Law of Contract: Exclusion Causes and Privity - Case Study Example

A contract is a result of an agreement involving two or more parties where each party is bound by some obligations perform in accordance with the terms and conditions in the contract. A contract can therefore confer rights or entail obligations on the parties included in the contract. The doctrine of privity in contract means that only the parties involved in a contract are allowed to enforce it. It restricts possibility of a third party/beneficiary in enforcing a contract, (Atiyah, 1995). Under the rule of consideration, the consideration has to move from a promisee to the promisor, this raises the doctrine of privity, where each party need to clearly show the people who are the parties in a given contract thereby defining their obligations. Failure to meet such obligations, they will be liable for any damage. Such liability is strictly for the parties involved in a contract in exclusion to any third parties. The privity doctrine therefore stipulates that only the parties in a given contract can sue or be sued regarding the contract. This gives two different principles that can be derived from the doctrine. One is that any person or entity who is not a party in the contract does not have rights to enforce the contract and also that such a person is not bound by a contract in which he is not a party. It confers no rights or obligations to any except those engaged in a contract through agreement (Treitel, 1995). Economic development and growth in international trade has led to globalization in trade and given rise to legal conventions. In most business contracts most single contractors make arrangement with third parties who benefit from such contracts the growth of such contracts has increased calling for law reforms in many countries. With the growth of economies, the doctrine of privity, which prohibits conferment of contracts benefit to third parties raises a number of complexity to contracts which are made with the intention to benefit a third party. It frustrates such contracting parties while a third party who may have arranged with the contracting party in a contract suffers losses and ends up inconvenienced. In the case of the contract in question there are two parties in the contract, namely; Ace Steamers Ltd and Beth. In this contract, Beth entered into a contract with AC Steamers Ltd and bought two tickets, one for her daughter Carol and one for herself. Applying the doctrine of privity in this case, though Carol is bought for the ticket, she is not a party in the given contract and can not sue AC Steamers Ltd for any breach. She is also not liable for any damage that may be done by Beth. In this case we realize that Beth's intention was to benefit Carol and we clearly see some of the difficulties raised by the doctrine of privity. The case of Dunlop Pneumatic tyre Co Ltd versus Selfridge and Company is a classic example where Dunlop Pneumatic tires Co Ltd sold tyres to Selfridge and Co Ltd on condition that they would sell the tires below the greed price. Selfridge went on and sold to a third party based on the same conditions but the third party went on and sold the tyres below the price agreed and Dunlop Pneumatic sued them for a breach and the case was ruled that there was no contract between the third buyer and Dunlop Pneumatic Co Ltd. In the case in question Carol has no right of action against the Ac Steamers Co Ltd. However Beth being a party in the contract can sue for damages that herself has incurred. There are a few exceptions to the doctrine of privity which comprise means of circumventing the doctrine of privity. Under insurance contracts the doctrine of privity excepted in insurance policies for the advantage of third parties such that a policy is effected by the assured for his life, and also expressed as benefit of his dependants such that she can sue in the particular insurance company as long as it's assigned in writing. The doctrine of privity also faces exception in matters of family development and marriage settlements, where a contract is an arrangement on marriage or a family agreement any person who is beneficiary to the arrangement should be entitled there under can take an action to enforce the given contract. Also in case of negotiable instruments where there is creation of a Charge, A third party to a contract can take legal action for the money payable to her through the instrument where money is charged on fixed and immovable properties, or in a case where such money in suit was allocated for the third party by the promisor. The doctrine of privity is also excepted in case of contracts running with the land for the benefit of the third party where a dependant can take over his father's land for instance. In agency, a person who acts as an agent on behalf of the principal, he or the principal though not both can and enforce a contract. This is common in the contracts of carriage of goods. In this case none of the people involved contracted as agent and therefore the exception does not apply in the context. Also in case of trusts, the third parties can beneficiary take action that enforces the promisor obligation. For a trust to be there should be a property held under trust in which case the property is the promisor's promise. The other exception to privity isEstoppel where the third party has to ascertain the basics of a promissory estoppel on the facts of a given case. There can also be exception to privity in a contract where there is statutory authority allowing the third party to take action against a party in a given contract. However in the case in question none of the exceptions is applicable in the contract and therefore Carol has no right of action against the Ac Steamers Co Ltd. However Beth being a party in the contract can sue for damages that she has incurred. Some contracts contain exclusion clauses. These are contractual restrictions allowed by a party to exclude or limit their liability and responsibility in a contract. The exclusion clause is meant to cover the breach and doesn't run against the statutory policy; they are most common in contracts of sale. Some people apply exclusion clauses in a contract to define their obligations but in many cases they are used by parties to defend themselves in case of breach. Volenti non fit injuria is one of the legal principles that are widely applied in case of exclusion clauses, which means that where consent was sought in a given contract the parties cannot, have a right to sue in case of injury. Legal issues arising from a party waiving their legal rights through consent depend on whether the person waived such rights knowingly. In the purchase of the tickets there was an exclusion clause in the contract which one party is aware of but the other party is not aware of when buying the ticket. One of the rules guiding the application of the exclusion clause is that they must be validly incorporated before or at the time the contract is made for it to be effective, such as in the case of the contract between the AC Steamers Ltd and Beth, the exclusion clauses were printed in small prints. The following clauses were there: that Ace Steamers Ltd do not accept liability for loss or damage to property caused by the acts of our