Implied terms can be created by statute, by custom, or by the courts.

• A. By statute only
• B. By custom only
• C. By the courts only
• D. By statute, by custom, or by the courts

Answer: (D)

Implied terms arise into a contract from three main routes: statute, custom, and the courts. Statute can insert terms in particular kinds of contracts through Acts that lay down what must be included, so those terms apply regardless of the parties’ wording. Custom or usage looks to the established practices of a trade or industry; if a practice is well known and recognized, a term can be read into the contract based on that custom. The courts can also imply terms at the point of contract formation, drawing on common-law concepts to reflect what the parties would have intended or to fill gaps necessary to give the contract businesslike effect, such as through the tests of business efficacy or officious bystander, or by recognizing terms that arise in certain categories of contract.

So the statement that implied terms can be created by statute, by custom, or by the courts accurately covers the three sources. Limiting it to just one source would miss other legitimate ways terms can be read into an agreement, while the comprehensive view reflects typical practice in contract law.