Contents of a contract - Express terms

Learning Outcomes

This article examines express terms within contracts. You should be able to identify express terms and distinguish them from implied terms, and to differentiate contractual terms from pre-contractual representations. You will understand the principal ways express terms are incorporated into contracts, including by signature, notice, and course of dealing, and the importance of timing and whether a document is one that reasonably contains terms. You will also learn the key principles courts apply when interpreting express terms, including the objective approach, the role of commercial common sense, and limits on using negotiations or subsequent conduct. Finally, you will understand the parol evidence rule, its main exceptions (including collateral contracts and rectification), and the function and limits of entire agreement clauses. This knowledge is necessary for answering SQE1 questions on contract formation and content.

SQE1 Syllabus

For SQE1, you are required to understand how express terms become part of a contract and how their meaning is determined, with a focus on the following syllabus points:

• Identifying statements intended to be express terms and distinguishing them from representations.
• The methods by which terms are incorporated into contracts (signature, notice, course of dealing).
• The requirement that any notice be timely and contained in a document that reasonably appears contractual.
• The requirement for reasonable notice, especially for onerous or unusual terms (including the heightened “red hand” approach).
• The objective approach to interpreting contractual terms, and the balance between literal meaning and commercial context.
• The application and exceptions to the parol evidence rule, including collateral contracts and rectification.
• The purpose and effect of entire agreement clauses, and how misrepresentation exclusions are controlled.
• The relevance of a regular and consistent course of dealing, and awareness of the “battle of the forms” where each party proffers its standard terms.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which principle generally prevents a party from denying they are bound by terms in a document they signed, even if unread?
   1. The objective interpretation rule.
   2. The parol evidence rule.
   3. The rule in L'Estrange v Graucob.
   4. Incorporation by notice.
2. To incorporate an onerous or unusual term by notice, the party seeking to rely on it must:
   1. Prove the other party actually read the term.
   2. Have taken greater steps to bring it to the other party's attention.
   3. Ensure the term is printed in bold type.
   4. Mention the term specifically in oral negotiations.
3. What is the primary effect of the parol evidence rule?
   1. It prevents oral evidence contradicting a written agreement.
   2. It allows oral evidence to clarify ambiguous written terms.
   3. It requires all contract terms to be in writing.
   4. It gives priority to written terms over oral statements.
4. Which of the following is a recognised exception to the parol evidence rule?
   1. Where the written agreement is too long.
   2. Where one party subjectively misunderstood a term.
   3. Where the written agreement does not reflect the whole agreement (e.g., existence of a collateral contract).
   4. Where a party regrets entering into the contract.

Introduction

Contracts are formed by the agreement of the parties, and the substance of that agreement is found in its terms. Contractual terms can be express or implied. Express terms are those specifically agreed by the parties, whether orally or in writing. They define the core obligations and rights under the contract. Implied terms are not explicitly stated but are read into the contract by the courts or by statute. This article focuses on express terms: how they become part of the contract (incorporation) and how their meaning is determined (interpretation). The classification of express terms as conditions, warranties or innominate terms affects the remedies for breach, but that classification sits downstream of identifying which express terms bind the parties. Understanding these principles is fundamental for analysing any contractual scenario.

Key Term: Express Term
A term of the contract that has been specifically agreed between the parties, either orally or in writing.

INCORPORATION OF EXPRESS TERMS

For an express term to be binding, it must be incorporated into the contract. The main ways incorporation occurs are through signature, reasonable notice, or a consistent course of dealing between the parties. In some commercial settings, courts may also infer incorporation of well-known industry standard terms where there is clear common knowledge and usage between the parties, but the core methods remain signature, notice, and course of dealing.

Incorporation by Signature

The general rule is that a party who signs a contractual document is bound by its terms, regardless of whether they have read or understood them. This principle was established in L'Estrange v F Graucob Ltd [1934] 2 KB 394.

Key Term: Incorporation by Signature
The principle that signing a document which contains contractual terms normally binds the signatory to those terms, even if they have not read them.