employees, that the liability for damage to property is limited to 100 per item and that Ace Steamers Ltd do not accept liability for injury to passengers while on the premises of Ace Steamers Ltd caused by the acts or omissions of our employees. The clauses were not brought to the attention of Beth which Beth who had left glasses would not read. The validity of an exclusion clause depends on whether both parties are reasonably notified. The party which seeks to use the clause must bring them to the other party's attention and notification should as well be expressly included in the contract before or at the time of contract. Courts rule that the clause should be interpreted, by the party which purports to exclude their liability in terms the type and nature of liability they want to exclude. Courts also rule that things that are fundamental to the contract should not be excluded. Exclusion clauses can play an important role in contracts but distinction ought to be drawn between fair and necessary exclusion clauses and unfair clauses which seek to exclude a party's liability so as to simply add to their profits adding to imbalance of power between the contracting parties, (Lawson, 1995). In the contract given Beth was not aware of the exclusion clause in receiving the ticket and should not be bound by the conditions of the clause. If she knew there was writing, and knew or believed that the writing contained conditions, and then she would be bound by the conditions of the clause. The mere fact that she saw some small print in the ticket does not mean that she was aware that they contained conditions pertinent to the contract and in my opinion she can therefore sue for the injury caused by the movement of the gangplank which was not secured properly by the crew. There are cases whereby a paper containing some writing is delivered from one party to another in course of a business transaction, where it would be logical that the party in receipt of it should suppose that the writing enclosed in it no conditions, and may place it in his pocket unread. AC Steamers Company as it appears to me, are not entitled to formulate some assumptions regarding the person who buys ticket from them: They may assume that she can read, and that she understands the given language so as to reasonably read and understand the conditions therein. AC Steamer Company Ltd must, still, take mankind as they sell their tickets to explain to the plaintiff (Beth) such that should anything occur they can be in a better position than the plaintiff else the plaintiff will be safe from the binding of such conditions and this is not on the account of her carelessness or exceptional ignorance but because what Ac Steamers company did was not adequate to convey to her mind in that the ticket generally includes conditions, this means that they have sold the ticket to her without attaining her consent to the conditions limiting the company's liability. This is because in case of exclusion clauses, the clauses are unusual or onerous and therefore greater notice is expected. The test in such a contract is whether such a clause is fairly applied or unfairly applied and in this case it's unfairly applied because of the disequilibrium that persists between the bargaining powers of the two parties. My approach in this case would correctly be decided on the given facts. A party should be bound by term which she is aware of. Beth should therefore move on and sue the company for the injury caused to her arm due to their own carelessness, since she is not bound by the exclusion clause. Imposition of some exemption clauses may be mainly hurtful in consumer contracts, that's why we have statutory control on application of exclusion clauses, in form of the unfair Contract Terms Act 1977 (UCTA). Reasonableness in this case is clarified further in regard to the circumstances which exist, or must reasonably to have been, recognized and contemplated when the given contract was made. The court retains a wide discretion as to determine whether a given clause satisfied the test of reasonableness of the party relying on them must show that the clause is reasonable. The Ac Steamers Company Ltd are not likely to prove that their exclusion clause was reasonable which means that it will be invalid under the act. In this case we are told the Beth has been on steamer a number of times but this does not mean that she is aware of the clause, in my opinion it seems that Beth has never recognized the exclusion clause in their tickets and we are also told that she uses glasses, so for that particular time she wouldn't have made to read and she is not read for so she does not think that the clause may have conditions attached to the contract. With regard to whether a given clause in a particular contract is reasonable or not, the court considers: the bargaining point of the parties involved in the contract and the awareness of existence of the clause to the party exercised upon. The statutory regulations also consider the circumstances of the given contract. Statutory regulations impose a total ban on exclusion clauses in any given contract where sc clauses attempt to exclude a party's liability for death or personal injury resulting from negligence. Negligence under the law of torts refers to any breach of duty of a party's obligation to offer care or sound skill. In this case Beth has suffered a personal injury and may be pegged on the company's negligence; they did not ensure that the gangplank is properly secured by the crew. AC Steamers Company Ltd is therefore liable to compensate Beth under he law or tort due to their negligence. The exclusion clause must specifically state the types of loss whose liability limited or excluded whether the loss be direct losses or indirect losses. The breaking of the diamond worth 2,000 in her ring is an indirect loss which can be excluded if it fulfils the reasonableness. In the Ticket there was a clause which stipulated that the company is not liable for any loss exceeding 100 per Item. However she is not aware of the clause since all she knows is that there were some prints on the ticket. I would compare her case to a case of an illiterate person. Selling to such a person a ticket with such a clause without a little more disclosure does not mean she is aware of the exclusion clause attached and so any damage incurred to such a party even though the exclusion clause was there should be compensated. In considering fairness in such an exclusion clause we refer to the time the contract was made and ask ourselves if such a clause would have been fair. In my opinion it's unfair to limit clients' possessions worth to such a low value as 100. Again such matters are sensitive and ought to be well known to the clients/the other part. I therefore the exclusion clause was unfairly applied. I therefore would advice Beth to move on and take a legal action against AC Steamers Company Ltd for the loss of the Diamond in her ring. References Atiyah, P. (1995). An Introduction to the Law of Contract. Clarendon Collins, H. (1993). The Law of Contract. Butterworths Koffman, L., & Macdonald, E. (1995). The Law of Contract. Tolley Lawson, R. (1995). Exclusion Clauses. Longman Treitel, G. (1995). The Law of Contract. Sweet & Maxwell Read More