the courts found in favour of the Section 59 applying to the contractual arrangement by application of law, in both instances.

Terms Implied by the Intention of the Parties – These are terms that do not appear in the contract document or which are not expressly agreed to but, form part of the contract as a result of the intention of the parties.

Important Factors to Consider when dealing with Tacit/ Implied Terms

It is important to note that the party who alleges that a tacit term forms part of a contractual arrangement, bears the onus of proving same. Along with the ‘officious bystander’ test, another test which may be used to test the applicability or existence of a tacit term would be the ‘business efficacy’ test. This test operates by considering whether the postulated term is required for the contract to be commercially viable. If the answer is in the affirmative, then an argument can be made that the term forms part of the contract.

Be that as it may, terms implied by law and trade need not automatically apply to your contractual arrangement. These terms may be specifically excluded by the parties or contractual drafters. These exclusions should serve to sever the applicability of these terms to the contractual relationship, to the extent that they are consistent with prevailing laws and contractual principles which may apply.

Conclusion

It is of extreme importance that both contractual drafters and the parties to a contractual arrangement, make themselves aware of the possible implied or tacit terms to the relevant contract prior to commencement. It may not necessarily be the intention of one of the parties that these implied terms form part of the contract. In that instance it would be prudent to ensure that the necessary exclusion clauses are included in the agreement. No party wants to be forced to abide by an arrangement that they may never have necessarily wanted.

Contact an attorney at SchoemanLaw Inc for your contractual needs.

See also:

(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)
Raeesa Ebrahim Atkinson
Raeesa Ebrahim Atkinson

Raeesa Ebrahim Atkinson obtained her Batchelors of Law (LLB) degree from the University of the Western Cape in 2015. While at University she was a member of the Top 40...

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