Liability for Breach of the Contractual Agreement - Essay Example

Exclusion Clauses in Contracts Exclusion clauses are contractual terms that enable the parties to the contract to escape liability for breach of the contractual agreement. They are also employed, in order to limit the extent of liability of a contracting party, in respect of the damage caused to the other party in the contract. In standard form contracts exclusion clauses have great significance. At times, a dominant party in a contract includes them in the contractual agreement, which the weaker party has to accept, without any choice in the matter. Such contracts lack consensus, are devoid of negotiation between the contracting parties and constitute unilateral contracts. These contracts receive the special attention of the legislature and the judiciary, which attempt to mitigate the injustice inherent in them. Moreover, an exclusion clause should be a term of the contract in order to be effective (Kelly, Holmes, & Hayward, 2005. Pp. 143 – 146). The courts have developed several rules to regulate and restrict the enforceability of exclusion clauses. First, the construction of the clause, under this concept the courts determine the validity of the clause and whether it covers the entire facts of the contract. In Andrews v. Singer, the court held that exclusion clauses that exempted liability, on the basis of implied terms, could not be enforced. In addition, such clauses could neither limit nor exclude liability for any infringement of express terms (Andrews v. Singer). Second, the contra preferentum rule, under this concept, the courts interprets the uncertainties and ambiguities prevailing in the exclusion clauses against the party who seeks exemption of liability on the basis of those clauses. This was established in the case of Hollier v. Rambler Motors. The court had stated that the exclusion clause in the contract could only be applied to non – negligent accidents and the damages caused by such accidents. Hence, it could not be utilized by the defendant to circumvent responsibility. Consequently, the defendant was held to be liable for the damages caused to the car of the plaintiff, due to the negligence of his employees (Hollier v Rambler Motors (AMC) Ltd). Third, the doctrine of fundamental breach. A number of complicated cases relating to exclusion clauses, motivated the courts to attempt to develop a rule, whereby it would be impossible to escape from liability for breach of contractual terms, if such breach had led to the total failure of the contract. Some part of a breach could impede the performance of the contract as a whole. However, no absolute rule had been formulated that rendered such clauses invalid, if the contract, as such had failed in its entirety (Kelly, Holmes, & Hayward, 2005. Pp. 143 – 146)First, an exclusion clause can be inserted in a contract, if a party appends his signature to the contractual document of the contract. As such, a party is deemed to be bound by the terms of the contract if he signs on the document, even though he fails to read or notice these terms (Kelly, Holmes, & Hayward, 2005. Pp. 143 – 146). In LEstrange v. Graucob Ltd, the supplier of the cigarette vending machine had included an exclusion clause in the agreement, whereby he disclaimed any responsibility for the quality of the machine. This type of commercial behaviour by the dominant party is disallowed by the consumer protection legislation. Specifically, sections 68 and 68A of the Trade Practices Act prohibit the inclusion of implied exclusion terms into contractual agreements, made in respect of goods or services (LEstrange v Graucob Ltd). In Curtis v. Chemical Cleaning, the defendant inserted an exemption clause and misrepresented its consequences. It was held that such clauses were neither effective nor binding upon the other party. Such action is classified as misleading behaviour, and section 52 of the Trade Practices Act disallows such misleading terms in contracts. Furthermore, such terms create the wrong impression in a party, with regard to the meaning of the exclusion clause (Curtis v Chemical Cleaning and Dyeing Co). In addition, exclusion clauses can be made effective by issuing a notice to the contracting party. This condition requires the serving of a notice to the affected party. Therefore, an exclusion clause will be ineffective, unless the other party has knowledge about its terms. In lieu of knowledge of the term, the party must be given sufficient notice, regarding the inclusion of the term in the contract. Under such circumstances, the exclusion clause must be an integral part of the contract, and they should exist at the time of making the contract (Kelly, Holmes, & Hayward, 2005. Pp. 143 – 146). In Olley v. Marlborough Court Hotel, the defendant had displayed a notice in the hotel room. The notice was not visible to the customers, while booking rooms in the hotel. It was held