Express Terms and Incorporation — SQE1 FLK1 Contract Law

A woman who runs a printing business orders a laminating machine. The supplier hands her a two-page order form at the counter, and she signs it without reading it. In small type on the second page, a clause excludes every warranty and caps the supplier's liability at the price she paid. The machine breaks down after a week. Nobody pointed the clause out to her. Is she bound by it? Yes.

Every word of it. That is the strongest rule in this topic, and it is one of only three ways a term gets into a contract. The other two are far more fragile. This is Express Terms and Incorporation, the fourth topic in Contract Law. Keep our printer in mind. We are coming back for her.

Here is the route. First, which statements are terms at all, and the four tests that decide it. Then the three routes in. Signature, reasonable notice, and course of dealing, with trade custom beside them. Then the parol evidence rule, which treats the written document as the whole agreement. And finally the collateral contract, which is how lawyers get round it.

Start with what an express term is. It is a term the parties actually stated, in writing, out loud, or a mixture of the two. Most real contracts are a mixture. So the first question is never what a term means. It is whether the statement is a term at all.

Why does that matter so much? Because it decides which door you go through. Breach of a term is a breach of contract, with contractual remedies. A statement that never became a term is a mere representation, and your remedy lies in misrepresentation instead. Same words at the counter. Different claim, different money.

The courts use four tests, and no single one is conclusive. Test one is timing. The longer the gap between the statement and the contract, the less likely it is a term. A seller told a buyer that a motorcycle was a 1942 model. He said it a week before the written contract was signed, and the contract never mentioned the year. That was a representation.

Test two is importance. If a buyer makes clear that a matter is so vital they would not contract at all without an assurance on it, the assurance is likely to be a term. A buyer of hops asked whether sulphur had been used, and said he would not even ask the price if it had. The seller said no sulphur. That was a term.

Test three is expertise. A car dealer told a buyer that a Bentley had done 20,000 miles since a replacement engine was fitted. It had done nearly 100,000. A term, said the Court of Appeal, because the dealer was a professional and was far better placed than the buyer to know the car's history.

Now turn it round. A private individual sold a car to a dealer and told him, reading off the registration document, that it was a 1948 model. It was a 1939 model. Representation only. The seller had no special knowledge, and the buyer was a motor dealer, better placed to check. So, the same statement about a car's age. Term, or representation? It depends on who is speaking.

Test four is whether the statement was reduced to writing. Left out of the written contract, and it points away from a term. Written into it, and it is almost certainly one. Notice that the motorcycle failed on this test too.

Commercial contracts often add an entire agreement clause, stating that the written document contains all the terms and supersedes every prior negotiation, representation and agreement. Courts generally uphold them.

That answers the first question. Now the second. How do terms get into the contract at all? Route one is signature, and it is the strongest. Back to our printer at the counter. The leading case is L'Estrange v Graucob. A cafe owner bought a cigarette vending machine and signed a sales agreement without reading it. It excluded all warranties. She was bound.

The court put the rule in a single line. In the absence of fraud or misrepresentation, the party signing it is bound. Listen to what that does not say. It does not say the terms must be fair, or prominent, or explained to you. You signed. You are bound.

There are two ways out, and both are narrow. The first is non est factum, which means this is not my deed. The signer must show two things. That the document was fundamentally different from the one they believed they were signing, and that they were not careless in signing it. An elderly woman once signed a document she had not read, and the plea still failed.

Carelessness usually kills it. An aunt signs a legal charge over her house because her nephew tells her it is an authority to deal with her savings account. She can read. She has her glasses. She signs where he points, without looking. Bound.

The second way out is a misrepresentation about what the document does. In Curtis v Chemical Cleaning, a customer took a wedding dress to be cleaned and was asked to sign a receipt. She asked what the clause meant. She was told it only excluded damage to beads and sequins. In fact it excluded all liability.

