Contents of a contract - Incorporation of terms

Learning Outcomes

This article explains how contractual terms are incorporated into binding agreements, focusing on incorporation by signature, reasonable notice, and course of dealing; the contractual-document requirement and timing of notice; reasonable steps and enhanced prominence for onerous or unusual clauses; exceptions such as misrepresentation and non est factum; electronic contracting (click-wrap and browse-wrap); the role of trade practice and common knowledge; and statutory controls under UCTA 1977 and the Consumer Rights Act 2015.

SQE1 Syllabus

For SQE1, you are required to understand how contractual terms are incorporated and apply the legal principles to factual scenarios to determine whether specific terms form part of a contract, with a focus on the following syllabus points:

• the ways terms can be incorporated into a contract (signature, notice, course of dealing)
• the legal requirements for each method of incorporation
• the effect of signing a contractual document, including the nature of the document signed
• the rules regarding the timing and sufficiency of notice (including tickets, receipts, online checkouts, and hyperlinks)
• when a course of dealing may incorporate terms and the role of trade practice/common knowledge
• the specific rules relating to onerous or unusual terms and the need for enhanced prominence
• how incorporated terms may still be controlled by statute (UCTA 1977; CRA 2015).

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 case established the principle that signing a contractual document generally binds the signatory to its terms, regardless of whether they have read them?
   1. Thornton v Shoe Lane Parking Ltd
   2. L'Estrange v F Graucob Ltd
   3. Chapelton v Barry UDC
   4. Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd
2. For terms to be incorporated by notice, when must the notice typically be given?
   1. Any time before performance is complete
   2. Within a reasonable time after the contract is made
   3. Before or at the time the contract is concluded
   4. Only if the term is particularly onerous
3. Which of the following factors is LEAST relevant when determining if terms are incorporated by a course of dealing?
   1. The frequency of previous transactions
   2. The consistency of previous transactions
   3. Whether the parties subjectively intended the terms to apply
   4. Whether the terms were included in the previous transactions

Introduction

For a term to be legally enforceable as part of a contract, it must be incorporated into that contract. Incorporation means the term has become part of the agreement between the parties. English law recognises three main methods by which terms, particularly standard written terms or exclusion clauses, can be incorporated into a contract: by signature, by reasonable notice, and by a consistent course of dealing between the parties. You need to understand the rules for each method for SQE1.

As you apply these rules, keep in mind two further points. First, the document relied upon must be of a kind that a reasonable person would expect to contain contractual terms. Second, even where a term is validly incorporated, statutory controls may still apply: UCTA 1977 restricts certain terms in business-to-business contracts (notably negligence clauses and exclusions of statutory implied terms), and the Consumer Rights Act 2015 subjects consumer terms to fairness and transparency requirements and forbids certain exclusions (such as for death or personal injury caused by negligence).

INCORPORATION OF TERMS

Understanding how terms become part of the contract is fundamental. Different rules apply depending on how the parties reached their agreement.

Incorporation by Signature

The general rule is that if a party signs a document containing contractual terms, they are bound by those terms, even if they have not read or understood them.

Key Term: Incorporation by Signature
The principle that a party who signs a contractual document is bound by the terms contained within it, subject to limited exceptions like misrepresentation and non est factum, and provided the document is one normally understood to contain contractual terms.

This strict principle originates from the case of L'Estrange v F Graucob Ltd [1934] 2 KB 394. Mrs L'Estrange signed an order form for a cigarette vending machine which contained, in small print, a clause excluding liability for defects. The machine proved defective. The court held she was bound by the exclusion clause because she had signed the document containing it. Scrutton LJ stated: "When a document containing contractual terms is signed, then, in the absence of fraud or, I will add, misrepresentation, the party signing it is bound, and it is wholly immaterial whether he has read the document or not."

However, this rule is not absolute. Exceptions and qualifications include:

• Misrepresentation: If the effect of the term was misrepresented to the signatory before signing (e.g., told the exclusion related only to beads and sequins), the clause will not bind (Curtis v Chemical Cleaning and Dyeing Co Ltd [1951] 1 KB 805). Misrepresentation must induce the signature.
• Non-contractual documents: A signature will not usually bind if the signed document is not one that would ordinarily be understood to contain contractual terms (e.g., a mere receipt or an acknowledgment), though this point more commonly arises in notice cases (see Chapelton v Barry UDC [1940] 1 KB 532).
• Non est factum: In rare cases, a signatory may avoid a document if, through no fault of their own, they signed a document fundamentally different in character to what they believed it to be. The defence is narrowly confined and will fail where the signer was careless (Saunders v Anglia Building Society [1971] AC 1004).

