Understanding the Legality and Enforceability of Exclusionary Clauses of Contracts - Essay Example

Understanding the Legality and Enforceability of Exclusionary Clauses of Contracts Although parties to the contract may agree on certain terms that govern their relationship and dealings with each other, the terms and conditions of contracts entered into by the parties are subject to the rules and regulations set by law. To valid and binding upon the parties, the exclusionary clauses of the contract must meet the criteria set by law including the Unfair Contract Terms Act 1977, the Sales of Goods Act 1979, common law and other legislations that may be applicable to the case at bar. The Unfair Contract Terms Act 1977 prevents the parties from imposing unconscionable and unfair obligations and liabilities against each other while the Sales of Goods Act 1979 provides protection to the buyer and the seller alike. Since there are limitations when it comes to the clauses of the contract, the parties must be vigilant in protecting their rights. In our hypothetical case, the parties to the contract, Bright Wheel Bicycles Limited (“BWB”), a UK manufacturer of bicycles and Top Gear Trading Ltd (“TGT”), a retailer based in Manchester, entered into a contact of sale of good whereby BWB is the supplier and TGT the reseller. Some of the bikes supplied by BWB to TGT were returned by the clients of TGT because they were defective. However, TGT complained about the defective bikes, BWB pointed out that their contract absolved BWB of liabilities under certain circumstance. The question now is whether or not clause 4 in the contract between BWB and TGT is legally binding upon the parties. Clause 4 contains several provisions including the warrantee for defects good for one (1) year, the obligation of the supplier to repair, replace or reduce the price of the item sold whenever appropriate and an exclusionary clause which limits the liabilities of the supplier to what have been stipulated in the contract to the exclusion of “all warranties, conditions and other terms implied by statute or common law are, to the fullest extent permitted by law.” According to Section 3 of the Unfair Contract Terms Act (UCTA) 1977, a party that drafted the standard form cannot exclude certain liabilities from breach of such contract or absolve the party from liabilities when the performance of its obligations is substantially or totally different from that what is required or expected of him or her. Moreover, the UCTA so provide that the manufacturer’s guarantee with regards to loss arising from defective goods or negligence of distributor where the goods involved in the contract are the types that are ordinarily supplied for private use or consumption. Relying on these provisions of the law, we can safely say that BWB cannot negate its responsibilities when it comes to the warrantee of its products within the normal life of these products. However, this does not mean that all of the provisions set forth in Clause 4 of the contract are unenforceable. Note that section 4.1 talks about the quality of the goods upon delivery and specifically cited therein that the goods delivered should be free from defects. Based on the Sales of Goods Act 1982, this type of provision is acceptable and should be part of the contract. As decided by the Court in the case of Saphena Computing v. Allied Collection Agencies1, the parties to the contract need to set standards of quality in the goods subject to the contract to have basis for redressed. By setting standards of quality, the parties can make use of remedies provided by law in case of any deviations from the agreed quality of the goods. Any deviations from the agreed quality can be considered as a breach of contract. As stated in Section 11N of the Supplies of Goods and Services Act 1982, the buyer of the goods may require the seller to repair or replace the good when the goods delivered do not conform to the quality agreed in the contract. Furthermore, section 11N of the Supplies of Goods and Services Act 1982 states that all expenses related to the repairs or replacement of defective goods shall be paid for by the party at fault. While section 4.1 is acceptable, section 4.2 on the other hand is questionable and some of its provisions may prove to be unfair. Note that this section imposes some conditions on the part of the customer that must be satisfied before the customer can ask the supplier to repair or replace the defective goods. As stated in Section 4.2 of Clause 4, the consumer need to inform the supplier in writing of the defect in the goods and such written communication must be submitted to the supplier within 5 days from delivery if the defect is apparent and within 5 days from discovery if the defect was non-apparent at the time of delivery. Requiring the customer to submit a written complaint to the supplier is unreasonable, thus, this clause may not be enforced against TGT or its clients. As decided by the court in the case of George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd2, where the exclusion clauses stipulated in the contract is unconscionable and put some of the parties of the contract at a gross disadvantage, the exclusionary clauses are deemed binding on the parties. Moreover, according to the court in the case of St. Albans City and District Council v International Computers Ltd3 and in the case of Britvic Soft Drinks Ltd v Messer UK Ltd4, where the parties to the contract did not enjoy equality of bargaining