Incorporation

Overview

In many cases, the entire contract terms will not be in a single document. Contracts will commonly incorporate standard terms and conditions, often drafted by the stronger commercial party to the contract. The terms of a document may be “incorporated” or brought into the contract by reference to that document in a verbal or written agreement.

Where a party seeks to rely on terms and conditions which have been referred to, it is necessary to show that they have been incorporated and form part of the agreement. The best way to secure the incorporation of written terms is to do so in a signed document which clearly refers to them.

The terms and conditions may be incorporated by the terms of an order form or another short document. For example, a ticket may refer to terms and conditions.  Terms may be incorporated by a notice in a prominent place where the contract is made. The terms incorporated may limit or disclaim liability for breaches of the contract.


Signature of Written Document

One of the best ways to incorporate terms and conditions into a contract is to ensure that the parties or party affected, signs a written document which embodies them.  Almost invariably, when a party signs a document, he is bound to its terms.

Where a person signs a document, he is almost always bound by its terms, regardless of whether he has read it or understands it. He is bound by the terms and conditions contained in the document or referred to in it, in the absence of fraud, misrepresentation or the so called “non est factum” (not my deed) defence.

The defence of non est factum is very limited.  It only applies in highly exceptional circumstances.  The defence of non est factum is only available if the person who has signed does not understand that he is signing a document of legal significance and is wholly misled or ignorant of its nature and content.

A written document may not necessarily be definitive. Fraud, misrepresentation or sharp practice may excuse the innocent party from the obligations in the signed document. In exceptional cases, there may be collateral contracts which override the written contract. The courts may find such a contract, where one party leads the other party to believe that the disputed term is not present or that it will not be enforced.


Incorporation by Reference

The terms of agreement or some of them, may be incorporated by reference. It is common for parties to refer to written standard terms and conditions. Where the written terms are expressly referred to, this will generally be enough to bring those terms and conditions into the agreement. They must be clearly identified.

A reference can be written or verbal.  Where the reference is written in a document, which the parties have signed or otherwise accepted, then the incorporation will generally be effective.  Where the reference is verbal, the matter may be more contentious.

The reference can be in writing or it may be oral. For example, in the building industry, one of the standard form RIAI construction contracts may be incorporated, even if not formally signed. It may be referenced in letters of intent. Parties may agree verbally to undertake building works and refer to the standard RIAI building contract as being applicable. The parties may act on the basis that it applies.

The courts have been prepared to hold that the arbitration clause in the RIAI agreement requiring arbitration of disputes may be incorporated verbally or by common understanding. In such cases, it is not a defence that the party the person is unaware of the terms of the agreement and/or has not read it.


Reasonable Notice of Terms

Many disputes arise where it is alleged that terms and conditions have been incorporated in a contract, in the absence of a signed document which acknowledges them. In particular, disputes have arisen where the terms and conditions purport to exclude liability in circumstances in which it would otherwise apply.

If a person enters into a contract knowing that the other party has published standard terms and conditions which normally apply, then he may be bound by them, even if he has not seen or read them. Where it can be shown from the circumstances that the party knew or should have known about the terms and that they were intended by the other party to apply to the contract, then those terms are likely to apply.

A person may be bound by terms and conditions of which he has been given reasonable notice, even if he has not signed any document, which refers to them. He is likely to be bound where he has been given a copy of the terms and conditions in previous dealings with that same party.

Many of the cases involve tickets.   If a person is aware that a ticket contains terms and conditions, he is usually bound by them, even if he has never read them or is not aware of their detailed content.


More Notice Required of Onerous Terms

Where an agreement attempts to incorporate onerous or very unusual terms, those terms must be very clearly brought to the customer’s attention. Where a term is unusual or particularly onerous, there is a greater onus on the party relying on it to bring it to the other party’s attention:

This has been described as the “red hand” rule.  Where a particular term seeks to severely limit or exclude rights, some courts have said that it should be highlighted, for example in red, given its dramatic effect. If there is a sign, attention should be directed to it. It must be clearly brought home to the person concerned.

The more onerous or unusual the term, the greater the obligation to highlight it.  The reasonableness of the clause itself will be relevant.  Where the clause is reasonable and logical from a business perspective, it will be more readily upheld.

Exemption clauses may not be given effect in certain circumstance where they purport to exclude liability for the very thing that is contracted for. If an exclusionary clause purports to exclude a wide range of liability, this should be brought to the other party’s attention in the clearest terms.


Upholding Risk Allocation

If the terms are common and reasonable, and have been consistently used in the series of past transactions, then they are likely to be given effect in business to business contract, with a lesser degree of highlighting.

Where it is known that a document which is referred to is in a place or of a type which is not generally read by those to whom it claims to apply, the courts have sometimes held that there may be an implied understanding that condition should not be unreasonable or unusual.

The more onerous or unusual the term, the greater the obligation to highlight it.  The reasonableness of the clause itself will be relevant.  Where the clause is reasonable and logical from a business perspective, it will be more readily upheld.


Tickets and Similar Documents

Generally, a person is bound by terms and conditions on a ticket received on entry into a premises, regardless of whether he has read them if he is aware of them. Rules printed on the reverse side of a ticket are generally sufficient for the purpose of incorporation in a contract. If the person knows that there is writing on the ticket, but he did not know that it contained or referred to conditions, he may be bound if he has been given reasonable notice that the writing contained conditions

If the person did not see a ticket or was not aware that it contained conditions, he may not be bound.  If he is aware that there is writing on the ticket, which may contain conditions, he is usually bound by them.   If he is aware that there is writing, but is not aware that they might contain conditions, he may be bound if the court determines that he has been given reasonable notice of them.