Key Term: non est factum
A narrow defence allowing a signer to avoid a document if, without fault, they signed a document fundamentally different in character from what they believed it to be; it does not assist those who were careless in failing to check.

• Statutory controls: Even when effectively incorporated by signature, exclusion or limitation clauses may still be rendered ineffective or limited by UCTA 1977 (e.g., s 2(1) bars exclusions for death/personal injury caused by negligence; reasonableness is required for many other exclusions) or, in consumer contracts, the CRA 2015 (e.g., s 65 bars negligence exclusions for death/personal injury; broadly applicable fairness test).

Onerous terms and signature. In general, a signature binds even to onerous terms. The enhanced-notice requirement for onerous or unusual terms (the “red hand” idea) is a notice doctrine and does not usually undermine incorporation by signature. The practical protection for onerous clauses in signed agreements comes from statutory controls (reasonableness/fairness) and misrepresentation principles.

Electronic contracting. Courts treat click-wrap or e-sign processes that clearly require the user to affirm acceptance of terms as functionally equivalent to signature: once “I agree” is clicked adjacent to accessible terms, incorporation is usually established. By contrast, passive “browse-wrap” terms are tested under notice principles (below).

Worked Example 1.1

Ahmed signs a gym membership agreement. He quickly scans it but doesn't read the clause on page 5 stating the membership fee can increase by up to 20% annually without notice. One year later, the gym increases his fee by 18%. Is Ahmed likely bound by this clause?

Answer:
Yes, based on the rule in L'Estrange v Graucob, Ahmed is likely bound by the clause. By signing the agreement, he indicated his assent to all its terms, whether he read them or not, provided there was no misrepresentation or other vitiating factor. The term allowing a 20% increase might be considered onerous, but signature remains a strong indicator of acceptance. Ahmed might still argue statutory controls (e.g., under CRA 2015 if consumer) if the term is unfair or insufficiently transparent.

Incorporation by Notice

Where a contract is not signed (e.g., tickets, notices on walls, printed conditions handed over), terms may be incorporated if reasonable steps were taken to bring them to the other party's attention before or at the time the contract was made.

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 concluded.

Three key requirements must be met:

1. Timing: Notice must be given before or at the time of contracting. Terms introduced later are generally ineffective. In Olley v Marlborough Court Ltd [1949] 1 KB 532, a notice excluding liability in a hotel room was ineffective because the contract was formed at the reception desk before the guest saw the notice. Similarly, in Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163, terms on a ticket issued by an automatic machine after the customer committed to entry were too late.
2. Contractual Document: The terms must be contained in or referred to by a document reasonably expected to contain contractual terms. In Chapelton v Barry UDC [1940] 1 KB 532, an exclusion clause printed on the back of a ticket for hiring a deckchair was not incorporated because the ticket was seen as a mere receipt, not a contractual document. The same reasoning underpins cases where wording refers to “terms overleaf,” but nothing overleaf is sent or provided; incorporation fails unless the terms are actually made available in a contractual document.
3. Reasonable Steps: The party seeking to rely on the term must have taken reasonable steps to bring it to the other party's attention. What is reasonable depends on the circumstances and the nature of the term. In Parker v South Eastern Railway (1877) 2 CPD 416, the court emphasised reasonable steps to notify; in Thompson v LMS Railway [1930] 1 KB 41, notice via reference to terms in a timetable was sufficient even though the passenger was illiterate; by contrast, in Henderson v Stevenson (1875) LR 2 Sc & Div 470 the absence of a front-page reference to terms on the reverse defeated incorporation. If the terms are referred to on the front, they must be accessible, legible, and not obscured (Sugar v LMS Railway [1941] 1 All ER 172).

Modern channels. Notice can be given electronically. Where a party is directed pre-contract to terms via a hyperlink or clear reference, and the terms are readily accessible, courts may find reasonable notice, especially in a business context (see Impala Warehousing and Logistics (Shanghai) Co Ltd v Wanxiang Resources (Singapore) Pte Ltd [2015] EWHC 25 (Comm)). By contrast, burying a link after the “pay now” button will usually fail the timing requirement.