A signature is powerful because it evidences assent. There are limited exceptions to this rule:

• Fraud or misrepresentation as to the contents or effect of the document. If the signatory is induced to sign by a misstatement about what the clause does, the clause may not bind. In Curtis v Chemical Cleaning and Dyeing Co Ltd [1951] 1 KB 805, an exclusion clause was not effective where the clerk falsely said it only covered damage to beads and sequins.
• Non est factum (it is not my deed). This rare defence applies where, through no fault of the signatory and in a radical way, the signed document is fundamentally different from what they thought they were signing. Courts strictly limit this defence; mere failure to read or negligence by the signatory is not enough.
• The document is not contractual in nature. A signature on a document that is not one a reasonable person would expect to contain terms (e.g., a mere receipt acknowledging payment) will not incorporate terms.

These exceptions reflect a broader policy balance: signature promotes certainty, but the law will not enforce terms obtained by deception or where the document is not of a kind that reasonably contains contractual terms.

Worked Example 1.1

Ahmed signs a detailed gym membership agreement without reading the small print on the back, which includes a clause limiting the gym's liability for property damage. His locker is later broken into due to faulty locking mechanisms. Can Ahmed argue he is not bound by the limitation clause because he didn't read it?

Answer:
No. Following the rule in L'Estrange v Graucob, Ahmed's signature binds him to all the terms in the agreement, including the limitation clause, provided there was no misrepresentation about its effect. The fact he did not read it is irrelevant.

Worked Example 1.2

Meena, whose eyesight is very poor, signs a document handed to her at a community event. She believes it is a volunteer sign-in sheet, but it is in fact a hire agreement with a broad exclusion clause. She did not ask for the document to be read to her or explained. Later, she seeks to avoid the clause, alleging non est factum.

Answer:
Unlikely to succeed. Non est factum applies only where, through no fault of the signatory, there is a radical difference between what was signed and what was reasonably believed to be signed. Courts expect reasonable care, such as asking for assistance if vision is impaired. Absent deception or misrepresentation, the defence is rarely available.

Incorporation by Notice

Where a contract is not signed (or terms are contained in a separate unsigned document like a ticket or notice), terms can be incorporated if reasonable steps were taken to bring them to the other party's attention before or at the time the contract was formed.

The notice must be:

1. Timely: Given before or at the time of contracting. If the notice arrives after the contract is formed, the term will not be incorporated. Olley v Marlborough Court Ltd [1949] 1 KB 532 is the classic illustration: a notice in the bedroom could not be incorporated into the hotel contract made at reception.
2. In a contractual document: The document containing the terms must be one that would reasonably be expected to contain contractual terms. Tickets or delivery notes often function as receipts, not contractual instruments. In Chapelton v Barry UDC [1940] 1 KB 532, a deckchair ticket was treated as a mere receipt and its conditions were not incorporated.
3. Reasonable: Sufficient steps must have been taken to bring the terms to the notice of the other party. What is reasonable depends on the circumstances, including the nature of the venue, the method of communication, and the prominence and legibility of the wording. Parker v South Eastern Railway Co (1877) 2 CPD 416 confirms that reasonable notice suffices even if the other party did not in fact read the terms.

It follows that particularly onerous or unusual terms demand more striking notice. The more burdensome or unexpected the term, the greater the effort required to bring it fairly to the other party’s attention.

Key Term: Incorporation by Notice
Making terms part of a contract by taking reasonable steps to bring them to the attention of the other party before or at the time the contract is made.

Onerous or Unusual Terms

If a term is particularly onerous or unusual, a higher degree of notice is required. The party seeking to rely on it must take extra steps to ensure it is fairly brought to the attention of the other party. Simply including it in standard conditions may not be sufficient.

This principle is sometimes called the “red hand” approach (from judicial commentary suggesting such clauses might need to be printed in red ink with a red hand pointing to them). The core idea is that fairness requires more conspicuous notice for weighty terms.

Key Term: Onerous or Unusual Term
A contractual term that is particularly burdensome, harsh, or uncommon in the type of contract in question, requiring clearer notice for incorporation.

In Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] QB 433, a hefty daily holding fee for overdue photo transparencies was deemed onerous and not incorporated because it was buried in standard conditions without special attention being drawn to it.

The timing of notice also matters with automatic transactions. In Thornton v Shoe Lane Parking [1971] 2 QB 163, terms printed inside a car park were too late: the contract was formed when the customer put money into the machine. Any onerous terms had to be drawn to attention before payment.

