Terms of a Contract and Exclusion Clauses

What the Terms of a Contract and Exclusion Clauses really mean?

Contract

For a contract to be enforceable,It has to have, an;-

1. Offer,
2. Acceptance,
3. Consideration,
4. Intentions to create legal relations,
5. Capacity among other key factors.

Therefore a Contract is a legal agreement between two or more people which is enforceable by the Law.

Terms are the stipulations or promises in a contract and they exist in two categories 

Express terms and Implied terms

Express Terms

This are negotiated terms, which are reduced to writing and are agreed upon by the parties. They exist into two : Implied by facts or Implied by the law It can be further explained; If the contract is written, oral evidence is not admissible and its interpretation is a matter exclusively on the judge jurisdiction. If the contract is Oral, the content in the words are a matter of evidence in a court. Smith v Hughes.

 Parole rule:This is whereby there is existence of both written and verbal evidence in which the judge often will rely on the oral evidence. Harwish v Bank of Montreal. Harwich signed a guarantee note for the company, the World Bank Manager paused the acquired price until they receive a quantity from the directors. They received it the company goes bankrupt, the bank sues it. This principal established the verbal evidence which surpasses the written one was used by the judge.

Implied Terms

Implied comes from the term implication which means it can be in either practical or theory other than express term. Implied terms are contained in Section (12-15) of the Sale of Goods Act (1979), which unfolds relevant obligations on the sale of goods.

Customs and Trade Usages

“Usage” means that the parties did not mean to express in writing the whole of the contract, which was initially intended to be bound but with-reference to their own usage. The court may apply a trade usage or a custom into a contract. In the case of Hutton v Warren the court held that the plaintiff was allowed a fair allowance for seeds and labor according to prevailing custom. In London Export Corporation ltd v jubilee coffee roasting co (1958),  Lord Jenkins stated that an alleged custom can be incorporated into a contract only if there is nothing in the express and implied terms of the contract to prevent such inclusion and further that a custom will only be  imported consistently. The first guidelines are that:

The first usage must be a known usage.

The Custom must be known and Known to the parties.

It must be Reasonable

The parties involved should not be exempted their customs from their transaction.

It must be certain

This means that the practice should be clearly established and well known.

The custom usage must be known to the parties

Implied by Courts

Terms implied by courts can either be:

1.Terms implied by Facts

Under implication by facts, a contract is implied by facts in order to give effect to what is derived by the court to be the unexpressed intention by the parties.

The Moorcock (1989) relates to the source of implied terms and  also brings a key controversial of the presumption intention of the parties to contract. In this case, the intention is  presumed rather than express and upon reason. In Heritage v Union Manufacturing Company,Ramsbottom Limited (1918)KB. 

Bowen J mentions , The courts does not imply a term into a contract on the basis of that is it, in the opinion of, or reasonable to do so. Therefore, a court implies a term based on its necessary and that is in order to make a contract work. 

2. Terms implied by Law

This are impliedd terms as a nature of the courts but not necessarily as the intention of the courts. Liverpool City Council v Irwin (1976) In  the Liverpool case, the house of lords allowed a term to be implied into the contract between the council and tenants by virtue go a statute  under (Section 32) of the Housing act (1961) to keep in proper working order the installation for tee supply of water for sanitary conveniences, the tenants  succeeded on this part of the appeal because the lavatory were badly designed . 

Implied by Statute

These are terms, which are seldom, agreed by the law but can be implied by Statutes or by the court of law. They are inclusive The Sale of Goods Act.Terms implied in the Sale of Goods contract by the Sale of Goods Act;-

• Right to sell

Section (4) - There is an implied term that all changes or encumbrances known to the seller and not the buyer have been disco send to the buyer before the contract was initially made.

• Correspond to description

Section (5) stipulates the conditions and terms implied as description and are classified as warranties.

• Fitness of Purpose

Section 16(b) When a buyer through implication or by expressively makes known to the seller the particular purpose  for which goods are required so as to rely on the sellers judgment or skill, there is an implied condition that the goods shall be reasonably fit for that purpose.

• Merchantable Quality

When goods brought by description from a person who deals in such goods in the ordinary course of business whether a seller or a manufacturer there is an implied condition that the goods will be of merchantable quality.

• Sale by Sample Section (17)

The bulk shall  correspond with sample in quality
The buyer shall be afforded a reasonable opportunity to compare the bulk with the sample
That the goods shall be free from any defects rendering them merchantable

EXCLUSION CLAUSES

This is clauses inserted in a contract-imposed by the stronger party in order to escape from liability or limiting any liability arising under the contract. Some of the epitomes of Exemption Clauses include Hire purchase, conveyance of the land, and insurance agreement.  Exemption Clauses can be incorporated by;-

1. Incorporation by Signature
2. Incorporation by Notice

In the case of L’Estrange v Graucob (1934), the plaintiff bought an automatic cigarette machine from the defendant and the terms written in the sale agreement. Some of the clauses were in small print thus exempting the defendant from liability if the machine turned out to be defective. It worked for a few days.  The plaintiff sued the defendant who relied on the exemption clause in the agreement. The position was settled, that the defendant was not liable as the document contained the terms of the contract and the plaintiff had sighed and therefore bound.

Incorporation by signature

• There are  certain instances where parties to a contract may contain  a signature an exemption clause, the court must be certain that:

• The documents contained the terms of a contract between the parties

• If a person sighs a document he is bound by it even if he does not read it, understand it or even the print was too small. Signature Prima facie  .Simply means the acceptance of the parties .Incorporation of signature is so held in L’Estrange v Graucob. If a document contain evidence of a signature which was produced as a result of misinterpretation or fraud, the signature is voidable at the least of the weaker party.  