The dress came back stained, and the cleaner could not rely on the clause. So, back to our printer. Had she asked what her clause meant, and been told something untrue, her answer changes. She signed, and she is not bound.

Nothing signed? Then the terms have to get in by reasonable notice, and there are three requirements. Timing, the kind of document, and sufficiency. Timing first, and it is one of the examiners’ favourites. Terms cannot be added after the contract has been made. Anything arriving late has no contractual effect, unless the other side agrees to vary the deal.

Olley v Marlborough Court Hotel is the picture to keep. A guest booked in at the reception desk. Up in her room, a notice on the wall excluded the hotel's liability for lost property. Her fur coat was stolen through the hotel's negligence. The Court of Appeal held the clause was not incorporated. The contract was made at the desk. The notice was upstairs, and upstairs was too late.

Machines make it sharper. In Thornton v Shoe Lane Parking a motorist drove into an automatic car park. A machine at the entrance issued a ticket referring to conditions displayed inside, and those conditions excluded liability for personal injury. He was injured through the car park's negligence. Lord Denning held the contract was formed when he put his money in. The machine made the offer. The coins accepted it.

That reasoning has not aged. Wherever the contract is completed by a mechanical act, inserting a card, clicking accept, the terms must be in front of the customer before that act. Hold that thought. A gym membership is coming back at the quick check.

Requirement two. The terms must sit in a document a reasonable person would expect to contain terms. A ticket, an order form, a booking confirmation, yes. A mere receipt, no. In Chapelton v Barry Urban District Council a ticket taken from a pile of deckchairs was held to be a receipt for the money. The exclusion clause printed on it was never part of the hire.

Requirement three is sufficiency, and the test is objective. Did the party relying on the term take reasonable steps to bring it to the other's attention? Whether that person actually read it is beside the point. In the old railway cloakroom case the front of the ticket said, see back, and the back limited liability to £10. The question was never whether the passenger looked.

But sufficiency is a sliding scale, and this is where marks are won. The more onerous or unusual the clause, the more notice it needs. Lord Denning's image was a clause so unusual that it would need a red hand pointing to it before the notice could be enough.

In Interfoto v Stiletto a picture library lent 47 transparencies on a condition charging £5 per day for each one returned late. Fourteen days overdue produced a bill of £3,783.50. The Court of Appeal held the clause was not incorporated. It was unreasonably onerous, and nothing had been done to draw it to the borrower's attention.

Route three is course of dealing, and it is the weakest. If two parties have contracted regularly and consistently on the same terms, those terms can come into a new contract even where nothing is said this time. In one case the parties had dealt with each other for years, and the document carrying the exclusion clause arrived only after that particular deal was done. Incorporated anyway.

Now the limit. A man had his car repaired at the same garage three or four times over five years, signing an exclusion form on some of those visits. Not enough, said the Court of Appeal. Too infrequent to be a pattern. So try one. Four visits to a framing workshop in six years, a docket signed on three of them, nothing signed today. Incorporated? No. Too sparse, and not consistent.

There is a fourth way in, and it is narrower. Trade custom. Where a custom is reasonable, certain and well known in a trade, its standard conditions can bind. Two plant hire companies agreed an urgent hire by telephone, said nothing about terms, and the trade's model conditions governed the hire anyway.

Last piece. The parol evidence rule. Where a contract has been reduced to writing, outside evidence is not admissible to add to, vary or contradict what the document says. The logic is simple. If the parties wrote it down, the writing is the whole bargain. Then the Law Commission looked at the rule in 1986.

It is not a true rule of law. It is a presumption that the document was meant to be the complete record, and the presumption can be rebutted. The exceptions have hollowed it out. Collateral contracts. Rectification. Estoppel. Contracts never meant to be wholly in writing. Custom. And evidence that the contract never came into force at all.

