Learning Outcomes
This article examines express terms within contracts. After reading this article, you should be able to identify express terms and distinguish them from implied terms. You will understand the principal ways express terms are incorporated into contracts, including by signature, notice, and course of dealing. You will also learn the key principles courts apply when interpreting express terms, including the objective approach and the balance between literal meaning and context. Finally, you will understand the parol evidence rule and its main exceptions. This knowledge is necessary for answering SQE1 questions on contract formation and content.
SQE1 Syllabus
For SQE1, a practical understanding of how express terms become part of a contract and how their meaning is determined is essential. You will likely encounter scenarios requiring you to identify operative terms and advise on their effect. An appreciation of express terms is fundamental to advising on contractual rights and obligations.
As you work through this article, remember to pay particular attention in your revision to:
- Identifying statements intended to be express terms.
- The methods by which terms are incorporated into contracts (signature, notice, course of dealing).
- The requirement for reasonable notice, especially for onerous or unusual terms.
- The objective approach to interpreting contractual terms.
- The application and exceptions to the parol evidence rule.
- The purpose and effect of entire agreement clauses.
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.
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Which principle generally prevents a party from denying they are bound by terms in a document they signed, even if unread?
- The objective interpretation rule.
- The parol evidence rule.
- The rule in L'Estrange v Graucob.
- Incorporation by notice.
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To incorporate an onerous or unusual term by notice, the party seeking to rely on it must:
- Prove the other party actually read the term.
- Have taken greater steps to bring it to the other party's attention.
- Ensure the term is printed in bold type.
- Mention the term specifically in oral negotiations.
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What is the primary effect of the parol evidence rule?
- It prevents oral evidence contradicting a written agreement.
- It allows oral evidence to clarify ambiguous written terms.
- It requires all contract terms to be in writing.
- It gives priority to written terms over oral statements.
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Which of the following is a recognised exception to the parol evidence rule?
- Where the written agreement is too long.
- Where one party subjectively misunderstood a term.
- Where the written agreement does not reflect the whole agreement (e.g., existence of a collateral contract).
- 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). 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.
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.
There are limited exceptions to this rule, such as where the signature was obtained through fraud or misrepresentation regarding the effect of the document (Curtis v Chemical Cleaning and Dyeing Co Ltd [1951] 1 KB 805). However, in the absence of such vitiating factors, the signature is usually conclusive evidence of agreement to the 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.
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:
- Timely: Given before or at the time of contracting (Olley v Marlborough Court Ltd [1949] 1 KB 532 – notice in hotel room given after contract made at reception).
- In a contractual document: The document containing the terms must be one that would reasonably be expected to contain contractual terms (Chapelton v Barry UDC [1940] 1 KB 532 – deckchair ticket seen as mere receipt).
- Reasonable: Sufficient steps must have been taken to bring the terms to the notice of the other party (Parker v South Eastern Railway Co (1877) 2 CPD 416). What is reasonable depends on the circumstances.
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.
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.
Worked Example 1.2
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.
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 (McCutcheon v David MacBrayne Ltd [1964] 1 WLR 125). Occasional past dealings or inconsistency in terms used will likely prevent incorporation by this method.
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 (Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, per Lord Hoffmann).
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 (Arnold v Britton [2015] UKSC 36). However, courts interpret the words in their documentary, factual, and commercial context. Where words are ambiguous, the court may prefer the interpretation consistent with business common sense (Rainy Sky SA v Kookmin Bank [2011] UKSC 50).
The modern approach involves balancing the textual analysis (literal meaning) with the contextual analysis (surrounding circumstances and purpose), seeking the objective meaning of the provision (Wood v Capita Insurance Services Ltd [2017] UKSC 24).
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.
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.
Exceptions to the Parol Evidence Rule
The rule is subject to numerous exceptions, limiting its practical effect. Extrinsic evidence may be admissible to:
- Show the contract is not legally effective (e.g., subject to a condition precedent).
- Prove terms which must be implied into the contract (by custom or law).
- Show the written document does not contain the whole agreement (Allen v Pink (1838) 4 M&W 140).
- Prove the existence of a collateral contract – a separate, usually oral, contract alongside the main written one (City and Westminster Properties Ltd v Mudd [1959] Ch 129).
- Resolve ambiguity in the written terms.
- Establish mistake, misrepresentation, duress, or undue influence.
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 1.3
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.
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.
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.
- Incorporation makes terms part of the contract; key methods are signature, notice, and course of dealing.
- Signature generally binds, even if the terms are unread (L'Estrange v Graucob).
- Incorporation by notice requires reasonable steps taken before or at the time of contracting.
- Onerous or unusual terms require a higher degree of notice (Interfoto principle).
- Interpretation is objective, considering what terms mean to a reasonable person with background knowledge.
- Courts balance literal meaning with commercial context (Wood v Capita).
- The parol evidence rule restricts extrinsic evidence contradicting written contracts but has many exceptions.
- Key exceptions include proving the whole agreement isn't written, ambiguity, and collateral contracts.
- Entire agreement clauses aim to exclude extrinsic evidence and bolster the written contract's supremacy.
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