Worked Example 1.3

A dry cleaner displays a notice behind the counter stating "All cleaning undertaken at customer's sole risk". Priya leaves her expensive silk dress for cleaning but does not see the notice. The dress is damaged during cleaning. Is the exclusion clause incorporated?

Answer:
Possibly not. While the notice was present, its position behind the counter might mean reasonable steps were not taken to bring it to Priya's attention before the contract was made (when she handed over the dress). Furthermore, such a wide exclusion might be considered onerous, potentially requiring more explicit notice than just a sign behind the counter.

Worked Example 1.4

A driver enters a barriered car park. A sign at the payment machine simply says “Insert card.” Only after paying does the ticket refer to “no liability for personal injury.” The term is small and placed on the ticket’s reverse.

Answer:
The clause will not be incorporated. The contract is formed at the point of paying at the machine. An onerous term such as excluding liability for personal injury must be brought to attention before payment. Hidden terms appearing later are too late.

Incorporation by Course of Dealing

Terms may be incorporated if the parties have consistently contracted on the same terms in the past. The course of dealing must be regular and consistent. Occasional past dealings or inconsistency in terms used will likely prevent incorporation by this method.

A small number of sporadic transactions over several years may be insufficient. Similarly, if past dealings sometimes used the terms and sometimes did not, the inconsistency undermines the argument that both parties expected those terms to apply on the present occasion. Courts look for a pattern that is both frequent and uniform.

In commercial sectors, courts may also recognise incorporation by common knowledge and awareness of industry practice where both parties operate in the same industry and it is standard to use defined terms (e.g., crane hire standard terms). However, the courts apply this restrictively: evidence of a shared understanding (or well-established trade usage) is required, and express terms can displace usage.

Worked Example 1.5

A supplier and a retailer traded 20 times in the past year. On each occasion, the supplier emailed an order confirmation with its standard terms attached, and the retailer paid and accepted delivery without objection. On the latest order, due to an internal error, the supplier delivered without sending the standard terms. A dispute arises and the supplier claims its standard terms apply.

Answer:
The standard terms are likely incorporated by a regular and consistent course of dealing. Even though the terms were not sent this time, the parties’ uniform practice across many recent transactions supports incorporation.

Practical considerations on incorporation

• Identify the moment of contract formation. Notice must be given before or at the time of contracting, not after.
• Ask whether the document appears contractual. A receipt or delivery note may not be reasonably expected to contain terms.
• Assess the prominence, legibility, and location of the notice. Onerous terms need more conspicuous presentation.
• Consider whether there was a regular, consistent pattern of dealing, and whether the same terms were used every time.
• If both sides exchange standard terms (“battle of the forms”), the general approach is that the last set of terms sent before performance and not objected to often prevails, although the analysis turns on offer and acceptance. Where performance begins in response to the last set of terms, those are likely to govern.

INTERPRETATION OF EXPRESS TERMS

Once incorporated, the meaning of express terms must be determined. Courts use objective principles to interpret contracts.

The Objective Approach

Interpretation focuses on the objective meaning of the language used, rather than the parties' subjective intentions. The question is what the contractual words would mean to a reasonable person having all the background knowledge reasonably available to the parties at the time of the contract. This background is sometimes called the “matrix of fact”. The approach was famously stated in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896.

That background excludes evidence of pre-contract negotiations and subjective intentions, and it generally excludes subsequent conduct, at least for interpreting written contracts. The aim is to capture what the parties objectively agreed, not what one party wished they had agreed.

Key Term: Objective Interpretation
Ascertaining the meaning of contractual terms based on what a reasonable person, with knowledge of the relevant background context, would understand them to mean.

Literal Meaning vs Commercial Context

The starting point is often the natural and ordinary meaning of the words. Where the wording is clear, courts emphasise the text. In Arnold v Britton [2015] UKSC 36, the Supreme Court stressed that language matters: courts should not re-write clear terms based on a view that the bargain is commercially unwise.

However, courts interpret the words in their documentary, factual, and commercial context. Where words are ambiguous or admit more than one meaning, the court may prefer the interpretation consistent with business common sense. In Rainy Sky SA v Kookmin Bank [2011] UKSC 50, faced with two plausible meanings, the court preferred the one aligning with business sense. Later in Wood v Capita Insurance Services Ltd [2017] UKSC 24, the Supreme Court explained that interpretation involves a unitary exercise: textual and contextual analyses are interdependent, and each illuminates the other.

