Implied Terms (Contract)

Carscallen v. FRI Corp., 2005 CanLII 20815 (ON SC)

[50] Justice Anderson in Campbell v. MacMillan Bloedel Ltd., 1978 CanLII 2602 (BC SC), [1978] 2 W.W.R. 686 at pp. 690 to 691 (B.C.S.C.) observed:

In my view, it is not correct to compare the fluid relationship that exists between master and servant to other commercial contracts. The relations between master and servant are, at best, uncertain and change from time to time in accordance with circumstances and the conduct of the parties. The court, as a general rule, when called upon to interpret an ordinary commercial contract is bound to concern itself with the terms of the agreement as they are spelled out therein, and cannot go outside the four corners of the agreement. Such is not the case with an agreement made between master and servant. Such an agreement is not reduced to writing and, moreover, the terms of the bargain between the parties are determined by the conduct of the parties during the term of employment, and not by conscious negotiation and agreement between the parties. For example, the courts have held that a master cannot discharge his servant except upon reasonable notice. The courts have held that an employer cannot compel a person who has achieved senior status to revert to junior status. These are not express but implied terms. The contract is not written down. There is no certainty. There are no fixed terms. The terms of the contract may vary from day to day or from year to year…The terms of the contract are not express (or consciously spelled out by the parties), but are implied by the court, by reference to the complete history of the employer-employee relationship.

In other words, the court does not apply the principles of contract law as though in a vacuum, but reviews the history of the relations between the parties in its entirety so as to arrive at a rational solution in each particular case. The relationship of master and servant in the modern corporate world cannot be determined as though that relationship consisted of a single contract with fixed terms and conditions.

[51] In addition, in determining when the term can be implied and what terms are acceptable, Lord Simon of Grisdale in BP Refinery (Westernpoint) Pty. Ltd. v. Shire of Hastings (1997), 16 A.L.R. 363 (P.C.) stated:

Their Lordships do not think it necessary to review exhaustively the authorities on the implication of a term in a contract which the parties have not thought fit to express.  In their view, for a term to be implied, the following conditions (which may overlap) must be satisfied: (1)  it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it; (3) it must be so obvious that ‘it goes without saying’; (4) it must be capable of clear expression; (5) it must not contradict an express term of the contract.