LWN301 Contract Law: Exemption Clauses, Negligence, and Breach

This report provides a detailed analysis of contract law principles, focusing on exemption clauses, negligence, and breach of contract. The first part examines whether Aarav can rely on an exemption clause to escape liability for negligence causing damage to Brad, considering incorporation and interpretation rules. It references key cases like L’Estrange v Graucob and Scruttons Ltd v Midland Silicones. The second part addresses scenarios involving Allanah and Mathilda, specifically whether Allanah can terminate a contract due to Mathilda's breach and claim damages, while also assessing Mathilda's entitlement to payment for partial performance based on quantum meruit. The report also touches on the doctrine of frustration, citing Taylor v Caldwell, and its implications for contract discharge and damage claims. This document is available on Desklib, a platform offering a wide array of study tools and resources for students.

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

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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

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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

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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.

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contract has been completed. This has been discussed in the case of Parker v SE
Railway7.
 Incorporation by course of dealings- by familiarity with terms and trade of others and by
consistency of previous dealings between the contracting parties an exemption clause can
be incorporated in the contract as discussed in the case McCutcheon v David Macbrayne
Ltd8.
Application
It can be seen from the facts of the case that Brad was negligent towards the terms of the
contract as he did not bother reading them before signing them yet the contract would be
enforceable by law as has been ruled in the case of L’Estrange v Graucob. The goods ordered by
Brad were damaged at the time of delivery by Aarav. Here Aarav can be seen to be in negligence
of his duty to perform the contract.9 However there was a term in the contract signed by Brad
that stated that Aarav and his employees would not be accepting any responsibilities for any
personal damage during the delivery of the goods. As the term was included in the contract the
same would be enforceable as ruled in the case Olley v Marlborough Court.
In the case Scruttons Ltd v Midland Silicones10 it was held by ‘House of Lords’ that
advantages of the limitation clause can only be taken by the parties of the contract. Aarav can be
able to escape the liability of his negligence towards the delivery of the goods by relying on
exemption clause that was mentioned in terms of the agreement as he is one of the parties to
7 Parker v SE Railway (1877) 4 CPD 416
8 McCutcheon v David Macbrayne Ltd [1964] 1 WLR 125
9 Gergen, Mark P. "Negligent misrepresentation as contract." Calif. L. Rev. 101 (2013): 953.
10 Scruttons Ltd v Midland Silicones [1962] AC 446

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contract. However it can be said that the exemption clause should have been highlighted by
Aarav for the customers to notice.
In the case of Olley v Marlborough Court11 it was held by the ‘Court of Appeal’ if the
notice is not incorporated in the contract signed between the parties the exemption clause will
not be considered valid. Applying the judgment in the current case it can be stated that the
exemption clause was incorporated in the terms of the agreement so it is valid and effective and
since it was indicated to Brad to read the terms before placing the order he is bound by the terms
of the exemption clause.
In the case L’Estrange v Graucob12 it was held by the judge that in absence of
misrepresentation or fraud the parties signing any document that contains contractual terms are
wholly bound by terms of the contract whether or not they have read it. Applying the decision of
the case in here it can be said that it is irrelevant whether Brad has read the terms or not as he has
signed the agreement he is bound by all the terms.
Conclusion
Thus it can be concluded that
 Aarav can rely on the exemption clause to escape liability towards the damages that are
caused to Brad by way of negligence but he can still be held negligent towards his duty
to highlight the exemption clause in the agreement for the other party to consider.
 The exemption clause will be described to be a part of contract between Aarav and Brad
as it is incorporated in the terms of the agreement and is valid and enforceable
11 Olley v Marlborough Court [1949] 1 KB 532
12 L’Estrange v Graucob [1934] 2 KB 394

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 The clause will cover the liability of Aarav’s negligence as it clearly mentions that
neither Aarav nor his employees would be held liable for the damage of the goods at the
time of delivery.
Answer 2
Issue
In the first part of the case the issues found are
 Whether Allanah can terminate the contract with Mathilda and claim damages from her
for the breach of contract.
 Whether Allanah is required for paying Mathilda any amount for the one show in which
Mathilda appeared.
In the second part of the case the issues arising are
 Whether Allanah is required for paying Mathilda any amount for the shows done by her
 Whether Mathilda can be held liable for the extra cost incurred by Allanah for finding a
replacement.
Rule
The general rule of a contract is that it should be performed precisely and exactly. A
party performing a contract according to the terms will be entitled to be claiming contract price
as discussed in the case Hochster v De la Tour. Although the contract price can be recoverable
only for exact performance of the contract however there are certain circumstances where a party
to contract can also claim for a partial contract price for substantial performance of the contract.

