Invisible Ink - Implied Terms
Mar 5, 2012
I want to buy a car. Sounds simple enough. I’ll turn up with some money, you hand me the keys and I’ll drive off. Easy. I want to buy a car. Sounds simple enough. I’ll turn up with some money. Okay, how much? You hand me the keys. But where? I’ll drive off. But what if it breaks down? What if the cheque bounces? What if the documents are forged?
It’s often the case that when two parties are looking to enter into an agreement, they record what they consider to be important. However, disagreements invariably occur because the parties haven’t considered that a particular situation might arise. This is when implied terms step in to try and fill the gaps.
There are various different forms of implied terms that can become part of the contract. The most recognised of these are those that are implied by law under the Sales of Goods Act 1979 and the Supply of Goods and Services Act 1982, but there are also terms that can be implied through a previous course of dealing or in order to give business efficacy to a contract (i.e. to make it work).
The implied terms most will be familiar with are those implied by the aforementioned Acts, such as ensuring that a product is of “satisfactory quality” and “fit for purpose”. These are in place to make sure that when you buy that nice new shiny car you’ve been saving up for, you’re protected in the event the engine falls out as you’re backing out of the drive way the next morning.
Clearly, implied terms don’t just apply to buying cars. More relevant (and probably more common) is the example of the software developer building software for a company. The parties come to an agreement (verbally, as is too often the case), the developer builds the software, gives it to the company, and the company pays for it. The software is a success and the company becomes very profitable. An offer is received to buy the company. Due diligence takes place and that all important question arises. Who owns the copyright in the software?
With copyright, if a contract doesn’t specify who owns it (or in fact, there’s no contract at all), it is implied that it is the person or company who created it, and not the person or company that commissioned the development. If that particular software is crucial to the selling company’s success, this lack of ownership is likely to have a significant impact on any buyer’s willingness to purchase the company. It could also raise issues in relation to software licences agreements the company has entered into, since these often contain warranties (or promises) relating to the licensor's ownership of the software. Then comes the difficult task of getting rid of those pound signs that have appeared in the developer's eyes...
So if you’ve contracted a software developer (whether a company or an individual) to create your great idea, but you haven’t got a written contract in place, come and talk to us!