A CLEAR VIEW ON IMPLIED CONTRACT TERMS
One of the biggest challenges Canadian drivers face each winter is maintaining a clear view of the road ahead. Scraping windows, buying new wipers and topping up the washer fluid are all important steps we take to ensure we can see where we’re going at all times.
In a very real sense, a written contract is a lot like a car windshield. When it’s clear, a contract helps parties see where they’re going and allows them to anticipate and mitigate any risks along the way. However, just as our view of the road can become obstructed by dirt and ice on windshields, so too can the views of contracting parties become obstructed by unanticipated implied terms of the contract.
“Implied” contract terms are items that a court will assume are intended to be included in a contract as a matter of business efficiency, even though the parties have not expressly included them in the contract. Therefore, it’s critical for parties to identify and address potential implied terms so their view of the contract and their responsibilities remains clear.
Case of Cordova Housing Holdings Inc. v. Wheeldon
The recent case of Cordova Housing Holdings Inc. v. Wheeldon is a good example of this issue.
The case concerned an appeal of a Small Claims Court decision, which held Cordova (the “Developer”) liable for breaching an implied term of a contract for the sale of a condominium unit to Mr. Wheeldon (the “Purchaser”).
The Purchaser had paid a $40,000 premium for a north-facing, upper-floor unit. The unit had a balcony situated in front of the living room and bedroom windows. Most balconies had picket railings; however, a few of the balcony railings on the upper floors, including the Purchaser’s balcony, had frosted glass affixed to it. The glass was not transparent and blocked approximately one half of the Purchaser’s living room window view. The Purchaser claimed he could only see out of the upper portion of the window.
As a result, the Purchaser commenced an action against the Developer for breach of contract and the cost of replacing the frosted glass with pickets.
The Developer relied on the written contract, which included an “entire agreement clause” it said excluded any pre-contractual representation or implied terms. The crucial portion of the entire agreement clause the Developer sought to rely on stated:
Article 9 also excludes from the Contract “any representations, warranties, conditions or collateral contracts, expressed or implied, statutory or otherwise…made by the Vendor, its agents or employees or any other person on behalf of the Vendor other than those contained herein and in the Disclosure Statement only to the extent such that the representations, warranties, [or conditions if any as contained in the Disclosure Statement are] mandated by law to [form a] part hereof.
The Small Claims Court rejected the Developer’s defence and awarded the Purchaser damages equaling the cost to replace the frosted glass. The Developer appealed the finding of liability on the basis of an implied term and the award of damages.
In dismissing the Developer’s appeal, the BC Supreme Court held the following:
1. The “entire agreement clause” specifically excluded express or implied pre-contractual representations by any person connected to the Developer; however, it did not prevent an implied term from being read in as a matter of business efficacy.
2. Even though the Developer did not guarantee the Purchaser any specific view or make promises regarding the view, the Developer did not have the contractual right to significantly impair any view the Purchaser might otherwise have had.
3. The TEST for implying a term in a contract is that it must be necessary to make the contract as the actual parties intended – it must be more than just a reasonable term.
4. Implication of a term does not require finding that a party actually thought about it or expressly agreed to it.
5. In the face of clear, undisputed evidence the Purchaser intended the implied term because of the premium he paid for his elevated unit and his desire to have an unobstructed view through the window, and the lack of any evidence that the Developer’s intentions were inconsistent with such a term, it was open to the court to find that the parties intended the term that was implied as a matter of business efficacy.
Implied terms are read into a contract as a matter of business efficacy in order to make the contract as the parties intended.
It is possible to exclude the application of implied terms; however, such exclusion must be expressly set out in the contract and cover more than representations made by the parties.
If contracting parties aren’t aware of potential implied terms, their view of the actual agreement and ability to address unwritten responsibilities and risks will likely be obstructed.
This article was written by Ian Moes and Jay Spiro, lawyers who practice construction law with Kuhn LLP. This article is only intended as a guide and cannot cover every situation. It is important to get legal advice for specific situations. If you have any questions or comments about this case or other construction or commercial law matters, please contact us at 604-684-8668.