What does incorporation mean?

Most businesses have documents which they want to rely on when dealing with clients and customers. Such documents include:

  • Standard terms of business (which can include payment terms, exclusion clauses and limits of liability);
  • quotations and pre-contractual correspondence;
  • specifications and drawings; and
  • policy documents.

For a document to have contractual effect, it should be incorporated (or, in other words, legally included) into the contract.

How can a document be incorporated into a contract?

The most effective way to incorporate a document is to include it in the written contract signed by the parties. (A party who signs a contract will generally be bound by its terms regardless of whether they have read them or understand their effect.) The exception to that rule is where a signature is procured by a vitiating factor, such as a misrepresentation.

If a document is not included in the signed written contract, the party looking to rely on it must show that reasonable notice of the document was given to the other party. The ingredients of sufficient notice are that:

  • the document is intended to be a contractual document (for example, the courts have held that a parking ticket is not a contractual document);
  • the document was given to the other party before or at the time the contract was formed, and
  • the relying party took reasonable steps to let the other party know about the document. (Reasonable steps can include including the terms at the entrance of a car park or referring to standard terms on a party’s website.)

“Unusual” and/or “onerous” terms (for example, blanket exclusion clauses) should be brought fairly to the other party’s attention (by, for example, giving them prominence in the document and including them in bold text and/or capital letters). Including those terms at the bottom of long and complex documents will probably mean that they are not incorporated.

Terms can also be incorporated as a result of a regular course of dealing (i.e. regular and consistent trading over a relatively long period) between the parties. For example, if two parties have contracted multiple times over two years with payments being made 2 days after the supply is made, those payment terms will probably be incorporated into the contract.

Case study

We recently worked on a dispute where the central issue was whether a building contractor’s standard payment terms (for payment within 7 days of invoice) had been incorporated into a contract which had competing payment terms.

The contractor alleged that it had given the employers a hard copy of its standard terms at a site meeting before the written contract was signed. The standard terms, were not referred to in the contract or mentioned in pre- or post-contract correspondence.

The adjudicator decided that the contractor’s standard terms were not incorporated and that the contract’s payment terms (which had a longer payment period) were applied. The result might have been different if the standard terms were included in or expressly referred to in the contract.

Practical tips

If you have an important document which you wish to incorporate and give contractual status to, you should seek to include it in the written contract (as a schedule or appendix) and ensure that the contract is signed.

Alternatively, you could refer to the document in the contract itself. Make sure that the other party is given sufficient notice of the document (see above). Be mindful of “entire agreement” clauses, which exclude documents not expressly included in the contract.

For assistance on incorporation, please contact Liam Hendry using the ‘contact us’ button.