by the court that the exclusion term was not enforceable as it was displayed subsequent to the formation of the contract (Olley v. Marlborough Court Hotel). Thornton v. Shoe Lane Parking, dealt with a car park maintained by the defendants. The plaintiff Thornton sustained a physical injury, while parking his car in the parking area. The defendants had printed an exclusion term on the reverse of the parking ticket, which stated that the defendants were not liable for any injuries caused to their customers. As such, the defendants argued that they were exempt from liability due to the express term. Lord Denning held in this case that the contract between the plaintiff and the defendants was formed as soon as the former had entered the car park. He was issued with the parking ticket subsequent to the formation of the contract between them. Moreover, the exclusion term was printed on the reverse of the parking ticket. The plaintiff could read the exclusion term only after the formation of the contract. Hence the defendants were deemed to be liable, and they could not escape liability (Thornton v. Shoe Lane Parking). In Chapleton v. Barry UDC, it was held that tickets could not be contractual agreement documents. The Court of Appeal stated that a ticket was only a receipt for the money paid by the plaintiff. As such, exclusion clauses printed on a ticket could not be enforced and were held to be invalid (Chapleton v Barry UDC). Moreover, exclusion clauses become effective due to custom. If the parties to the contract had previously dealt with each other, on the basis of an exclusion clause, then such exclusion clause would be effective, and the exclusion clause could be inserted in subsequent contracts between these parties (Kelly, Holmes, & Hayward, 2005. Pp. 143 – 146). In Hollier v. Rambler Motors, the defendant maintained a car garage. The plaintiff was a regular customer of this garage and on several previous occasions his car had been repaired at that garage. The plaintiff had signed a document that had contained an exclusive clause, during his earlier visits. However, during the last visit he did not sign any document. Subsequently, his car was damaged by a fire in the garage, which occurred due to negligence of the garage’s employees. The plaintiff sued for compensation, and the defendant claimed that he was to be exempted from liability, on the basis of the exclusion term. The court held that there was no proof whether the plaintiff had knowledge of the exclusion clause and that he had consented to be bound by that clause. Hence, it was decided that the exclusion term, could not be treated as a part of the last contract, entered into by him and the garage (Hollier v Rambler Motors (AMC) Ltd). The use of exclusion clauses in business contracts is governed by the Unfair Contract Terms Act 1977 and the Unfair Terms of the Consumer Contract Regulations 1999. These pieces of legislation ensure the proper application of the exclusion terms and clauses and prevent their abuse. The Unfair Contract Terms Act holds a business liable, if it fails to fulfil the obligations or duties that are to be carried out in the normal course of business (Section 1(3), Unfair Contract Terms Act 1977). According to Section 12 of the UCTA, dealing as a consumer is established if the contract was not made in the normal course of business. As such, exclusion clauses have to fulfil certain legal requirements to be deemed to be reasonable. In other words, such exclusion clauses must not have been prohibited by other statutes and laws like the Consumer Protection Act 1987, the Unfair Contract Terms Act and the UTCCR. In order to be effective, the provisions of the UCTA require one of the parties to a contract to act as a consumer. The Unfair Contract Terms Act bestows widespread discretion on the courts to determine the reasonableness of exclusion clauses under these discretionary powers. The parties to a contract are required to prove the reasonableness of exclusion terms, which they had incorporated in the contractual agreements, if they approach a court for remedial action (Section 11(5), Unfair Contract Terms Act 1977). List of References Andrews v. Singer, (1984) 1 K.B. 17. Chapleton v Barry UDC, 1 KB 532 (1940). Chapleton v Barry UDC, 1 KB 532 (1940). Curtis v Chemical Cleaning and Dyeing Co, (1951) 1 KB 805. Hollier v Rambler Motors (AMC) Ltd, (1972) 2 QB 71. Kelly, D., Holmes, A. E., & Hayward, R. (2005. Pp. 143 – 146). Business Law. Routledge Cavendish. ISBN: 1859419623. LEstrange v Graucob Ltd, (1934) 2 KB 394. Olley v. Marlborough Court Hotel, 1 KB 532 (1949). Section 1(3), Unfair Contract Terms Act 1977. (n.d.). Section 1(3), Unfair Contract Terms Act 1977 . (n.d.). Section 11(5), Unfair Contract Terms Act 1977. (n.d.). Section 11(5), Unfair Contract Terms Act 1977. (n.d.). Thornton v. Shoe Lane Parking, 1 All ER 686 (1971). Thornton v. Shoe Lane Parking, 1 All ER 686 (1971). Read More