powers when they enter into a contract, the party which has more power should not impose unreasonable terms upon the other party which has less bargaining power. In our hypothetical case, the terms and conditions of the contract were not individually negotiated and TGT, when accepting the goods delivered to it signs the delivery receipt which contains the drafted contract had no choice but to adhere to the contract drafted by BWB. Clause 4.2 of the contract which was printed on the back of the delivery receipt puts TGT and its clients on the disadvantage, thus, such provision may not be enforced against TGT. As the court said in the case of St. Albans City and District Council v International Computers Ltd5, where the balance of powers is tipped towards on the parties, the party which has more bargaining power should not use its muscles to enrichment itself at the expense of the party with lesser bargaining power. Would TGT the right to claim that the provisions of the contract were unreasonable even if it knew before hand the existence of these provisions? In the case of Watford Electronics Ltd v Sanderson CFL ltd6, the court said that even if the other party knew about the existence of the unreasonable clause and still signed the contract, such party may still demand that such clauses be nullified later on for being unreasonable. Note that in this case, the plaintiff only knew about the unreasonable clauses in the contract towards the pre-contract negotiation and even though the plaintiff tried to renegotiate the contract to get rid of the unreasonable provisions, it only succeeded in making “make-weight amendment” which did not do much to protect its rights. However, since the party will lesser bargaining power wanted to use the products of the other party so badly, it signed the contract despite its unreasonable terms. By analogy, this is what happened in the case of BWB and TGT. Note that TGT placed the orders over the phone and it did not negotiate the provisions of the contract individually. Moreover, since the contract was written on the back of the delivery receipt of the goods, TGT had no choice but to sign the delivery receipt acknowledging that it accepted the goods in good condition and at the same time adheres to the drafted contract. As decided by the court in the case of Suisse Atlantique Societe dArmement Maritime S.A. v. N.V. Rotterdamsche Kolen Centrale7, even the party accepted the faulty goods upon delivery but the contract comes to an end due to the fault of one or both of the parties, the party at fault cannot rely on the exclusionary clauses set forth in the contract absolve itself of any liabilities for the damages resulting from the breach of the contract. Given this reasoning, BWB cannot escape liability for the faulty goods simply because TGT accepted the faulty goods. We have to understand that TGT is a retailer in this case and the UCTA as well as the Sales of Goods Act 1982 said that the breach of contract between the supplier and the reseller should not affect the rights of the end consumer to seek redress for damages suffered due to the faulty goods they bought from the seller. Another issue that TGT can raise against BWB in this case is the issue of clarity and preciseness of the contract. According to the court in the case of Stag Line Ltd v Tyne Ship Repair Group Ltd8, small prints on the back of tickets or sales invoices are often ignored by the buyer thus, contracts written in fine prints the back of receipts and invoices may not be considered as a binding contract between the parties. The court said that in most cases, contracts written at the back of receipts, tickets and invoices does not provide the kind of clarity and preciseness that ordinary negotiated contracts have (Levinson V Patent Steam Carpet Cleaning Co Ltd9) and some people assume that the terms and conditions written at the back of these tickets, receipts and invoices are regulatory so they do not pay much attention to them (Stag Line Ltd v Tyne Ship Repair Group Ltd10). Given the arguments stated above, TGT has the right to (a) go to court and have the unreasonable clauses declared as unenforceable (b) compel BWB to honor the warranty of the bikes and replace, repair or reduce the price thereof as the case maybe and (c) see compensation for damages for injuries suffered in relation to the breach of contract. Bibliography Books 1. Burrows, A., A Casebook on Contract (2nd edn Hart, Oxford 2009) 2. Hilliard J and J O’Sullivan, The Law of Contract (2nd edn OUP 2006) 3. McKendrick, E., Contract Law (8th edn Palgrave 2009) Laws 1. Sales of Goods Act 1982 2. The Law Commission, Unfair Terms in Contracts (LC292, 2005) http://www.lawcom.gov.uk/docs/lc292.pdf 3. Unfair Contract Terms Act 1977 List of cases 1. Britvic Soft Drinks Ltd v Messer UK Ltd [2002] EWCA Civ 584 2. George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] QB 284 3. Levison v Patent Steam Carpet Cleaning Co ltd [1977] 3 WLR 90 4. Saphena Computing v. Allied Collection Agencies,[1995] FSR 616 5. Smith v Eric S Bush [1990] 1 AC 831 6. St Albans City and District Council v International computers ltd (1996) The Times 14th August 7. Stag Line Ltd v Tyne Ship Repair Group Ltd [1984] 2 Lloyds Rep 211 8. Stewart Gill Ltd v Horatio Myer & Co. Ltd [1992] 2 All ER 257 9. Suisse Atlantique Societe dArmement Maritime S.A. v. N.V. Rotterdamsche Kolen Centrale [1966] 1 Lloyds Rep. 529 10. Watford Electronics ltd v Saderson CFL ltd [2001] EWCA Civ 317; [2001] 1 AER 696 Read More