a) Explain what constitutes express and implied terms in contract with examples.

b) Explain how a term may be implied in a contract with support of relevant case law.

Question 4

Explain the duty and obligation of an agent to principal under the Contracts Act 1950 with case law examples.

Discuss the liability of the principal against the third party in agency. 

a) Express terms in a contract-These are terms that have been discussed and mutually agreed by both parties at the time of making the contract. The terms are clearly set out the contract. The express terms are written down in the agreement if it is a written contract. If the contract is verbal, the terms are agreed upon by both parties orally.

Implied terms in a contract-These are terms that are not set out expressly in the agreement, but either of parties or both assume that they are included. The implied terms are neither written down in a written agreement or expressed verbally in an Oral contract. The parties or either of the party may have had intentions to have the terms included in the contract but failed to express it or have it included.

b) How a term may be implied in a contract

For a term to be implied, it must be reasonable and necessary to give business efficacy to the contract.

It must be a clear expression by the parties and not contradict any express term in the contract.

The intention of the parties

A term may be implied in a contract if the parties had intentions of a term to be included in the contract but did not express or they assumed that it should be in the contract.

For a term to be implied, it should not be inconsistent and should not contradict the terms set out in the agreement.

The terms may be implied in a contract for the intention of the parties to be reflected.

Courts can imply a term in a contract if it is clear from the facts that the parties intended to have the term as part of the contract.

Custom

Frequently used terms between the two parties or customarily used term can be deemed as implied terms if it is found to be necessary to do so. The terms can not be implied if there are is a clause in the agreement which may be contraindicated if the terms are implied.

By statute

A statute may imply terms. If there is a statute that describes what terms a particular contract should have, then the term can be implied. If there is an existing Act, for example, a Sale of Goods Act which imposes implied terms for the sale of goods. If the contract is for the sale of goods and the satisfactory quality of good is not expressed in the contract, the statute imposes that the term is implied in the contract.

 Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Limited and another [2015] UKSC 72.

Agent's duties and obligations to a principal

Agents owe the following duties to the principal.

Duty to act in the best interests of the principal-When acting on behalf of the principal, agents should put the interest of their principal before their own interests. There should be no conflict of interests. The decisions to act in a particular way should be guided by ensuring the interests of the principal are safeguarded. Wong Mun Wai v Wong Tham Fatt

Duty of care and diligence-The agent owes a duty of care to the principal by using his knowledge or skills that the principal wishes to perform his work with the care and skill. Keppel vs Wheler

Duty to protect confidential information. An agent should not share confidential information with anyone other than the authorized persons. It is his duty to preserve all information related to the principal. He is prohibited by law use information confidentially given or acquired for his own purposes or for purposes that may affect the interests of the principal.

Duty to avoid self dealing-When acting on behalf of the principal, the agent should not engage in profiting himself his family from the interests of the principal. The agent should not use his companies or companies associated with him to transact business for the principal for his own financial interests.

 Liability of the principal against the third party in agency

Liability by Estoppel- A principal is liable for any unauthorized actions of the agent. Suppose the principal implied to the third party that he has authorized the agent to act.

If an agent acts within his authority to act and a tort is committed, the principal is liable for the tort committed by his agent acting within the scope of his actual or apparent authority.

If the agent acts beyond his authority, the principal is bound by that part of the work within which the agent had authority. This is only possible if the work can be separated from what was acted beyond the authority of the agent. However, if the works cannot be separated, then the principal is not bound when an agent does more than what he is authorized to do.

If an agent is given notice, the principal is bound by the notice given to the agent in the course of business. Any communication from the third party through the agent binds the principal. Any information known by the agent is known by the principal as well.