I’m sure you would find it hilarious or perhaps insulting if someone told you that the business contract they were going to negotiate with you was written in invisible ink. Well, I am just about to tell you that your contracts do have some indelible writings on them made in invisible ink, and expect you not to laugh or feel insulted.

There are terms contained in the average business contract that are hidden as it were. This is one of the tons of reasons why lawyers are so important, unpleasant as that admission may be. These terms apply even when the parties to a business contract do not explicitly refer to them or express their intention to be bound by them. They exist because long - and sometimes sad and costly - experience in the interaction between law and business has shown them to be indispensable to the smooth running of things and to the avoidance of conflict. Business law calls these terms ‘implied terms’ and they are the result of both case law and statute.

Implied terms are mainly of two types. Conditions are those terms that are vital to the contract, without which the contract cannot stand. You could think of them as the ‘nervous system’ of the contract. Their breach could entitle a party to the contract to refuse to perform further obligations under the contract. Warranties on the other hand do not go to the root of the contract and their breach is of a less serious type with less significant consequences.

Where a person undertakes to sell goods and enters into a contract to that effect, there is an implied condition that such a person has the right to sell. It sounds obvious but really it isn’t. It has happened that for instance an agent no longer has the authority to act for his principal but is still trying to push a transaction. It would explain why companies take the trouble to put up all those colour photos in the dailies with captions reading: X is no longer an employee of N and as such cannot enter into any dealings on behalf of N…bla bla bla. In the event that the person purporting to sell does not have such a right, the buyer is entitled to refuse to make payment or to recover the amount already paid regardless of the reason for the lack of that right.

We’ve all heard of that not-so-funny scenario where after a purchase, the thing turns out to be everything but what it claims it is. Two related implied terms are the condition as to sale by sample and the condition as to sale by description. Goods offered for sale on the basis of a description, such as goods sold online or packaged goods, must correspond to the description given of them. In the case of those sold by sample, the bulk must be similar in quality as the sample and the buyer must have had a reasonable chance to compare the two. The presumption here is that there was a description or the goods were sold on the basis of a sample. If not, the implication of the terms does not arise. In the event that the contract of sale is based on both sample and description then the goods must conform to both and not just one or the other.

An interesting implied term is that requiring that goods sold must be of merchantable quality. The goods should be appropriate for the function for which they are usually meant. Counterfeit products of low quality are an example of goods that would fail this test. Factors that would be taken into consideration to determine merchantable quality would include the actual price paid for the goods. Obviously, a buyer who paid a pittance should not expect top-range products.

Similar to the condition as to merchantable quality but different in substance is the implied term that goods sold should be fit for the  purpose made known by the buyer either expressly or by implication. The use of the goods therefore has to be one specified by the buyer. Case law has shown that the buyer need not make reference to the use he intends either verbally or in writing, provided it can reasonably be deduced that he intended to use the goods for a particular thing and the seller was in a position to know this. In one of the landmark cases in this area for instance, the court found that milk containing typhoid germs was not fit for its purpose even though the buyer did not state that the milk was for drinking.

The observant business person will be crying out by now that these terms all point towards the protection of the consumer rather than the seller. Often, the law regards the consumer as the weaker party and therefore in need of legal protection. Consequently, it is sellers who must be keen to determine the exact extent of their obligations. There are few things more vexing than losing money for not having read between the lines.