Section A

A software company licenses an AI algorithm to a hospital. The contract is silent on whether the software must comply with current medical data privacy regulations. A dispute arises when the software breaches these regulations. How would a court likely treat the requirement to comply with privacy regulations?

Answer options:

It would not be part of the contract because it was not expressly written.

It would be implied by custom and practice of the software industry.

It would be implied by law as a necessary incident of this type of contract.

The contract would be void ab initio for uncertainty.

How to approach this question

Consider the sources of implied terms: fact, law, and custom. Regulatory compliance is typically a matter of law.

Full Answer

C.It would be implied by law as a necessary incident of this type of contract.✓ Correct

Terms can be implied into a contract by law (either by statute or common law) regardless of the parties' intentions, often to protect one party or ensure compliance with overriding legal frameworks. In a medical context, compliance with data privacy is a legal necessity.

Common mistakes

Confusing terms implied by fact (officious bystander test) with terms implied by law.

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