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Incorporated Or Not? - That is the question!

Incorporated Or Not? - That is the question!

How many arguments revolve around whether a term or condition has been incorporated into a Contract - or not?

Often the difference between incorporation or not is very subtle and turns on the wording used, or even down to a single word. The principle of incorporation in law is long standing and dates back to the 19th century, in what are known as 'the old ticket cases'. Onerous clauses have caused concern for Judges since this date and probably earlier. The incorporation of these clauses into contracts, in order to become effective terms, is simplest via a signature. A Party is generally bound by terms they have signed. whether or not they have read them. This promotes certainty and, whilst harsh, it protects a third party who may be relying on the validity of the signature on the Contract and the terms within it.

A leading case of L'Estrange v F. Graucob Ltd (1934) illustrates this; whilst the Judges expressed regret at their decisions, it was found that a signature was fatal to a defence of signing but not reading a document. One of the Judges at the Court of Appeal stated… "having put her signature to the document she cannot be heard to say she is not bound by the terms of the document because she has not read them!"

Whilst the rule that a person is bound by his/her signature is not an absolute one, it is generally accepted to be the case. Defences are available, 'non est factum', allows a party to deny the document as not being the one he/she thought they had signed as he/she had no real understanding of it either through defective education, illness or innate capacity.

A further defence is when a Party is induced to sign a document as a result of misinterpretation made to him/her. This is usually a verbal misinterpretation made in order to induce a signature on a document that conflicts with the verbal statement. A defence can be submitted in that the signed document was not purported to be contractual and was signed merely for administration purposes. For example, signing a time sheet may be incorrectly relied upon by one side as a Contract when, in fact, it only gives effect to a previously concluded Contract. Finally, the Unfair Contract Term Act 1977 protects against exclusive clauses which are deemed to be unfair or unreasonable.

Where a signature is not present, a Contract term may be incorporated by Notice, which must be given at, or before, the time of contracting and reasonable steps taken to bring the term to the Notice or the other Party. More onerous or unusual terms must be clearly highlighted with greater steps taken to ensure that the other Party is aware of the nature of the term to which he/she is likely to be bound.

A third method of incorporation after signature or by Notice is by virtue of a course of dealing, or as a result of the custom of the trade. A series of transactions on a regular and consistent basis must be made to constitute a course of dealing. A relevant case establishing this principle is McCutcheon v David MacBrayne Ltd (1964) which failed due to a lack of consistency in previous dealings.

The incorporation of terms is thus a complex and important matter in the establishing of contractual liability and requires expert opinion to consider all matters relating to what often becomes a significant area of dispute amongst contracting parties and nowhere more so than within the Construction Industry.