Contractual terms implied by custom or trade
Following a brief interview, Mrs Bello is offered employment in the Faculty of Pharmaceutical Sciences of Benue University. She is to commence work immediately as a Senior Lecturer. Her employment package includes a car allowance and housing on the university premises, in addition to a monthly salary.
Mrs Bello negotiates to be paid annually instead. The day her full package for one year is paid, she moves into the university with her family and starts teaching in the faculty subsequently.
Six months later, a retrenchment exercise is undertaken by the university. Mrs Bello receives a letter, terminating her appointment with one month’s notice. In protest, she writes the faculty, claiming that they have no right to terminate her employment without just cause. Furthermore, she reminds them that the terms of her appointment involve the payment of an annual salary. On that premise, her employment is guaranteed for one year and not on a monthly basis, like the rest of her colleagues. In view of this, what are the legal effects of the terms of this engagement?
Contracts and transactions related to them are concluded within a society of people with social and commercial practices. These practices are, therefore, recognised and accepted as part of the contract even without the express declaration of the parties to it. The terms which may be read into a contract on the basis of the relevant practices are known as ‘implied terms’. To help a business perform effectively, some terms that are unique to that business are presumed to be part of a contract. These are terms implied by custom or trade.
This case involves the following legal issues:
1. The effect of terms implied by custom or trade.
2. Implied terms relating to employment contracts.
3. The effect of express terms in a contract which exclude implied terms.
Over a century ago, the principle of terms implied by custom was outlined by Park in the case of Hutton v. Warren: “It has long been settled, that, in commercial transactions extrinsic evidence of custom and usage is admissible to annex incidents to written contracts, in matters with respect to which they are silent. This same rule has been applied to contracts in other transactions of life, in which known usages have been established and prevailed.”
By application, a transaction between two parties may not be interpreted solely on the basis of the documented contract. Certain customs or practices that are incidental to the line of business will be presumed to be part of their contract. In the case of Mrs Bello and Benue University, there is a contract of employment. It is not sufficient to rely on the express terms of that contract for the resolution of a dispute. One must, of necessity, observe the practices associated with employment contracts. This is because the implied terms will be enforced as if they had been written expressly in the contract.
From the judicial decisions in employment cases, some practices can be observed. In Oki v. Taylor, it was established that a person who employs has the power to terminate the employment where there is no express provision for the latter. Also, from Cayme v. Allan Jones, it has become a standard rule that an employee paid on a monthly basis is entitled to one month’s notice on termination.
The contention of Mrs Bello is that the payment of an annual salary should guarantee her employment for the duration of the year. However, the case of Ahuronye v. University College, Ibadan is in contradiction of that notion. In that case, the plaintiff, who had been given a month’s notice of termination of service, brought an action against his employers for wrongful dismissal, arguing that since he was employed at an annual salary, the duration of his employment for a year was certain. The court rejected his argument and held that it must be presumed that the plaintiff was employed on the same terms as other employees within his category. In effect, when someone is engaged for an indefinite time, “it is common knowledge that neither the master nor the servant contemplates an agreement for a year certain”.
In view of the practices related to employment contracts, it safe to conclude that Benue University, being the employer, had the power to terminate the service of employment. Furthermore, the payment of an annual salary does not provide protection for the employee for the period of one year. The employer is still empowered to terminate services with a notice of one month.
However, it is important to note that a custom can only be implied when it has not been expressly or implicitly excluded by the contract. This means that a party to a contract who wishes to secure any form of protection may insist on the inclusion of the required term in the contract. An express term of contract will be effective in negating any implied term of custom or trade.
In the case of London Export Corporation, the eminent Lord Jenkins declared that “an alleged custom can be incorporated into a contract only if there is nothing in the express or necessary implied terms of the contract to prevent such inclusion and, further, a custom will only be imported into a contract where it can be so imported consistently with the tenor of the document as a whole.”
Principles and cases are drawn from Sagay: Nigerian Law of Contract