Commercial and Corporation Law: Exclusion Clause and Remedies for Breach of Contract

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Commercial and Corporation Law

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Answer (a)
Issue
Whether Scott has the right to recover $500 for the loss suffered by him due to the missing
jacket?
Rule
The contractual parties are bound by the terms of the contract, and they have the right to
recover any loss which they suffered due to violation of such terms. After forming a valid
contract, the parties are obligated under its terms. However, this obligation can be
terminated by the party in case an exclusion clause is included in the contract. The exclusion
clause assists the parties in cancelling their liability which arises due to breach of the
contractual terms. This clause enables the parties to exclude their liability and free
themselves from the obligations for payment of damages in case the terms of the contract
are violated. The parties have to comply with the general rule while including this clause in
the contract. It provides that this term must be brought into the attention of the party. The
court provided in Olley v Marlborough Court1 case that the term should be brought into the
attention before the contractual obligations are created or while they are formed. The
exclusion clause which is not brought into the attention of the party within appropriate time
is not considered as valid based on which the party did not have the right to terminate the
liability2. However, this rule did not apply in case a written contract is formed between the
parties, and the term is included in such contract. In L’Estrange v Graucob3 case, the court
provided that the fact that the party did not read the term is regardless in case a written
contract is formed between the parties4.
Moreover, the parties have to ensure that the document which contains the exclusion
clause by a part of the contractual documentation. The exclusion clause cannot be included
by the parties into a mere receipt which is given to the party for acknowledging the
payment. The court provided this rule in the case of Chapelton v Barry Urban District
1 [1941] 1 K.B. 532
2 Chris Monaghan, Beginning Business Law (Routledge, 2015).
3 [1934] 2 KB 394
4 Carron Ann Russell, Opinion Writing in Contract Law (Routledge, 2012).

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Council5 case. In this case, a desk chair was hired by the claimant, and a ticket was issued by
the defendant for such desk. After obtaining the ticket, the claimant put it in her pocket
without looking at the same. The ticket contained an exclusion clause which provided that
the defendant will not be held liable for any personal injury which is suffered by the party
caused due to the use of the desk chair6. The claimant suffered an injury after using the
chair, and a suit was filed to recover the damages from the injury suffered by the claimant.
The court provided that the ticket was just a receipt for the acknowledgement of the
payment received and it cannot be considered as a valid contract. Since the defendant did
not bring the term into the attention of the party, it is not valid; hence the claimant has the
right to recover the damages for the loss suffered by him.
Application
In the given case study, the Federation Arena provides a receipt to people for
acknowledging that they have received their payment for the umbrellas and costs. The
receipt contracts an exclusion clause which provides that the Federation Arena will only be
held liable for $50 in case a personal injury or loss is suffered by the customers due to act or
omission of its employees. Scott puts his jacket into the cloakroom and gets a receipt for the
same. He did not read the term written on the receipt. The coat is lost due to the negligence
of the employee of Federation Arena who failed to lock the cloakroom. As discussed in the
judgement of Chapelton v Barry Urban District Council case, the parties have to include the
exclusion clause in contractual documentation. An exclusion clause is not considered as
valid which is written on a mere receipt. In this case, the clause was written on a mere
receipt, and it was not brought into the attention of Scott. Thus, the exclusion clause is not
valid, and the liability of the Federation Arena is not limited to $50. Scott can recover the
loss of $500 which is suffered by him due to the omission of the employee of the arena.
Conclusion
In conclusion, Scott has the right to recover the loss of $500 from the Federation Arena
since the exclusion clause included in the receipt is not valid.
5 [1940] 1 KB 532
6 Chris Turner, Contract law (Routledge, 2013).