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188 V O L . 7 5 P A R T 2 M A R C H 2 0 1 7 THE ADVOCATE The general principles for finding an implied contractual term were outlined by this Court in Canadian Pacific Hotels Ltd. v. Bank of Montreal, 1987 1 S.C.R. 711. Le Dain J., for the majority, held that terms may be implied in a contract: (1) based on custom or usage; (2) as the legal incidents of a particular class or kind of contract; or (3) based on the presumed intention of the parties where the implied term must be necessary “to give business efficacy to a contract or as otherwise meeting the ‘officious bystander’ test as a term which the parties would say, if questioned, that they had obviously assumed” (p. 775) … … As mentioned, LeDain J. stated in Canadian Pacific Hotels Ltd., supra, that a contractual term may be implied on the basis of presumed intentions of the parties where necessary to give business efficacy to the contract or where it meets the “officious bystander” test. It is unclear whether these are to be understood as two separate tests but I need not determine that here. What is important in both formulations is a focus on the intentions of the actual parties. A court, when dealing with terms implied in fact, must be careful not to slide into determining the intentions of reasonable parties. This is why the implication of the term must have a certain degree of obviousness to it, and why, if there is evidence of a contrary intention, on the part of either party, an implied term may not be found on this basis. As G.H.L. Fridman states in The Law of Contract in Canada (3rd ed. 1994), at p. 476: In determining the intention of the parties, attention must be paid to the express terms of the contract in order to see whether the suggested implication is necessary and fits in with what has clearly been agreed upon, and the precise nature of what, if anything, should be implied. SCOPE OF IMPLIED TERMS Implied terms fall within a spectrum that includes: 1. a term that is an essential element of the particular type of contract, such as: a. the covenant of quiet enjoyment in a lease; b. the covenant of non-derogation from grant; or c. reasonable notice to terminate a contract of employment; 2. a term arising from a custom of the trade or business; and 3. a term that is essential to allow other provisions in the agreement to function (a missing term). It is this category in which the most interesting issues arise. In the first category, courts have implied a variety of terms into agreements, sometimes couched as legal or equitable rules, such as:


March Pages 2017
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