Implied terms (business efficacy)

The issue arises when one side argues that a purchase agreement must contain a term nobody wrote down, The argument is then about implied terms. See what belongs in a business purchase agreement for terms an agreement can set out in writing.

How courts describe them

In Bhasin the Court observed that the three categories are sometimes blurred or even ignored in the case law. It also said that in Mitsui & Co. (Canada) Ltd. v. Royal Bank of Canada the implication of a term was necessary to give business efficacy to the agreement, because without it an option would have been a mere agreement to agree. In Wastech Services v. Greater Vancouver Sewerage and Drainage District the Court observed that, on those facts, a duty to exercise a discretion in good faith was necessary to give business efficacy to the contract, while holding that this duty is a general doctrine of contract law that need not find its source in an implied term.

What to check

• Whether the written agreement already deals with the point.
• Whether the argument rests on law, on the parties’ intention or on interpretation.
• Whether an entire agreement clause is in play. In Bhasin, the agreement’s clause stated there were no agreements, express, implied or statutory, other than those expressly set out.

This entry covers common-law decisions. Quebec is covered separately in good faith under the Civil Code of Québec.