Key limits on context are important:

• Pre-contract negotiations are generally inadmissible for interpreting a written term (even if the parties discussed its meaning). Negotiations can be relevant to rectification (where the written text does not match the parties’ prior agreement), but not to ordinary interpretation.
• Subsequent conduct is generally inadmissible to interpret written terms. Contracts should not morph in meaning as parties behave differently over time.

Together, these principles provide a structured approach: start with the words; consider the contract as a whole; use context where appropriate; resolve ambiguity by reference to commercial common sense; avoid re-writing clear bargains.

Revision Tip

When analysing interpretation cases, identify whether the court prioritized the literal meaning of the words or the broader commercial context, and why. Note the tension courts must resolve between linguistic certainty and commercial reality.

THE PAROL EVIDENCE RULE

The parol evidence rule states that where a contract has been put into writing, extrinsic evidence (including oral statements or earlier drafts) cannot be admitted to add to, vary, or contradict the written terms. The rationale is that the written document is intended to be the entire record of the agreement, promoting certainty and preventing disputes about alleged unwritten terms.

Key Term: Parol Evidence Rule
A rule preventing parties to a written contract from submitting extrinsic evidence (oral or written) of prior or contemporaneous negotiations or agreements to contradict, vary, or add to the terms of the written contract, which is presumed to be complete.

The rule is a presumption about completeness, not an iron rule. The law recognises multiple exceptions that limit its practical effect.

Exceptions to the Parol Evidence Rule

The rule is subject to numerous exceptions, allowing extrinsic evidence where appropriate. Extrinsic evidence may be admissible to:

• Show the contract is not legally effective (e.g., subject to a condition precedent): where parties agree that the written contract is not to take effect unless and until a condition occurs.
• Prove terms which must be implied into the contract (by custom or law), or to annex customary incidents where the contract is silent.
• Show the written document does not contain the whole agreement: evidence may demonstrate that the parties intended a partly oral, partly written contract.
• Prove the existence of a collateral contract – a separate, usually oral, contract alongside the main written one. For example, a party may enter the main contract in reliance on an oral promise that creates a collateral bargain.
• Resolve ambiguity in the written terms: extrinsic evidence can be used to clarify meaning where wording is unclear.
• Establish mistake, misrepresentation, duress, or undue influence: where the validity of the written contract is impugned by vitiating factors, extrinsic evidence is admissible.
• Support an equitable claim for rectification: where the written document fails to record the parties’ previously agreed terms, pre-contract materials can be used to correct the writing.

Classic illustrations include a collateral assurance overriding a standard term, or an oral promise that the written standard terms would not apply to a particular aspect of performance. Another is the scenario where goods logistics are stated orally to be handled in a particular way, notwithstanding printed terms to the contrary; courts have recognised such arrangements where the parties intended a partly oral agreement.

Key Term: Collateral Contract
A separate contract that exists alongside the main written contract, often oral, where the consideration for the promise in the collateral contract is entry into the main contract.

Worked Example 1.6

Zara agrees in writing to lease a shop from Ben. The written lease forbids keeping animals. Before signing, Ben orally promised Zara she could keep her guide dog in the shop, and Zara relied on this promise when signing the lease. Ben later tries to enforce the 'no animals' clause. Can Zara rely on Ben's oral promise?

Answer:
Yes, potentially. Zara could argue Ben's oral promise constituted a collateral contract, made in consideration of her entering the main lease. If proven, this collateral contract would exist alongside the written lease, and Ben's promise would be enforceable as an exception to the parol evidence rule.

Entire Agreement Clauses

Modern commercial contracts often include an entire agreement clause. This clause explicitly states that the written document contains the entire agreement between the parties and supersedes all prior discussions, representations, or agreements. Its purpose is to bolster the parol evidence rule and prevent claims based on pre-contractual statements or alleged collateral contracts.

