Incorporation of terms

In deciding exactly what are the contents of a written contract, courts need firstly to deal with the parol evidence rule. In relation to the incorporation of terms, this rule states that nothing extraneous to the contractual document itself can be led as evidence to add to, subtract from or modify what the document actually says on its face. This fundamental rule gives certainty to written contracts. However, courts have acknowledged certain important exceptions to the rule.

Another fundamental rule relates to the importance of a signature on a written contract. The signature rule states that a signed contract is strong prima facie evidence that the signatory read, understood and approved of its contents. All the terms in the document are thereby incorporated into the contract. However, practitioners need to be aware of exceptions to this rule.

Terms may also be incorporated by the giving of notice. This takes on a special importance with terms that appear on signs and documents that may not appear contractual in nature and that purport to exclude or limit the liability of one or other party. Whether a term has been incorporated will depend on the timing and reasonableness of the notice.

Terms may also be incorporated by the nature and extent of any prior dealings between the parties.

A binding contractual obligation may be asserted and recognised by way of a collateral contract. This is a separate contract that is connected to the principal contract between the parties through consideration. Where one party relies on a promise in order to enter into the main contract, the promise may in some cases be enforceable as a binding separate contract even though it may not strictly speaking be a term of the principal contract.

See Incorporation of terms.