Once a contract has been formed, the next question is: what did the parties actually agree to? Express terms are the terms the parties have explicitly stated - whether in writing, orally, or a combination of both. This topic covers how we identify which statements become contractual terms, and how those terms get incorporated into the contract.
This is a crucial area for SQE1 because disputes often turn on whether a particular statement was a binding term or merely a pre-contractual representation. The distinction matters enormously: breach of a term gives rise to contractual remedies, while a mere representation only gives rise to remedies in misrepresentation.
Examiners love testing three things in this area: (1) the distinction between terms and representations using the four key tests, (2) the rules on incorporation - especially timing and the 'red hand' rule, and (3) exceptions to the parol evidence rule. Know the key cases for each and you will be well prepared.
Express terms can be written, oral, or partly written and partly oral. A written contract will contain terms set out in the document itself. An oral contract relies on what the parties said to each other. Many contracts in practice are a mixture - some terms are written down, while others were agreed verbally during negotiations.
Commercial contracts often include an 'entire agreement clause' which states that the written document contains all the terms of the agreement and supersedes any prior negotiations, representations, or agreements. These clauses aim to prevent a party from arguing that additional oral terms form part of the contract. While courts generally uphold entire agreement clauses, they do not necessarily prevent claims in misrepresentation (Axa Sun Life Services plc v Campbell Martin Ltd [2011]).
An entire agreement clause does NOT automatically exclude liability for misrepresentation. To exclude liability for misrepresentation, the clause must satisfy the reasonableness test under s.3 of the Misrepresentation Act 1967. A clause that merely says 'this is the entire agreement' is not the same as one that says 'no liability for pre-contractual representations'.
During negotiations, parties make many statements. Not all of these become contractual terms. A representation is a pre-contractual statement that induces the other party to enter the contract but does not itself become a term. The courts have developed several tests to distinguish terms from mere representations. No single test is conclusive - the court considers all the circumstances.
The longer the gap between the statement being made and the contract being concluded, the less likely the statement is to be a term. If a statement is made long before the contract is finalised, it is more likely to be a mere representation.
The seller of a motorcycle told the buyer it was a 1942 model. This statement was made a week before the written contract was signed, and the written contract made no mention of the year. The Court of Appeal held the statement about the year was a representation, not a term - the time gap and the fact it was not included in the written contract both pointed away from it being a term.
If the claimant made clear that the statement was of such importance that they would not have entered the contract without it, the statement is likely to be a term. The key question is: would the claimant have contracted without this assurance?
A buyer of hops asked whether sulphur had been used in their cultivation, saying he would not even bother to ask the price if sulphur had been used. The seller assured him no sulphur had been used, but this turned out to be false. The court held this was a term of the contract, not merely a representation - the buyer had made it absolutely clear that this was a vital matter that went to the root of the contract.
If the person making the statement has greater expertise or knowledge than the other party, the statement is more likely to be a term. If the maker has no special knowledge and the other party is in an equal or better position to verify the statement, it is more likely to be a representation.
A car dealer told a buyer that a Bentley had done only 20,000 miles since a replacement engine was fitted. This was false - it had done nearly 100,000 miles. The Court of Appeal held the statement was a contractual term. The dealer was in a position of special knowledge as a professional car dealer and was better placed than the buyer to know the car's history.
A private individual sold a car to a dealer, stating (based on the registration document) that it was a 1948 model. It was actually a 1939 model. The Court of Appeal held this was a mere representation, not a term. The seller was a private individual with no special knowledge of cars, while the buyer was a professional car dealer who was in a better position to check the car's true age.
These two cases are frequently examined together. The key distinction is WHO has the special knowledge. Professional dealer making the statement = term (Dick Bentley). Private individual making the statement to a professional dealer = representation (Oscar Chess). Always identify which party has the expertise.
If a statement made during negotiations is not subsequently included in a written contract, this suggests it was not intended to be a term. Conversely, if a statement is written into the contract, it is almost certainly a term. This links to the Routledge v McKay principle - the omission from the written document was significant.
| Test | Points Towards Term | Points Towards Representation | Key Case |
|---|---|---|---|
| Timing | Statement made at or near time of contract | Long gap between statement and contract | Routledge v McKay |
| Importance | Claimant made clear they would not contract without the assurance | Statement was not presented as vital | Bannerman v White |
| Special knowledge | Maker has greater expertise than other party | Maker has no special knowledge; other party better placed to check | Dick Bentley v Harold Smith; Oscar Chess v Williams |
| Reduced to writing | Statement included in written document | Statement omitted from written document | Routledge v McKay |
The fundamental rule is that when a person signs a contractual document, they are bound by all its terms, whether or not they have read them. In L'Estrange v Graucob, a cafe owner bought a cigarette vending machine and signed a sales agreement without reading it. The agreement contained a clause excluding all warranties. The court held she was bound by the exclusion clause because she had signed the document. Scrutton LJ stated: 'When a document containing contractual terms is signed, then, in the absence of fraud or misrepresentation, the party signing it is bound.'
