Contract Law

Running head: CONTRACT LAW
CONTRACT LAW
Name of Student
Name of University
Author Note

1CONTRACT LAW
Table of Contents
Answer 1..........................................................................................................................................2
Issue.............................................................................................................................................2
Rule..............................................................................................................................................2
Application..................................................................................................................................3
Conclusion...................................................................................................................................5
Answer 2..........................................................................................................................................5
Issue.............................................................................................................................................5
Rule..............................................................................................................................................6
Application..................................................................................................................................7
Conclusion...................................................................................................................................8

2CONTRACT LAW
Answer 1
Issue
The issues found in this case are:
 Whether Aarav can rely on the exemption clause to escape liability towards the
damages that are caused to Brad by way of negligence.
 Whether the exemption clause will be described to be a part of contract between
Aarav and Brad.
 Whether the clause will cover the liability of Aarav’s negligence.
Rule
An exemption clause is defined as the term in a contract which either limits or excludes
the liabilities of a party in case of a breach of contract.1 For the exemption clause to be binding
on the parties the clause needs to be incorporated as a term of the contract and must pass test of
construction as can be seen in the case Darlington Futures Ltd v Delco Australia Pty Ltd2. For an
exemption clause to be interpreted two rules need to be applied. These two rules are the general
rule and the ‘four corners’ rule.
The general rule of an exemption clause is that the clause needs to be interpreted
according to its ordinary and natural meaning that can be read as a whole with the contract as can
be seen in case of New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd3. An exemption
1Stone, Richard, and James Devenney. The modern law of contract. Routledge, 2017.
2 Darlington Futures Ltd v Delco Australia Pty Ltd [1986] 161 CLR 500
3 New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd [1975] AC 154

3CONTRACT LAW
clause in case of ambiguity is read in contra proferentum or against party who seeks to be relying
on the clause.
The ‘four corner’ rule states the only operation of an exemption clause is to exclude
liabilities of the person in contract who seeks to be relying on the clause that has been carried out
by the contract in way it was previously contemplated as seen in the case State v Barrilleaux4.
The court has no power for disallowing an exemption clause on basis of its unreasonableness.
An exemption clause is seen to be present in a term to either lessen the contractual duties
of a party or to regulate possible remedies for parties in case there is a breach of a contract. A
clause of exemption can be incorporated in a contract in three separate ways.5 These ways can be
described as-
 Incorporation by the way of signature- a clause included in a written document that all
the parties of the contract have been seen to be signing as discussed in the case
L’Estrange v Graucob. A signed contract can however be challenged upon the fact that
the party in breach entered into the contract because of a misrepresentation.
 Incorporation by way of notice-the party signing the contract was made aware by the
other party that is attempting to exclude or limit certain liabilities by taking reasonable
steps and drawing the party’s notice towards the same.6 However the party attempting for
the incorporation of the exclusion clause is bound to be providing notice to other party
during or before the time of signing of the contract and not after the signing of the
4 State v Barrilleaux, 620 So. 2d 1317 (1993)
5 McKendrick, Ewan, and Qiao Liu. Contract Law: Australian Edition. Macmillan International Higher Education,
2015.
6 McKendrick, Ewan, and Qiao Liu. Contract Law: Australian Edition. Macmillan International Higher Education,
2015.