Incorporation of Terms Into a Contract

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Incorporation of Terms Into a Contract:

Incorporation of Terms Into a Contract


It is the act of making the terms of a contract binding to the parties involved. The terms will only be recognized by a court if they have been properly incorporated into the agreement, with full knowledge of both parties. It can be done through a number of ways: By signing documents containing the terms – either the offer and acceptance documents, or an additional document specifying the terms. They could also form the contract orally and then sign a document containing just the terms T & C – The terms on the back of bills, tickets, and other commercial notes, are accepted implicitly. Also, standard documents usually except the party who set the terms from liability. Through mutual understanding – the parties may claim that the terms are well known and understood by both parties, and as such, are implied in the contract. Incorporation

Incorporation through Signature:

Most effective method of finalizing the terms – Whether or not the person has read the document, his/her signature is binding proof of consent. Two exceptions to the above : When signed due to coercion, fraud, or misrepresentation. When one party claims not to have fully understood the terms on which they were made to sign. This is only in cases of illiteracy or illness – Dularia Devi v. Janardan Singh as a case study. Incorporation through Signature

Dularia Devi v. Janardan Singh:

Dulari Devi was illiterate. Her daughter, Rameshwari Devi, was married to Yogendra Prasad Singh. His two brothers were Arjun Singh and Janardan Singh. She confided to the brothers that she wanted to gift all her property to her daughter. The two brothers agreed to help. They took her to the sub-registrar’s office, making her pay for all the expenses. They bought stamp papers in her name. She put her thumb impressions on two documents, believing them to be the gift deed in favor of her daughter. In reality, one was indeed a gift deed in favor of the daughter, while the other was a sale deed, in favor of the brothers. The brothers soon started interfering with her posession of the property, and told her that she had signed a sale deed in their favor. When she came to know of the full facts, she filed a suit for cancellation of the deed.` Dularia Devi v. Janardan Singh

Court Deliberations and Ruling:

This was a plea of non est factum, Latin for it is not my deed. Validity of the document was under debate. Noted the distinction between misrepresentation of the content of the document, to misrepresentation of the it’s character. The SC ruled that it was a clear case where the plaintiff was ‘totally ignorant’ of the terms and character of the contract she signed. There was fraudulent misrepresentation of both kinds. “Her mind did not accompany her thumb impressions…and it was, therefore, a totally void transaction.” Court Deliberations and Ruling

Pre-Printed Terms on Tickets and Receipts:

Terms, Conditions, and Exceptions are normally printed on the back of receipts. E.g.: Dry cleaners, movie tickets, Store bills, etc. Exclusion clauses – when an establishment lays down specific instances, and stipulate that they are not to be held liable in such situations. Historically, it was thought that these terms are non binding, as they come after the sale, and thus come post-contract. However, this could be countered by saying the purchaser was aware of the existence of T & C when he bought the ticket/ goods. The courts had to abandon the non-binding argument on the basis of this fallacy. Service providers could claim that the customers knew of the terms when the contract of sale was made. Pre-Printed Terms on Tickets and Receipts

What Terms Are Implicit?:

It came down to the question of what terms were implicit, when the customer contracted a sale or service? Again, we were faced with a test of reasonability. Strict exclusion of the ticket issuer from liability was not possible. Unreasonable terms would not be binding unless fair warning was given to the customers – the more outrageous, the more evident the notice should be. What Terms Are Implicit?

Chapelton v. Barry Urban District Council:

Mr. C hired a beach chair, by paying the fee and obtaining a ticket. When he sat on one, the canvas wore through and he fell down. He suffered an injury, and had to follow it up with a visit to the doctor. The defendant was hiring out chairs, and claimed exemption on the basis of the terms printed on the back of the ticket, “The Council will not be liable for any accident or damage arising from hire of chair.” It was ruled that he did not knowingly enter into the contract with the terms as set out on the back of the ticket, unless the defendant took special care to bring this to his attention. This ruling made void all the strict exclusion clauses printed on the backs of tickets. Chapelton v. Barry Urban D istrict Council

Olley v. Marlborough Court Limited:

Plaintiff was staying at defendant hotel, when she lost her valuables. The hotel had a sign saying it would not be held liable for loss of precious personal property, unless it was deposited with the manageress of the establishment. The court rules that as these signs are seen only once the guest is already staying at the hotel, no doubt the hotel owners hope to bind them by this principle. However, unless it is clearly shown that the customer saw and agreed to the terms, the customer is not bound by the terms and conditions mentioned. Olley v. Marlborough Court Limited