Onerous or Unusual Terms

If a term is particularly onerous or unusual, greater effort is needed to bring it to the other party's attention. Lord Denning in J Spurling Ltd v Bradshaw [1956] 1 WLR 461 suggested some clauses need "to be printed in red ink on the face of the document with a red hand pointing to it" (often called the 'red hand rule').

In Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] QB 433, a hefty holding fee for photographic transparencies returned late was considered onerous. It was included in the delivery note terms, but the Court of Appeal held it was not incorporated because insufficient notice had been given of such an unusual and burdensome term. The principle endures in commercial cases post-UCTA: courts may still require heightened prominence for onerous terms at the notice stage (e.g., Goodlife Foods Ltd v Hall Fire Protection Ltd [2018] EWCA Civ 1371), before any statutory reasonableness/fairness analysis.

Key Term: Onerous or Unusual Term
A clause that imposes a burden outside what a reasonable contracting party would expect in the circumstances, requiring enhanced prominence to be incorporated by notice.

Importantly, even if an onerous term is validly incorporated (because heightened notice was given), statutory controls may still defeat or limit it: UCTA’s reasonableness test in B2B settings (e.g., s 2(2), s 3, ss 6–7) and CRA’s fairness test and transparency duties in B2C.

Worked Example 1.2

Priya buys a ticket online for a concert. After payment, she receives an email confirmation with a link to the event's "Terms and Conditions", which include a clause stating no refunds are given, even if the event is cancelled due to performer illness. The performer gets sick and the concert is cancelled. Can the organiser rely on the no-refund clause?

Answer:
Possibly not. The notice of the terms was given after the contract was concluded (payment made online). Following Olley and Thornton, notice given post-contract is generally ineffective. Furthermore, a complete no-refund clause, even for cancellation by the organiser, could be considered onerous, requiring clearer and more prominent notice before purchase (Interfoto). In a consumer context, the CRA fairness test is also likely to render such a term unfair.

Worked Example 1.3

A supplier has delivered goods to a commercial customer monthly for two years. Each delivery was accompanied by an invoice stating "All contracts subject to our standard terms and conditions, available on request." The customer never requested the terms. On the latest order, the invoice is missing. The goods are defective. Can the supplier rely on an exclusion clause within their standard terms?

Answer:
Potentially yes. There appears to be a regular (monthly for two years) and consistent (reference to standard terms on each invoice) course of dealing. Even though the customer never read the terms, the consistent reference on invoices may be sufficient to incorporate them, especially in a commercial context (Kendall v Lillico). The absence of the reference on the final invoice may not prevent incorporation based on the established course of dealing. The supplier must still satisfy the statutory reasonableness test under UCTA for any exclusion/limitation of liability.

Worked Example 1.4

A car park barrier dispenses an entry ticket that simply says “Retain” on the front. Inside the car park, a sign on a far wall states: “Use entirely at own risk – no liability for damage or personal injury.” A driver is injured due to the operator’s negligence. Is the exclusion likely incorporated?

Answer:
Unlikely. The contract is concluded on entry when the machine dispenses the ticket. The clause was not reasonably brought to the driver’s attention before or at contract formation, and an inconspicuous wall notice is insufficient (Thornton v Shoe Lane Parking). Even if incorporated, an exclusion for death or personal injury due to negligence would be ineffective (UCTA s 2(1) in B2B; CRA s 65 in B2C).

Exam Warning

Be careful with timing. Notice of terms must occur before or at the point the contract is finalised. Analyse the sequence of events in problem questions carefully to determine when the contract was formed and when the terms were presented. Post-contractual notice is invalid for incorporation.

Where a term seems particularly harsh, ask whether it is onerous/unusual. If so, look for enhanced notice. If enhanced notice is absent, incorporation fails at common law even before any statutory control is considered.

Incorporation by Course of Dealing

Terms may be incorporated if the parties have consistently dealt with each other on the same terms in the past. The course of dealing must be regular and consistent.

Key Term: Incorporation by Course of Dealing
Incorporating terms into a contract based on the parties' previous regular and consistent transactions on those same terms.

Key factors:

• Regularity: The dealings must be sufficiently numerous and frequent. In Hollier v Rambler Motors (AMC) Ltd [1972] 2 QB 71, three or four transactions over five years were held insufficient. However, in Henry Kendall & Sons v William Lillico & Sons Ltd [1969] 2 AC 31, 100 similar contracts over three years was sufficient.
• Consistency: The dealings must have been consistently on the same terms. If the party sometimes signs a risk note and sometimes does not, that inconsistency undermines incorporation (McCutcheon v David MacBrayne Ltd [1964] 1 WLR 125).
• Knowledge/awareness: Knowledge of the terms is often inferred from regular and consistent dealings, but in consumer contexts courts are slower to infer incorporation.

