Incorporation of terms

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A party sometimes seeks to add terms to an agreement by displaying them on a notice, delivering it to the other party, or merely though past business. In order to incorporate terms, the following requirements must be satisfied

  • By notice:
    1. Timing - notice of the terms must be given before the contract was formed.[1]
    2. Knowledge - reasonable steps must be taken to bring the terms to the notice of the party to be bound.[2]
  • By course of dealings:
    1. Continuance - the other party signifies he is bound by the incorporated terms if he continues to do business with the incorporating party and abiding by the incorporated terms.[3]

If the requirements are satisfied, the terms will be successfully incorporated into the contract.

This article is a topic within the subject Contracts.

Contents

Required Reading

Paterson, Robertson & Duke, Contract: Cases and Materials (Lawbook Co, 11th ed, 2009), pp. 361-375 [12.95-12.140].

Incorporation of terms by notice

[4] When agreements are discussed orally, one party often attempts to incorporate terms by displaying or delivering written documents containing terms to the other party. Whether these terms are incorporated into the agreement (i.e. whether the other party will be bound by them) depends on whether the Offeror:

  • Gave notice of the terms before the contract was formed (Timing).
  • Took reasonable steps to bring the terms to the notice of the party to be bound (Knowledge or notice).

A common example of this is the incorporation of the terms displayed on a sign or board in a parking garage.

Timing

[5] For the terms to form part of the contract they must be made available before the contract is made. This was reaffirmed in Oceanic Sun Line Special Shipping Company Inc v Fay:

  • "It was too late after the original contract was made to add conditions which were not incorporated in it.[6]
  • "A condition printed on a ticket is ineffective to alter a contract of carriage if the ticket is issued after the contract is made.[7]"

Knowledge or notice

[8] Even if the timing requirement is satisfied, delivered or displayed terms can only be incorporated if the recipient party has knowledge or reasonable notice of the terms[9].

  • Knowledge refers to the Offeree knowing that the document delivered or displayed contains contractual terms. This doesn't mean the Offeree had to have read them - the mere knowledge of the Offeree that the document contains contractual terms will mean the terms will be incorporated.
  • Reasonable notice refers to the Offeror providing reasonable notice of the terms to the Offeree. What amounts to reasonable notice depends on the type of contract, the nature of the terms, and the circumstances.

These issues were stated in Thornton v Shoe Lane Parking Ltd:

  • A clause can only be incorporated if the customer "knows that the ticket is subject to it; or, if the company did what was reasonably sufficient to give him notice of it.[10]"

Unusual terms

[11] The courts have suggested that special notice is required in a case where unusual or onerous terms are being incorporated[12]. Special notice is explained as that which will fairly and reasonably bring the terms to the attention of the Offeree.

This was discussed in Baltic Shipping Co v Dillon (The Mikhail Lermontov)

  • The Appellant still needed to notify the Respondent as to the unusual conditions which were not previously mentioned in the booking form. It had not done so.
  • Since the Respondent was not notified of the new terms, the Respondent's acceptance of the ticket that was issued still only signified the acceptance to the terms set by the booking form.
    • "Thus the mere presentation by the appellant to the respondent of the passenger ticket with its terms and conditions would not fix the respondent with acceptance of those terms and conditions...she was entitled, in law, to take the view that she should be issued with a ticket which would contain no unusual provisions, specifically no provisions of which she was not on notice limiting the appellant's liability to her.[13]"
  • This means that special notice needs to be given if further, unusual terms are to be incorporated.

Note that a even a signature won't make a person bound by unusual conditions unless he was given reasonable notice.

Incorporation by a course of dealings

[14] The ordinary requirements are not required when the parties have had a history of dealings between them and seeking to incorporate contractual terms which were employed in earlier contracts between them. The justification for that is that the party to be bound has, by continuing to deal with the party seeking to impose contractual terms, demonstrates a willingness to be bound by the terms.

  • That is, by continuing to do business with the Offeror after the Offeror has previously incorporated further terms in an earlier contract, the Offeree demonstrates that has accepted the incorporation of such terms.

This issue was discussed in two major cases. Firstly, Balmain New Ferry Co Ltd v Robertson:

  • Appellant aware of the terms to be incorporated by previous dealings and his mere continuance to use the services of the Respondent means he is bound by them.
  • "Having travelled on many occasions backward and forward by the company's boats, and, as he says, paid his fare to the officers at the turnstiles, he must have been aware that the company's method of conducting their business was to release the turnstiles only on payment of a penny.[15]"

And also in Rinaldi & Patroni Pty Ltd v Precision Mouldings Pty Ltd:

  • The courts note that for documents to be considered 'a course of dealings', they needs to be reasonably considered as contractual in nature.
  • The cart notes in this case were not considered contractual documents, and therefore the previous use of them could not amount to previous dealings in a way which allows for incorporation of further terms.

References

Casebook refers to Paterson, Robertson & Duke, Contract: Cases and Materials (Lawbook Co, 11th ed, 2009).

Textbook refers to Paterson, Robertson & Duke, Principles of Contract Law (Lawbook Co, 3rd ed, 2009).

ACL refers to the Australian Consumer Law.

  1. Oceanic Sun Line Special Shipping Company Inc v Fay (1988) 165 CLR 197
  2. Thornton v Shoe Lane Parking Ltd [1971] 2 QP 163
  3. Balmain New Ferry Co Ltd v Robertson (1904) 4 CLR 379
  4. Casebook, p. 361 [12.95], Textbook, p. 236 [12.95]
  5. Textbook, p. 236 [12.100]
  6. (1988) 165 CLR 197, 228
  7. (1988) 165 CLR 197, 228, relying on Daly v General Steam Navigation Co Ltd (The 'Dragon') [1979] 1 Lloyd's Rep 257, 262
  8. Casebook, p. 364 [12.110], Textbook, pp. 236-7 [12.105-12.110]
  9. Parker v South Eastern Railway Co (1877) 2 CPD 416
  10. [1971] 2 QB 163, 170
  11. Textbook, pp. 238-9
  12. Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163, 169
  13. (1991) 22 NSWLR 1, 25
  14. Textbook, p. 240 [12.150]
  15. (1904) 4 CLR 379, 391
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