Thornton v. Shoe Lane Parking Limited:

The defendant was an automatic parking company, where people, through an automated transaction, received a ticket. On the back of this was a note saying terms and conditions apply, but they were not numerated right there, they were displayed in the garage. The plaintiff suffered an injury due to the negligence of the garage. However, it was stated in the T & C that they could not be held liable for any injury. The Court held that as long as the terms are brought to the customer’s notice before the sale of the ticket, he can be bound by the terms, but unless adequate warning is given, he is not bound by it. Thus, the defendant does not escape liability. Thornton v. Shoe Lane Parking Limited

Interfoto Picture Library Limited v. Stiletto Visual Programmes Limited:

Stiletto borrowed 27 transparency images from Interfoto . The images were sent along with a clearly noted list of nine Terms and Conditions, the second of which stated that if the images were kept past the due date, a fine of £5 per day, per image. Stiletto was given a bill of £3,783. They refused to pay, claiming not to have read the conditions. The court ruled that this particular condition, being particularly onerous, required Interfoto to bring it to the special notice of its customers. Since this was not done, the Court refused to recognize it as part of the contract between the two parties. It established the rule that “the more outlandish the clause, the greater notice the other party is required to give”. Interfoto Picture Library Limited v. Stiletto Visual Programmes Limited

Incorporation through course of dealing:

Importing terms from the past over the course of deliberations over a contract. Also, when two parties have been in business with each other over a long period of time, it may be implied that both parties are aware of the terms between them. This is incorporation through custom. Requires a well established history of dealings, and the terms should be invariant. This is the weakest means of incorporating terms into a contracts, and thus is almost never recognized. Incorporation through course of dealing

Parol Evidence Rule:

“If a contract is in writing, then the writing is the whole contract” Means – The parties cannot bring additional evidence Particularly Oral evidence, to add to or vary the written contract. If the parties knowingly form a part of the contract orally and a part in written, the Parol Evidence Rule does not apply. Claims can be made that a contract was partly oral, and as such the rule does not apply – this makes the rule difficult to implement. Parol Evidence Rule

Exemption Clauses:

Printed Standard Contract Documents, exempting corporations of all liabilities. As these forms are required to be signed by the customer, the terms are incorporated into the contract, and thus cannot be challenged. This poses a dilemma for the courts: what garners precedence, their role to vilify unjust contracts, or keeping the sanctity of the contract. They usually went with the latter. “The terms… have not been the subject of negotiation between the parties to it, or approved by any organization representing the interests of the weaker party” Exemption Clauses

Limiting the Scope of Exemption Clause:

Terms of the contract should not be unreasonable. E.g.: A dry cleaner, undertaking the cleaning of an expensive rug, cannot limit himself to a liability cap of $40. Fundamental Breach – the fundamental purpose of the organization should not have an exemption clause put on it. E.g.: A dry cleaner, meant to wash and return the clothes, exempting themselves of liability for lost clothes is a fundamental breach. If a party, through its superior power, tries to impose it’s exemption clause on the weaker party, when there has been a breach, the courts will not let it rely on the exemption clause. Limiting the Scope of Exemption Clause

Photo Production Limited v. Securicor Transport Limited:

Contract between the companies on Securicor’s standard form. Had an exemption clause, completely freeing Securicor from any liability. A Securicor employee, while on duty, started a fire on Photo Production property, which flamed out of control. The entire property was damaged. Securicor claimed exemption under the terms of the contract. Judgment said to consider the ‘presumed intent’ of both parties. Would both parties want this kind of absolute exemption? Obvious answer, no. Doing this was Limiting the scope of the exemption clause. Photo Production Limited v. Securicor Transport Limited

In conclusion…:

Incorporation is the term used to describe the communication that has become a term in the contract. Most effective means of incorporation – signing of offer and acceptance. A signed contract binds a party to its terms, whether the party has read it or not. Some terms are incorporated first through oral communication or by conduct – tickets, vouchers, receipts etc. Exemption clauses gave stronger parties an unfair advantage in contracts. Limitation of application and the doctrine of ‘fundamental breach’ helped counterbalance this. In conclusion…

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