EXCLUSION CLAUSES IN LAW OF CONTRACT

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1 EXCLUSION CLAUSES IN LAW OF CONTRACT Introduction: a clause means a statement. In relation to contract, it simply means a statement in the contract and that indicate what the parties have agreed on. In this respect a clause also means a term/provision of a contract. Exclude is defined by dictionary.reference.com as to shut out from consideration, privilege, etc. Definition: Exclusion clauses are clauses, usually written down that says that one party to the contract will not be responsible for certain actions. In other words it is a statement in a contract that seek to protect a defaulting party from the legal consequences. The purpose of exclusion clause is to enable a party avoid the legal consequences of his failure to discharge his contractual obligations. Cases that illustrate the use of an exclusion clause in a contract. Case 1. Curtis V. Chemical Clinic and dyeing Co. In this case, a laundry company accepted a dress from a customer for laundry. A provision in the contract stated that the company will not be liable for any damage that may be caused to the dress. The provision was contained in the receipt that was given to the customer for signing which she did. By signing the document the customer had indicated her agreement that the company should not be held liable for any damage that might be caused to the dress.

2 Ordinarily the customer would have been entitled to hold the company liable for damage caused to the dress while the dress was in the care and custody of the company. The company however, sought to protect itself from such liability by means of the exclusion clause. Other Examples If you join a gym, it is common for the contract to say that the gym owner will not be responsible if you are injured while exercising. Also, if you arrange to park your car in a public car park for a fee, the owner will often seek to include in the contract a provision that they will not be responsible for damage to your vehicle or theft of goods from it while it is in the car park. Attitude of the courts towards exclusion clauses. Generally the attitude of the courts towards exclusion clauses is to uphold and enforce them. In law there is freedom to engage in contract. This means that people are free to contract on whatever terms they wish. It is not the duty of the courts to determine the terms on which people should contract. It is the right and duty of the parties to the contract to determine the acceptability and fairness or reasonableness of the terms of the contract. Thus, where a party enters into a contract voluntarily or involuntarily agrees that the other party be excused from liability arising from a breach of his obligations under the contract, the role of the court is to give effect to that agreement. By this the court have developed certain approaches to the enforcement of exclusion clauses. These approaches seek to strike a balance between the need to uphold the theory of freedom to contract and the need to dispense justice and to prevent fraud as between

3 contracting parties. For example in the Curtis v. Chemical Cleaning and dyeing co, the court held that for a party to a contract to successfully rely on an exclusion clause in his favor, the scope and extent of the exclusion clause must have expressly and clear been communicated to the other party at the time the contract was made. For the courts to enforce an exclusion clause, they must first ascertain that it is a term of the contract. Exclusion clauses becomes a term of contract when the parties at the time of formation of the contract agree on it. An Exclusion clauses that is contained in the same document as the main contract, is taken to have been agreed on by the parties. If an Exclusion clause is contained in a separate document from the main contract document, the clause becomes a term of the contract by process called incorporation, I.e, making the Exclusion clause part and parcel of the contract, and the court will enforce it. There are methods of incorporation which are; 1. Incorporation by signature: according to L'Estrange v Graucob, if the clause is written in a document which have been signed by all parties, then it is part of the contract. If a document have not been signed, any exception clause which it contains will only be incorporated if the party relying on the clause can show that it took reasonable steps to bring it to the attention of the other party before the contract was made. 2. Incorporation by notice: the general rule as provide in Parker v SE Railway, is that the exclusion clause will have been incorporated into the contract if the person relying on it took a reasonable steps to draw it to the other parties' attention. 3. Incorporation by previous course of dealings: according to McCutcheon v David MacBrayne Ltd, terms (including exclusion clauses) may be incorporated into a contract if course of dealing between the parties were regular and consistent. What this usually

4 means depends on the fact, however, the court have indicated the bargaining power may be taken into account. Legal effect of exclusion clauses. Exclusion clauses form part of the terms and conditions of a contract. They are therefore, generally enforceable as any other term of contract. These clauses can be valid, as long as: they have been properly included in the contract and are not contrary to law. To be properly included in a contract, the clause cannot be tacked (attached) on after contract have been made. If there is a signed contract, but there are printed document or signs posted stating the terms, these can be included in a contract if they are brought to your attention before the contract is made. For example, a driver entering a car park who takes a parking tickets from a machine is only bound by terms which are brought to their attention before taking the ticket. This is because the contract is formed when the ticket is taken. The car park owner cannot rely on an exclusion clause printed on the back of the ticket if they did not do anything beforehand to make the driver aware of it, for example by prominently displaying the exclusion clause at a point before the ticket is taken. If the car is damage due to insufficient care by the parking company, it will be liable despite the exclusion clause. [THORTON v SHOE LANE PARKING LIMITED (1971) 1 ALL ER 686]. The reasonable steps to take in order to draw a condition to the notice of a consumer will vary from case to case. Although most car park now have printed signs in front of their ticket windows stating that they accept no responsibility for cars left on their premises, (which

5 probably makes it an exclusion clause that is the term of the contract) there are still ways in which the effects of these clauses can be avoided. There are some important obligation to a consumer that are placed on a trader and this are implied by statute into consumer contract and cannot be excluded. Types of exclusion clauses are; 1. True exclusion clause: the clause recognizes a potential breach of the contract, and then excuses liability for the breach. Alternatively, the clause is constructed in such a way it only include reasonable care to perform duties on one of the parties. 2. Limitation clause: the clause places a limit on the amount that can be claim for a breach of contract, regardless of the actual loss. 3. Time clause: the clause states that an action for a claim must be commenced within a certain period of time or the cause of action become extinguished. CONCLUSION. We wish to propose that as business students and potential business owners we must be on the lookout for and also make known exclusion clauses in our daily business transactions. So as to expressly and clearly agree or disagree to the terms of the contract in a most honest manner. This will improve our integrity as business entities.