• In Curtis v Chemical Cleaning and Dyeing Company, the plaintiff took a wedding dress to the defendant shop for cleaning and was given a document to sigh. The shop assistant explained to her the term  that the document exempted liability for any decoration of the dress ,she sighed negligently without reading, the dress was damaged and stained, she sued the company under which they had relied on the exemption clause of liability for damage.Thereafter the plaintiff pleaded the contents of the document was mid interpreted to her and hence the signatures was voidable hence the company was liable.

Incorporation by Notice

• When an exemption clause is in operated by a notice,the court must be contented that the parties affected by the clause was aware of its existence when the contract was entered to.
• In Lougher v Kenya Safari Lodges.The plaintiff was injured in a swimming pool next to a notice exempting the hotel from injuries sustained by persons at the swimming pool.It was held that the  hotel was liable as the exemption clauses was brought to the plaintiffs  notice  after the contract has been concluded.
• In Parker v South Eastern Railway Company. The plaintiff left his luggage in at a railway station luggage office and was given a ticket which coin tainted the words “SEE BACK”.This was simply a clause that was trying to exempt the company from liability for lost of luggage.Henceforth, the plaintiff's luggage was lost and he sued.The company was not held liable as it had brought the exemption clauses to the plaintiff notice before he bounded to the contract.
• In Olley v Malbourough Court ,the plaintiff reserved  a hotel and paid for  a weeks stay.She was further given the key where an exemption clause for the liability of missing items was behind the door,on the other end guests were required to deposit valuables with the  managers in the hotel,  during her absent idiom a stranger opened the  room and stole her expensive clothes.She sued the hotel.The hotel relied on an exemption clause behind the door .It was held that the hostel  was liable as the exemption clause was brought to the notice of the plaintiff after the contract was concluded.
• In Thomsons v alms Railway (1930) Where the plaintiff was an elderly lady who couldn't read.She asked her niece to buy her a railway excursion ticket on which was printed “Excursion.For Conditions see back”On the back it was stated that the ticket exempted the company from liability for injury subject to conditions contained in the timetable. A similar case was in Chapelton v Barry udc(1940)

Limitation of Exclusion Clauses

Exclusion clauses as explained above,has a general assumption that parties are free to contract with the other and can protect their own interests.Exemption clauses are mainly operate against public interest as the party affected by them remain rather ignorant of their presence or the importance until it's too late them they begin to act.Thus weakening the bargaining element of the stronger party.The following are some of the limitations of these exclusion clauses: 

Exemption clauses have a demerit in large organizations so as to abuse their bargaining power especially in business as they can be used to allocate contractual risks.Applications of the Limitations to Exclusion Clauses

The Unfair Contract Act (1977)-The acts use two methodology of controlling exemption clauses which are inclusive:

• Test of reasonableness

• Ineffective clauses.

Some of the main provisions of the act are inclusive:

• Section (2) Exclusion of Negligence Liability In this section the term negligence means the breach of any obligation to take reasonable care or exercise reasonable skill in the performance of a contract where the obligation arises from express or implied terms of a contract.
• Section(3) Standard term contracts and customer contracts-The party  who imposes the standard term contract or who deals with the consumer cannot restrict his liability for his own breach of conduct or performance.
• Section(5)Guarantee of consumer goods-This is whereby goods supplied for private consumption and ,if  any loss or damage arises because the goods are defective to the consumer  as a result that the manufacturer or distributer was negligent, liability can be excluded in the guarantee for goods.
• Section (6)Sale of goods-Section (13-15) cannot be excluded from consumer sale but can be excluded in a non-consumer  sale if the exemption clause is reasonable.

The Requirement of Reasonableness

This is dependent on the fairness and reasonableness in regard  to when the contract was made .However, the burden of proving reasonableness relies on the person seeking to rely on the clause .In the Unfair Contract Terms Act (1977) Schedule two lies a guidelines of determining reasonableness which are:

The Strength of Bargaining positions of the parties in relations to each other.

Whether the customer received an inducement to agree to the term

Whether the customer knew or ought reasonably to have known the existence and extent of the clause.

Whether the term restricts any relevant liability if some condition is not complied with, whether it was reasonable at time of contract to expect that the compliance was practicable.

In  Philips Products v Hyland((1984)  The plaintiff  hired a JCB including a driver front the plant company, An exclusion clause C  stated  “When a driver or operator is supplied by the owner to work the plant,  he shall be under direction or control of the hire and operators and  shall for all purpose  in connection with their employment in the working of the plant regarding the servants” The defendant mentioned that he would not tolerate interference in the way he operated his machine,  then went ahead and drove it negligently  causing damage to the plaintiffs building. The principal established that the exemption clause was not reasonable; this is because the plaintiff  hired the company.

Therefore the   company was liable for the defendants negligence, another key note case study is Smith v Eric Bush (1989) The claimant  wanted his house to be surveyed by the defendant ,the defendant  failed to advise him on some structural a damage which resulted in the chimney collapsing together with the breast. Apparently there was no contractual relationship between the claimant and defendant , however the mortgage company made a contract and it contained a clause exempting the surveyor from liability. exemption clause was not reasonable simply because there was no existing contractual obligation.

In summary, terms are the stipulations in a contract. Certain  terms, include express terms and implied terms. Conditions and warranties are also significant in each process. Implied terms can be  categorized into three, by court, statute and customs and trade usages. Exclusion or exemption clauses terms are the contents in a contract which can exempt the stronger  party from liability. Hence, terms in a contract play a keynote role in the making of a contract.