Written terms can be incorporated into a contract in three ways: by signature, by reasonable notice, and by a previous course of dealing.
By signature, it means if a document is signed at the time of making the contract, its contents become terms of that contract, regardless of whether they have been read and understood. This rule however does not apply where there is any misrepresentation as to the nature of the document signed.
By reasonable notice, it means if written terms are presented at the time a contract is made, those terms only become part of the contract if it can be said that the recipient had reasonable notice of them. Many of the rules on reasonable notice arise out of what are called the “ticket cases”.
By previous course of dealing, it means that if two parties have previously made a series of contracts between them, and those contracts contained an exemption clause, that clause may also apply to a subsequent transaction, even if the usual steps to incorporate the clause have not been taken.
The parol evidence rule
Under this rule, where there is a written contract, extrinsic (parol) evidence cannot change the express terms laid down in that document. Extrinsic evidence includes oral statements, and written material such as draft contracts or letters, whether relating pre-contract negotiations or the parties’ post-contractual behavior. The rule only prevents use of extrinsic evidence concerning the terms of a contract: where one side is seeking to prove whether or not a contract is valid, extrinsic evidence may be used even though the actual contract has been put in writing. The exceptions to the parol evidence rule are as follows;
- Rectification: Where a document is intended to record a previous oral agreement but fails to do that accurately, evidence of the oral agreement will be admitted.
- Partially written agreements: Where there is a written document, but the parties clearly intended it to be qualified by other written or oral statements, the parol evidence rule is again displaced. This was illustrated in the case of Couchman v Hill (1947).
- Implied terms: The parol evidence rule only applies where a party seeks to use extrinsic evidence to alter the express terms of a contract. Where a contract is of a type that is usually subject to terms implied by law, parol evidence may be given to support, or to rebut, the usual implication.
- Operation of the contract: The parol evidence rule does not apply to extrinsic evidence which shows that the written contract was intended to come into operation, or to cease to operate, in the event of a particular circumstance.
- Evidence about the parties: Extrinsic evidence can be used to show the capacities in which the parties were acting when they made their contract.
- Aids to construction: If an express term is ambiguous, extrinsic evidence is usually admissible to help work out what the term should mean.
- Proving custom: Where it is suggested that a term should be read in the light of local or trade custom, evidence of that custom is admissible to add to or explain a written agreement, though not to contradict it. This was illustrated in the case of Smith v Wilson (1832).