Incorporation of terms (Contract terms)-FS Flashcards
(19 cards)
Incorporation of Terms
The legal process by which express terms are made binding on the contracting parties through specific methods, such as signature, notice, or course of dealing.
What are the three main methods by which terms are incorporated into contracts?
- Signed Written Contract
- Incorporation by Notice
- Incorporation by Course of Dealing
What is the legal effect of signing a written contract, even if the terms are unread or misunderstood?
The signing party is bound by the terms, regardless of whether they have read or understood them.
What are the exceptions to the rule that signed contracts are binding?
- The document was not intended to have contractual effect (e.g., a receipt).
- The term was included after the contract was formed.
- The term was misrepresented orally at the time of signing.
When can a term be incorporated by notice?
When one party takes reasonable steps to bring the term to the attention of the other before or at the time of contract formation.
What factors affect whether notice of a term is ‘reasonable’?
- Visibility and prominence of the notice
- Timing (must be before or at contract formation)
- Severity of the term (more adverse terms require greater steps to notify)
Can a notice behind a desk or in small print incorporate a severe term?
No. The more onerous the term, the greater the effort required to bring it to the other party’s attention.
Is a clause notified after the contract is formed enforceable?
No. Post-contractual notice cannot validly incorporate a term.
Must the document giving notice of terms have contractual effect?
Yes. The document must appear to be contractual, not merely a receipt or informal slip.
When is a term incorporated by a course of dealing?
When the same term has been consistently and regularly used in previous contracts between the parties.
What is required for a course of dealing to be valid for incorporation?
- Consistency in using the same term
- Regularity in transactions over time
- Parties must have dealt frequently enough
Are a few irregular transactions over several years enough for incorporation?
No. The course of dealing must be sufficiently regular and consistent.
Parol Evidence Rule
Where a contract is reduced to writing, extrinsic (oral or prior written) evidence cannot be used to add to, vary, or contradict the written terms.
What is the effect of an entire agreement clause in a written contract?
It reinforces that no terms exist outside the written contract, excluding prior oral or written discussions.
What is the first exception to the parol evidence rule?
Where the parties intended the agreement to be partly oral and partly written.
What is the second exception to the parol evidence rule?
The existence of a collateral contract: a separate oral agreement that induced entry into the main written contract.
When is a collateral contract recognized by courts?
When an oral assurance is made and relied upon as the basis for entering the main written contract.
In what scenario would the parol evidence rule bar a claim about an oral agreement?
When there is a written contract containing an entire agreement clause, and the oral assurance contradicts it.
Summary – How Terms Can Be Incorporated
- By Signed Written Contract – binding even if unread, unless misrepresented or not intended to be contractual
- By Notice – reasonable steps must be taken before contract formation
- By Course of Dealing – must be regular and consistent
- Collateral Contracts – separate enforceable oral agreements, outside the main written contract
- Parol Evidence Rule – bars extrinsic evidence unless an exception applies