The L'Estrange v Graucob rule is harsh but clear. It does not matter that the terms are onerous, unusual, or buried in small print. If you sign, you are bound. This makes it the strongest method of incorporation. However, there are two important exceptions: non est factum and misrepresentation.
Non est factum ('this is not my deed') is a plea that the document signed is fundamentally different from what the signer believed it to be. It is very difficult to establish. The signer must show: (1) the document was fundamentally or radically different from what they believed they were signing, and (2) they were not careless in signing it. In Saunders v Anglia Building Society [1971], the House of Lords held that the plea failed because, although the elderly lady had signed a document she had not read, the document was not fundamentally different in character from what she intended. The defence is rarely successful.
If a party is induced to sign by a misrepresentation about the effect of the document, the signature rule does not apply. In Curtis, a customer took a wedding dress to be cleaned and was asked to sign a receipt containing an exclusion clause. She asked what the clause meant and was told it only excluded liability for damage to beads and sequins. In fact, it excluded all liability for damage. When the dress was stained, the cleaner could not rely on the clause because their misrepresentation about its scope meant it was not properly incorporated.
Where a contract is not signed, terms can still be incorporated if reasonable notice of them has been given. This commonly arises with ticket cases, standard form contracts, and notices displayed at business premises. Three key requirements must be satisfied: the notice must be given in a contractual document, it must be given before or at the time of contracting, and it must be sufficient to bring the terms to the other party's attention.
Terms cannot be incorporated after the contract has already been formed. Any attempt to introduce new terms after formation is too late and has no contractual effect unless the other party agrees to a variation.
A guest booked into a hotel at the reception desk. Inside her room, a notice on the wall excluded the hotel's liability for lost property. Her fur coat was stolen due to the hotel's negligence. The Court of Appeal held the exclusion clause was not incorporated. The contract was formed at the reception desk, but the notice was only seen when the guest reached her room - this was too late. The clause had not been brought to her attention at or before the time of contracting.
A motorist drove into an automatic car park. At the entrance, a machine dispensed a ticket which referred to conditions displayed inside the car park. These conditions excluded liability for personal injury. The motorist was injured due to the car park's negligence. Lord Denning held the contract was formed when the motorist put his money into the machine. The terms on the ticket and displayed inside came too late - the 'offer' was made by the machine and 'accepted' by inserting money. Any conditions had to be brought to attention before that moment.
Thornton v Shoe Lane Parking is important for SQE1. With automatic machines, the contract is formed at the moment of the mechanical act (inserting money, clicking 'accept'). There is no human interaction to provide notice. Any terms must therefore be displayed prominently BEFORE the customer commits to the transaction.
The terms must be contained in or referred to in a document that a reasonable person would expect to contain contractual terms. A ticket, order form, or booking confirmation can be a contractual document. However, a mere receipt or voucher that a reasonable person would not expect to contain terms is not sufficient. In Chapelton v Barry UDC [1940], a ticket from a pile of deckchairs was held to be a mere receipt, not a contractual document, so the exclusion clause printed on it was not incorporated.
The party seeking to rely on the terms must have taken reasonable steps to bring them to the other party's attention. The question is not whether the other party actually read or understood the terms, but whether reasonable steps were taken to give notice.
A passenger deposited a bag in a railway cloakroom and received a ticket. The front of the ticket said 'See back'. The back contained a clause limiting liability to £10. The bag was lost and was worth more than £10. The Court of Appeal held the question was whether the railway had done what was reasonably sufficient to give notice of the condition. It did not matter whether the passenger had actually read it - what mattered was whether reasonable notice had been given.
Where a clause is particularly onerous or unusual, a higher degree of notice is required to incorporate it. In Interfoto, a photographic library lent transparencies subject to a condition that a fee of £5 per day per transparency would be charged for late return. This resulted in a charge of £3,783.50 for 47 transparencies kept 14 days overdue. The Court of Appeal held the clause was not incorporated because it was unreasonably onerous and Interfoto had not taken sufficient steps to draw it to the borrower's attention.