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A party in breach of the contract but has performed partial services can be eligible to claim for a
quantum meruit. A quantum meruit can be defined as the claim for value of work performed by a
party after the termination of contract.
A breach of contract can be seen to be occurring when the party fails to perform the
complete agreement or part of the agreement on time. For breach of a contract the innocent party
will have right to claim for the damages incurred.13 This was discussed in the case of Lee
Gleeson Pty Ltd v Sterling Estates Pty Ltd & Ors. An innocent party can be allowed to terminate
the contract for the breach of an essential term of the contract.
If a contract is discharged by the way of circumstances that is beyond either party’s
control it provides for the doctrine of frustration as seen in the case of Taylor v Caldwell14. The
doctrine of frustration is recognized by the law as the incapability of the parties to perform the
contract without any of the parties being in fault. However there are certain limits on the doctrine
of frustration. These limits can be described as – the event making the contract frustrated should
not be present in the contract, not foreseen by the parties and must not be because of the fault of
any of the parties as discussed in Condor v Baron Knights.
The contract is automatically discharged in case of occurrence of frustration. Although
the unconditional rights that have been accrued before the event of the frustration remains
enforceable, the rights that have not been accrued at the time of the event of the occurrence of
frustration would not be discharged.15 However clauses like arbitration clause would be still
binding to the parties. In case of the frustration of a contract none of the parties would be entitled
13 McKendrick, Ewan, and Qiao Liu. Contract Law: Australian Edition. Macmillan International Higher Education,
2015
14 Taylor v Caldwell [1863] 3 B & S 826
15McKendrick, Ewan. Force Majeure and frustration of contract. Informa law from Routledge, 2013.

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for claiming damages. Unless a total failure of consideration is found the loss arising because of
the discharge of the contract due to frustration lies within the parties themselves.
Application
In this case Allanah Trill, an Australian fashion designer, enters into a contract with
Mathilda for her to be appearing in three shows for $30000.
In the first scenario it can be seen that Mathilda is in breach of the contract as she entered
into the contract for appearing in three shows yet she disregarded the contract and left Australia
just after the first show. This resulted in Allanah to find a replacement model for her show. This
cost Allanah an additional $40,000 for the remaining shows.
Here it can be seen that Allanah is eligible for terminating the contract with Mathilda for
the breach of the contract performed by Mathilda. Allanah further has the right to claim damages
from Mathilda for the extra $40,000 she had to incur for arranging a replacement for Mathilda.
The provisions for the breach of contract and its remedies can be seen to be discussed in the case
Hochster v De la Tour16. Further Mathilda can claim for the payment for her partial performance
by the way of quntum meruit. The doctrine of quantum meruit can be seen to be discussed in
detail in the case of Lee Gleeson Pty Ltd v Sterling Estates Pty Ltd & Ors17.
In the second scenario it is seen that Mathilda appears in two shows but before her third
show she breaks her leg because of a freak accident and is incapable of appearing in the third
show. Allanah has to spend $40000 for finding a replacement. In the case discharge of the
contract was done because of frustration. As the contract was discharged because of frustration
Allanah is not eligible to claim for any damages from Mathilda. However Mathilda can claim for
16 Hochster v De la Tour (1853) 2E & B 678
17 Lee Gleeson Pty Ltd v Sterling Estates Pty Ltd & Ors (10ACLR159)

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the 2 shows she has appeared on because according to the doctrine of frustration the
unconditional rights accrued before the event remains enforceable, the rights not accrued at the
time of the event would not be discharged. This doctrine is illustrated in the case Condor v Baron
Knights18.
Conclusion
Thus in conclusion it can be said that in the first part
 Allanah can terminate the contract with Mathilda for the breach of contract and further
claim for the damage incurred.
 Mathilda too can claim for quantum meruit for the partial performance of the contract.
In the second part it can be concluded
 Allanah is required for paying Mathilda the amount for the two shows done by her.
 Mathilda cannot be held liable for the extra cost incurred by Allanah for finding a
replacement because the contract was frustrated.
18 Condor v Baron Knights (1966) 1 WLR 87

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Bibliography
Condor v Baron Knights (1966) 1 WLR 87
Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500
Gergen, Mark P. "Negligent misrepresentation as contract." Calif. L. Rev. 101 (2013): 953.
Hochster v De la Tour (1853) 2E & B 678
L’Estrange v Graucob (1934) 2 KB 394
Lee Gleeson Pty Ltd v Sterling Estates Pty Ltd & Ors (10ACLR159)
McCutcheon v David Macbrayne Ltd [1964] 1 WLR 125
McKendrick, Ewan, and Qiao Liu. Contract Law: Australian Edition. Macmillan International
Higher Education, 2015
McKendrick, Ewan. Force Majeure and frustration of contract. Informa law from Routledge,
2013.
New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd [1975] AC 154
Olley v Marlborough Court (1949) 1 KB 532
Parker v SE Railway (1877) 4 CPD 416
Scruttons Ltd v Midland Silicones (1962) AC 446
State v Barrilleaux, 620 So. 2d 1317 (1993)

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Stone, Richard, and James Devenney. The modern law of contract. Routledge, 2017
Taylor v Caldwell (1863) 3 B & S 826