An entire agreement clause can identify the contract’s terms and reduce disputes about alleged oral additions. However, if the clause purports to exclude liability for misrepresentation (for example through “non-reliance” wording), it will be controlled by statute: any attempt to exclude or limit liability for misrepresentation must satisfy the requirement of reasonableness under the Misrepresentation Act 1967, section 3. Courts scrutinise such clauses; a bare entire agreement clause may not, by itself, prevent a misrepresentation claim.

Key Term: Entire Agreement Clause
A contractual clause stating that the written agreement represents the complete and final understanding between the parties, superseding any prior agreements, negotiations, or representations.

Exam Warning

Be cautious when applying the parol evidence rule. While theoretically significant, its numerous exceptions mean extrinsic evidence is often admissible in practice. Focus on whether an exception applies, particularly the concept of a collateral contract or if the written document was not intended to be the whole agreement. Also, note the impact of an entire agreement clause and how any exclusion of liability for misrepresentation is controlled.

Worked Example 1.7

A property sale contract contains an entire agreement clause and a statement that the buyer has not relied on any representations. Before signing, the seller’s agent assured the buyer the building had no asbestos, which later proves false. The seller argues the non-reliance wording bars liability.

Answer:
A non-reliance statement used to exclude liability for misrepresentation is subject to the Misrepresentation Act 1967, section 3. The clause must be reasonable to be effective. If the court finds it unreasonable in the circumstances (for example, because the buyer reasonably relied on the agent’s assurance on a safety-critical point), the buyer’s misrepresentation claim may succeed despite the clause.

Additional guidance on express terms and their effect

Although this article focuses on incorporation and interpretation, remember:

• Express terms can be classified as conditions, warranties, or innominate terms. That classification affects remedies for breach. Conditions are fundamental; breach usually permits termination and damages. Warranties are minor; breach gives damages only. Innominate terms require a “wait and see” approach: the remedy depends on the seriousness of the consequences of breach.
• Boilerplate clauses (such as entire agreement clauses, notices clauses, and variation clauses) are express terms that shape how the contract operates. Their wording and interaction with common law rules can be outcome-determinative.
• The statutory control of exclusion and limitation clauses (UCTA 1977 in business-to-business contracts and the CRA 2015 in trader–consumer contracts) affects enforceability of express terms that seek to exclude or limit liability. While that control is addressed in detail elsewhere, it is often relevant when analysing incorporation and interpretation of such clauses.

Key Point Checklist

This article has covered the following key knowledge points:

• Express terms are specifically agreed terms (oral or written), distinct from implied terms and representations.
• Incorporation makes terms part of the contract; key methods are signature, notice, and course of dealing. Courts may also recognise incorporation aligned with shared industry practice where clearly established.
• Signature generally binds, even if the terms are unread (L'Estrange v Graucob), subject to narrow exceptions (fraud/misrepresentation; non est factum; non-contractual documents).
• Incorporation by notice requires reasonable steps taken before or at the time of contracting and that the terms be in a document that reasonably appears contractual (Olley; Chapelton).
• Onerous or unusual terms require a higher degree of notice; burying them in small print is insufficient (Interfoto; “red hand” approach).
• In automatic transactions, terms must be drawn to attention before payment or acceptance (Thornton v Shoe Lane Parking).
• A regular and consistent course of dealing can incorporate standard terms, even if they are not supplied on the particular occasion, but inconsistency or infrequency undermines incorporation.
• When each party proffers its own standard terms, identify offer and acceptance; often, the last set of terms sent and acted upon prevails in the “battle of the forms”.
• Interpretation is objective, considering what terms mean to a reasonable person with background knowledge. Courts balance literal meaning with commercial context (Rainy Sky; Wood v Capita) but will not re-write a clear bargain (Arnold v Britton).
• The parol evidence rule restricts extrinsic evidence contradicting written contracts but has many exceptions.
• Key exceptions include showing the contract is subject to a condition precedent, that the agreement is partly oral, resolving ambiguity, customary incidents, rectification, and collateral contracts.
• Entire agreement clauses aim to exclude extrinsic evidence and bolster the written contract’s supremacy but cannot automatically exclude liability for misrepresentation; any non-reliance wording must be reasonable under statute.

Key Terms and Concepts

• Express Term
• Incorporation by Signature
• Incorporation by Notice
• Onerous or Unusual Term
• Objective Interpretation
• Parol Evidence Rule
• Collateral Contract
• Entire Agreement Clause