The exception you will meet most is the collateral contract. A separate, subsidiary contract sitting alongside the main one, which lets a party enforce an oral promise the written contract left out. A tenant was asked to sign a lease with a covenant to use the premises for business only. The landlord assured him he could go on sleeping there, as he always had. He signed on that assurance.

That assurance was a collateral contract. What makes one? A clear promise, not an opinion. An intention that it be binding and induce the main contract. Reliance on it. And consideration, which is simply the act of entering the main contract. There is a fifth requirement, and it is a hard limit. A collateral contract cannot directly contradict an express term of the main contract.

Promise a distributor the whole country, then sign it up on a non-exclusive basis for one region, and the promise dies. Qualify how a written term will be operated and it lives. That line is not always an obvious one to draw.

A word on how SQE1 tests this. You will not be asked to recall a case name or a law report citation. You get a scenario, five answers, and one instruction. Pick the best. So learn the rules and the reasons. The names in this episode are memory pegs, nothing more.

If you keep only three pegs, keep these. L'Estrange v Graucob, where a signature binds you to terms you never read. Olley v Marlborough Court Hotel, where a notice one floor too late is no notice at all. And Interfoto v Stiletto, where an onerous clause in ordinary type was never incorporated, because nobody pointed a red hand at it.

Four traps. One. An entire agreement clause does not kill a misrepresentation claim. It settles what the terms are. To exclude liability for what was said before signature, the clause must say so, and it must pass the reasonableness test in s.3 of the Misrepresentation Act 1967. Saying this is the entire agreement is not the same as saying there is no liability for representations.

Two. Do not reach for the red hand rule where the document has been signed. Extra notice for onerous or unusual terms belongs to unsigned documents. Signature displaces it, and small print, no explanation and a harsh clause are all beside the point. Three. On expertise, ask who is speaking, not who is buying.

A professional making the statement points to a term. A private seller talking to a professional points to a representation. And four. Incorporation comes first. Only once a clause is in the contract do you ask whether it survives the Unfair Contract Terms Act 1977 or the Consumer Rights Act 2015. Answer the incorporation question before you reach for a statute.

Quick check, and here is that gym. A man pays at the reception desk for a month's membership and signs nothing. A notice on the changing room wall, which members reach only after passing reception, says the gym accepts no liability for property left in the lockers. He reads it on his first visit. Three weeks later his watch is taken from a locker, after a staff member leaves a master key in the door.

Can the gym rely on the notice? Three candidate answers. One. Yes, because he read the notice himself, weeks before the watch was taken. Two. Yes, because a notice displayed where every member must pass it gives reasonable notice of its terms. Three. No, because the contract was already made at reception, before he could have seen the notice. Pause here if you want a moment.

The answer is three. Terms come in by notice only if the notice is given before or at the time the contract is made. His membership was complete when he paid at reception, so the changing room wall came too late. That is Olley v Marlborough Court Hotel again, one hotel bedroom swapped for a changing room.

Why the others fail. Reading a notice afterwards cannot incorporate it backwards, and nothing suggests he agreed to vary his membership. Option two mistakes prominence for timing. However well displayed a notice is, it stands inside the premises, and that is after the desk.

Five things to take away. One. Whether a statement is a term turns on four tests. Timing, importance, expertise, and whether it was written down. Two. Our printer is bound, because she signed, and a signature carries every term with it. Only non est factum or a misrepresentation about the document gets her out.

Three. Notice must come before or at the moment of contracting. It must sit in a document a reasonable person would expect to hold terms, and be enough for the particular term. Onerous means a red hand. Four. Course of dealing needs dealings that are regular and consistent. Trade custom needs both parties inside the trade.

Five. The parol evidence rule is a presumption, not an iron rule, and the collateral contract is how you get round it. Next time, Implied Terms and Exemption Clauses.

Practise this topic with exam-style questions at sqe1prep.co.uk. This episode is for education and exam revision only, not legal advice, and we are not affiliated with or endorsed by the SRA or Kaplan.