Trade practice/common knowledge. In commercial contexts between parties of equal bargaining power, courts may infer incorporation more readily, sometimes even without a long history, if the terms are standard within that trade and both parties know or ought to know them (British Crane Hire Corp Ltd v Ipswich Plant Hire Ltd [1975] QB 303). The rationale is that the parties are taken to operate against a known backdrop of industry-standard terms.

Interaction with statutory controls. Course-of-dealing incorporation often arises for exclusion/limitation clauses. Incorporation does not immunise such terms from UCTA 1977 reasonableness scrutiny in B2B settings, or CRA fairness scrutiny in B2C.

Worked Example 1.5

Over three years, a carrier has occasionally asked a customer to sign a ‘risk note’ containing wide exclusions; on other occasions, no risk note is presented and a simple receipt is issued. A shipment is lost due to the carrier’s negligence on a day when no risk note is signed. Can the carrier rely on the exclusion in its standard risk note via course of dealing?

Answer:
Probably not. The course of dealing is inconsistent: sometimes a risk note is used, sometimes not. Inconsistency defeats incorporation by course of dealing (McCutcheon v David MacBrayne). Even if a court found a course of dealing, a negligence exclusion would be subject to UCTA’s controls (and would be ineffective for death/personal injury; s 2(1), and subject to reasonableness for other loss; s 2(2)).

Additional principles and practical points

1. “Contractual document” requirement: In unsigned cases, incorporation fails if the proffered document is one that a reasonable person would regard as a mere receipt or administrative slip (e.g., a cloakroom ticket). Clear wording on the face of the document directing attention to terms may help, but courts still ask whether the document is intended to have contractual effect (Chapelton).
2. Accessibility and legibility: The terms must be accessible at the relevant time and legible. Obscured references or hidden links will likely be insufficient. In paper cases, a clear front-page reference to terms “overleaf” is often significant; in electronic commerce, a prominent link before the commitment to pay is typically required.
3. “Red hand” idea in practice: There is no literal requirement for red ink or graphic devices. The essence is enhanced prominence commensurate with the clause’s severity: bold type, capitalisation, a box, or a specific acknowledgment adjacent to the clause can support incorporation by notice for onerous terms.
4. Statutory controls survive incorporation: Even where a term is validly incorporated (by any method), it may still be struck down or limited by UCTA’s reasonableness test in business contracts or CRA’s fairness and transparency rules in consumer contracts. Incorporation answers “is the term part of the contract?” Statutory control answers “is the term enforceable as written?”

Revision Tip

When analysing incorporation, consider all three methods. Sometimes terms might be incorporated by signature, but if not, consider notice. If notice seems inadequate, consider if a course of dealing exists or if trade custom/common knowledge applies. Always check for onerous terms (enhanced notice) and then apply statutory controls as a separate step.

Key Point Checklist

This article has covered the following key knowledge points:

• Terms must be incorporated into a contract to be binding.
• The main methods of incorporation are signature, notice, and course of dealing.
• Signing a contractual document usually binds the signatory to its terms (L'Estrange v Graucob), subject to exceptions like misrepresentation and non est factum, and provided the document is of a contractual nature.
• Incorporation by notice requires reasonable steps to bring terms to the other party's attention before or at the time of contracting.
• The document containing the notice must be one reasonably expected to contain terms (Chapelton v Barry UDC).
• Timing is essential for notice; post-contractual notice is ineffective (Olley, Thornton).
• More onerous or unusual terms require clearer and more prominent notice (Interfoto, the ‘red hand’ idea).
• Incorporation by course of dealing requires previous dealings to be regular and consistent (Kendall, Hollier), and may be reinforced by shared trade practice/common knowledge (British Crane Hire).
• Electronic contracting follows the same structure: pre-contract prominence and accessibility for notice; “click to accept” resembles signature.
• Even if incorporated, exclusion/limitation clauses remain subject to UCTA (reasonableness; absolute bars for certain negligence exclusions) and CRA (fairness, transparency, non-excludable consumer rights).

Key Terms and Concepts

• Incorporation by Signature
• non est factum
• Incorporation by Notice
• Onerous or Unusual Term
• Incorporation by Course of Dealing