Denning LJ's 'red hand' principle (from Spurling v Bradshaw) states that some clauses are so unusual that they would need a 'red hand pointing to it' before the notice could be held to be sufficient. The Interfoto case applied this principle. For SQE1, remember: standard and expected clauses need only ordinary notice; particularly harsh or unusual clauses require a much higher degree of notice to be incorporated.
| Case | Issue | Outcome |
|---|---|---|
| Olley v Marlborough Court [1949] | Notice in hotel room - after contract formed at reception | Not incorporated - too late |
| Thornton v Shoe Lane Parking [1971] | Terms on ticket from automatic machine | Not incorporated - contract formed when money inserted |
| Chapelton v Barry UDC [1940] | Exclusion clause on deckchair receipt | Not incorporated - receipt not a contractual document |
| Parker v South Eastern Railway [1877] | Limitation clause on back of cloakroom ticket | Test: were reasonable steps taken to give notice? |
| Interfoto v Stiletto [1989] | Unusually onerous late return fee | Not incorporated - onerous clause needed greater notice |
Even where there is no signature and no specific notice of terms for a particular transaction, terms can be incorporated by a previous course of dealing between the parties. If the parties have regularly contracted on the same terms in the past, those terms may be incorporated into a new contract even if no specific reference is made to them on this occasion.
The parties had dealt with each other over many years. On each previous occasion, the claimant had received a document containing an exclusion clause. On this occasion, the clause was held to be incorporated by the course of dealing even though the claimant had not received the document containing the clause until after the contract for this particular transaction had been formed. The regularity and consistency of the previous dealings were sufficient.
The claimant had had his car repaired at the garage three or four times over a period of five years, and on some of those occasions had signed a form containing an exclusion clause. The Court of Appeal held that three or four transactions over five years was NOT sufficient to amount to a regular and consistent course of dealing. The dealings were too infrequent to establish a pattern from which incorporation could be inferred.
Terms may also be incorporated by trade custom or usage. If there is a well-known custom in a particular trade that contracts are made on certain terms, those terms may be incorporated even if not expressly agreed. The custom must be reasonable, certain, and well-known in the trade. In British Crane Hire v Ipswich Plant Hire [1975], both parties were in the plant hire business and the Court of Appeal held that the industry's standard conditions were incorporated by common trade usage, even though they had not been specifically agreed for this transaction.
The parol evidence rule states that where a contract has been reduced to writing, extrinsic (outside) evidence is not admissible to add to, vary, or contradict the written terms. In other words, if the parties have written their agreement down, you cannot look beyond that document to find additional terms. The rationale is that the written document represents the parties' final and complete agreement.
The Law Commission (Report No. 154, 1986) concluded that the parol evidence rule is not a true rule of law but rather a presumption that a written document was intended to be the complete record of the contract. This presumption can be rebutted by evidence showing the parties did not intend the document to contain all the terms. In practice, the numerous exceptions have significantly weakened the rule.
For SQE1, remember that while the parol evidence rule sounds absolute, it has been heavily qualified by exceptions. The most important exception for exam purposes is the collateral contract. Also note that an entire agreement clause strengthens the parol evidence rule by expressly stating the document contains the whole agreement, making it harder (though not impossible) to rely on extrinsic evidence.
A collateral contract is a separate, subsidiary contract that exists alongside the main contract. It allows a party to enforce an oral promise that was made before or at the time of the main contract, even where the main contract is in writing and does not include that promise. The collateral contract is a key device for circumventing the parol evidence rule.
A tenant was asked to sign a new lease which contained a covenant to use the premises for business purposes only. The landlord orally assured the tenant that he could continue to sleep on the premises as he had always done. The tenant signed the lease in reliance on this assurance. The court held that the oral assurance constituted a collateral contract. The landlord could not enforce the 'business only' covenant because the tenant had entered the lease on the basis of the collateral promise.
The consideration for the collateral contract is the act of entering into the main contract. So if A says 'I promise X' and B enters the main contract in reliance on that promise, B's entry into the main contract is the consideration for A's collateral promise. This is a commonly tested point.
A collateral contract cannot directly contradict an express term of the main contract. It can, however, add to the main contract or qualify how a term is exercised. The line between 'adding to' and 'contradicting' is not always clear, but a collateral promise that flatly negates a written term will not be upheld.
| Method | Key Principle | Strength | Key Cases |
|---|---|---|---|
| Signature | Bound by all terms in signed document | Strongest - no need to show notice | L'Estrange v Graucob; Curtis v Chemical Cleaning |
| Reasonable notice | Reasonable steps to bring terms to attention | Moderate - must satisfy timing, document, and sufficiency tests | Parker v SE Railway; Interfoto v Stiletto; Thornton v Shoe Lane |
| Course of dealing | Regular consistent past dealings on same terms | Weakest - requires established pattern | Spurling v Bradshaw; Hollier v Rambler Motors |
| Trade custom | Well-known custom in the relevant trade | Limited to commercial contexts | British Crane Hire v Ipswich Plant Hire |
For SQE1 scenarios: (1) Always check if the document was signed first - if yes, apply L'Estrange. (2) If unsigned, work through the reasonable notice requirements methodically. (3) Remember that the parol evidence rule has so many exceptions it is almost more exception than rule. (4) Collateral contracts require clear promise + reliance + consideration (entering the main contract). (5) Always identify the KEY case for the principle you are applying.