Tickets may incorporate terms and conditions which are set out elsewhere, such as in standard terms and conditions, provided that reasonable notice is given. Many of the cases involve travel on public transport, where the carriers’ terms and conditions limit liability.  Where there are words on the ticket drawing attention to the terms and the condition, they are likely to be incorporated into the terms of the contract and be binding.


Must be Given Pre-Contract

The requisite notice must be given before the contract is entered. In many cases, this may be demonstrated by a series of past transactions.

In some cases, notices to guests have not been incorporated in the contract because the relevant contract was entered prior to them being seen.   Where a guest had engaged to stay in a hotel and having booked in, saw a notice limiting liability in his room, the contractual liability of the hotel was not limited. The contract had been already made before the notice was seen by the guest.

Similarly, in a case involving an automatic ticket dispensing machine, it was held that the contract had been made by the time that the automatic ticket was dispensed.  The driver of the car had made the contract by taking the ticket.

In other similar cases, the courts have held that sufficient notice was given in similar circumstances, where the car-park had been used by the claimant on a number of previous occasions.


Incorporation by Course of Dealings

A term might be incorporated in the contract by a prior course of dealings. Where there has been a prior course of dealing between the parties, and the party affected is aware there were terms and conditions incorporated into past dealings, they will readily be incorporated each new contract.  They are more likely to be held to apply in the business to business contract, than in the case of occasional consumer contracts.

Where copies of terms and conditions had been given on several previous occasions, they are more likely to form part of the contract when one party makes reference to them and seeks to incorporate them, than would be the case with a one-off transaction.

There must be a course of dealing which is such as to have brought the terms and condition to the person’s attention on another occasion. For example, a ticket, invoice or receipt, containing or referring to printed conditions may have been given on multiple previous occasions. Clauses exempting liability may be incorporated by a course of dealings.


Common Industry Terms

Industry terms and conditions may be incorporated by the common understanding of the parties. This may apply where a standard contract is used in the relevant industry. In such cases, it may be the common intention and understanding of the parties that the standard industry terms and conditions apply.

The parties may have acted in previous transactions on the basis of industry terms and conditions, so the court will readily apply them once again. Terms and conditions may be applied because both parties knew that they were habitually used in a particular market or are standard within an industry.


Potentially Unfair Contract Terms

The fact that terms are incorporated does not necessarily mean that they will be valid under the Unfair Contract Terms Regulations. Exclusionary clauses in consumer contracts are potentially invalid under the rules.

The Unfair Contract Terms Regulations list as a potentially unfair term, a term which irrevocably binds the consumer to a condition which he has had no real opportunity to become acquainted with, before the conclusion of the contract.

In a business to consumer contract, it is presumed unfair if a term irrevocably binds a consumer to terms with which he had no real opportunity to become acquainted with before the conclusion of the contract.


References and Sources

Irish Textbooks and Casebooks

Clark, R. Contract Law in Ireland 8th Ed. (2016) Ch 5,6

Friel, R. The Law of Contract 2nd Ed, (2000)

McDermott, P.  Contract Law (2001) 2nd Ed (2017) Ch 8

Enright, M. Principles of Irish Contract Law (2007)

Clark and Clarke Contract Cases and Materials 4th Ed (2008)

English Textbooks and Casebooks

Poole, J. Casebook on contract law. (2014) 12th edition

Stone and Devenney, The Modern Law of Contract 10th Ed (2015)

McKendrick, Contract Law 10th Ed (2013)

Chen-Wishart, Contract Law 5th Ed (2015)

Anson, Reynell, Beatson, J., Burrows, Cartwright, Anson’s law of contract. 29th Ed (2010)

Atiyah and Smith, Atiyah’s introduction to the law of contract. 6th Ed.

Chen-Wishart, M. (2015) Contract law. 5th Ed.

Cheshire, Fifoot and Furmstons, Furmstons and Fifoot Cheshire, Fifoot and Furmston’s law of contract. OUP.

Duxbury, Robert (2011) Contract law. 2nd Ed.

Halson, Roger (2012) Contract law. 2nd Ed.

Koffman & Macdonald’s Law of Contract. 8th Ed. (2014)

O’Sullivan, Hilliard, The law of contract. 6th Ed. (2014)

Peel, and Treitel, The law of contract. 13th Ed. (2011).

Poole, J.Casebook on contract law. 12th Ed. (2014).

Poole, J.  Textbook on contract law. 12th Ed. (2014)

Richards, P Law of contract. 10th Ed. (2011)

Stone, R.  The Modern law of Contract. 10th Ed. (2013)

Treitel, G. H.  An outline of the law of contract. 6th Ed (2014).

Turner, C Unlocking contract law. 4th Ed. (2014).

Upex, R. V., Bennett, G Chuah, J, Davies, F. R. Davies on contract. 10th Ed. (2008).

UK Casebooks

Stone,Devenney, Text, Cases and Materials on Contract Law 3rd Ed (2014)

McKendrick, Contract Law Text, Cases and Materials 6th Ed (2014)

Stone, R, Devenney, J Cunnington, R Text, cases and materials on contract law. 3rd Ed (2014)

Burrows, A. S.  A Casebook on Contract. 4th Ed.

Beale, H. G., Bishop, W. D. and Furmston, M. P. Contract: cases and materials. 5th ed. (2008)

Blackstone’s Statutes on Contract, Tort & Restitution 2017 (Blackstone’s Statute Series)

UK Practitioners Texts

Chitty on Contracts 32nd Edition, 2 Volumes & Supplement (2016)

The above are not necessarily the latest edition.