Cautionary Tales: Implied Liabilities in Contractual Agreements.

When it comes to contracts, the expressly stated conditions and liabilities are the ones everyone pays attention to, they are written, negotiated, and often heavily scrutinized to minimize risk. But beyond the black-and-white terms lies another category of obligations that can be just as binding: implied liabilities. These are not spelt out in the contract, but they can be equally damaging and fully enforceable; overlooking them can lead to unexpected legal consequences. So, what exactly are implied liabilities, and why should businesses and legal professionals take them seriously?

Implied liabilities refer to conditions and obligations that are not expressly written in a contract but are still considered legally binding. They arise not from the words of the agreement or contract itself, but from external factors such as existing laws, standard industry practices, norms, case laws, or even the nature of the relationship between the parties. In essence, they are the silent conditions that the law assumes both sides intended to uphold.

Here are some main categories of implied liabilities, with examples relevant to the Nigerian business environment.

1. Implied liabilities imposed by law:

In Nigeria, certain liabilities are automatically imposed by law, irrespective of what the contract explicitly states (even where there is no contract). They are statutory conditions designed to protect the rights of the parties involved. For instance, under the Federal Competition and Consumer Protection Act, 2018 (FCCPA), there is an implied responsibility for businesses to ensure that goods and services provided to consumers are safe, fit for their intended purpose, and of satisfactory quality. If a consumer therefore purchases a product that is defective or unsafe, even if the contract does not specifically guarantee its quality or where no contract even exists, the law implies that the seller is responsible for providing goods that meet these standards. Similarly, in lease agreements, there is an implied legal duty for the landlord to ensure the property being leased is habitable, safe and fit for purpose, with basic amenities such as water, electricity, and sanitation, even if these provisions are not expressly outlined in the lease.

2. Implied liabilities from standard trade practice and custom:

In certain industries, customs or trade practices can imply specific obligations, even if they are not directly mentioned in the contract. For instance, in the construction industry, while a contract may not specifically state that a contractor must provide a certain level of workmanship, it is implied by the nature of the business that the work should be completed using reasonable care and skill and in conformity with relevant safety standards. It is also implied that the contractor must comply with all applicable laws, regulations, and building codes during the performance of the works.

In the Nigerian fintech space, and given the sensitivity of financial and personal data, there is an implied obligation to protect users’ data from unauthorized access, loss, or misuse, even if not explicitly spelled out.  Additionally, If the fintech platform is handling payments, there is an implied obligation to process transactions correctly, promptly, and credit funds accurately to the intended beneficiaries.

3. Implied Liabilities Arising from the Conduct of the Parties:

Sometimes, the actions and behavior of the parties involved in a contract can create implied liabilities. This is especially relevant where one party has consistently acted in a way that suggests certain obligations, even if the contract does not state them outright.

For instance, in the stock market, if a portfolio manager continuously trades a client’s stocks through a particular investment platform without any objections from the client and no contract to that effect, it is implied that the client has consented to the use of the platform for trading.

Additionally, if a supplier of machinery regularly provides maintenance or repair services after the sale of their equipment, even though the original contract doesn’t specify these obligations. Over time, the supplier’s continued practice of offering this service establishes an implied term that they are expected to provide maintenance or repair. If the supplier suddenly refuses to offer these services, they could be held liable as this conduct has become part of the ongoing agreement between the parties. In this case, the customer can argue that these services were implied in the contract due to the supplier’s repeated actions.

4. Implied Liabilities from the Nature of the Agreement:

Certain contracts come with inherent expectations based on the type of agreement in place. For example, in service contracts, there is often an implied term that services will be performed with reasonable competence and diligence even if the terms do not explicitly mention it (refer to the example on construction already given above), in partnership agreements for instance, partners in a business relationship have an implied duty to act in the best interests of the partnership. If one partner in Nigeria engages in activities that undermine the partnership or engages in self-dealing, they can be held liable under the implied fiduciary duty, even if the partnership agreement does not mention this responsibility.

Similarly, in a franchise agreement, even if not specifically stated, there is often an implied duty on the franchisee to maintain the brand’s reputation and standards. For example, if a franchisee in Nigeria fails to follow the brand guidelines or damages the brand’s image by offering subpar services, they could be held liable under the implied duty to uphold the brand’s integrity.

In conclusion, while express liabilities are clearly outlined in contracts, implied liabilities are just as significant and impactful even when they are not written, set out or agreed upon. Understanding and addressing these hidden obligations is crucial to preventing unforeseen legal complications.

 

Berkeley Legal is a leading full-service business law firm in Nigeria. We provide a comprehensive and sophisticated range of specialized and personalized legal services that are designed to meet the various needs of our highly diversified local and international clients.

If you want to know more about implied contracts or ensure your contracts are comprehensive and safeguard your business from unforeseen liabilities, contact Berkeley Legal at info@berkeleylp.com

The information provided in this article is for general informational purposes only and does not constitute legal advice.