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Incorporation by reference is a common law principle that allows one to include terms enumerated in a separate legal document in any newly created document. It is usually with convenience in mind and may be done in any situation where a contract is being formed. Incorporation by reference is also a common term used when discussing the drafting and execution of a will.
At common law, incorporation by reference is permitted to weave the contents of a separate document into the incorporating document. The most common purpose for doing so is to avoid having to go through the process of rewriting terms that have previously been articulated in a second document. It is in the interest of convenience to incorporate those terms simply by referencing the already existing document of which all parties are aware. By clearly stating within the incorporating document that the parties are agreeing to include the terms of the referenced document, those terms become legally binding on the parties upon execution of the incorporating document.
Incorporation by reference is especially common in the drafting of business contracts. Very often, two parties who are agreeing to a business agreement of some kind will have another document that contains information pertinent to the contract, and rather than rewriting all that information, they will simply reference the document. For example, in the case of an owner of several properties who has agreed to allow a company to act on his behalf in leasing the properties, the agency agreement may refer to a list of properties and their addresses and attach that list at the back of the agreement as an appendix. A different kind of scenario would be the incorporation of terms of a previous agreement into the present agreement by a clear unambiguous reference to the previous agreement.
Though it is not allowed in some jurisdictions, the other common way that documents are incorporated by reference is in the creation of wills. Typically the three requirements are that the will must clearly and unambiguously refer to the document as being part of the will, it must be identified with reasonable certainty, and it must have existed at the time of the execution of the will. One common restriction on incorporation by reference in wills is that the testator, the person for whom the will is being drafted, must have signed the referenced document. Additionally, if there are conflicts between the body of the will and the referenced document, the conflicting terms must be reconciled.