Legal Implications of Disclaimer in Contracts - Essay Example

Topic: General Principles of Law/ The Law Of Contract Introduction: This paper seeks to analyse and discuss the legal implications of disclaimer in contracts. How do these disclaimers affect the right of the parties to a contract? Will the court apply the disclaimer as part of the contract? Do disclaimers protect the parties making them? These and other questions will be answered in the process of applying of analysing the given cases in relation to applicable law on the matter. To see however the connection between the facts and the applicable law or principle of law, the case facts are included in this paper. II. Analysis and Discussion Case A. Facts: Mogul Petrol Co. Plc has a chain of petrol stations in the South East of England. The Company has recently installed automatic car washes at ten of their sites. Placed prominently at the ‘start-machine’ of each car wash is a Notice as follows:- Disclaimer Notice Please note that we do not accept responsibility for any injury, loss or damage of whatsoever nature and howsoever caused arising directly or indirectly out of the use of this machine or these premises Last week one of the petrol station Managers submitted the following Report to Head Office: “....... a customer came into the shop and purchased a token for the car wash. He then drove into the car wash area and pulled up by the start machine. He apparently inserted his token into the machine, but nothing happened. He then got out of his car to investigate. For some unknown reason the rollers of the car wash machine had come to a halt halfway through a wash cycle and were positioned at the back of the car wash. I understand that the customer banged the start machine because nothing was happening, when the car wash suddenly started. One of the top brush rollers that was positioned above the car was loose and fell onto the car, bounced off and hit the customer. The damage to the car is estimated at around £1500 and the customer suffered a fractured skull and broken arm, extensive bruising and shock. An examination of the car wash after the accident revealed that two of the retaining bolts on the top roller had worked loose thus allowing the roller to fall. The customer has threatened legal action for damages but I have told his Solicitors that the Company is under no liability in view of our Disclaimer Notice displayed quite clearly at the car was machine”. Discuss the Company’s liability (if any) for this accident Answer: The issue above is whether the company is liable for the accident considering the disclaimer notice it posted in the company premises. It is to be established that Mogul Petrol Co. is at fault. If it has exercised due care in the performance of its duty in line with its business, Mogul could have prevented the accident. The fact that one of the top brush rollers that was positioned above the car was loosened and fallen unto the car, bounced off and hit the customer is an indication of negligence. It was not a fortuitous event so as to consider what happened as purely accident since an examination of the car wash after the accident revealed that two of the retaining bolts on the top roller had worked loose thus allowing the roller to fall. The loosening of the bolts is a preventable event by diligent and constant monitoring the facilities. The only way for Mogul to avoid liability is whether the disclaimer notice could constitute valid exclusion. In addition to the damage to the car, the customer also suffered a fractured skull and broken arm, extensive bruising and shock. If we would study whether the owner of the car was negligent, who caused his own injury, it could be seen that what he did was normal under the circumstances that is to check why the token machine is not working. Getting out of his car to investigate is an expected movement in the area, which could have been anticipated by the Mogul providing car wash. Under existing statutes, there is statutory protection against exclusion clauses under Unfair Contract Terms of 1977. Exclusion clauses in a contract under Section 2 of said law cannot protect against negligence resulting in death or personal injury. For any other loss or damage, a clause is only valid where it satisfies the requirement of reasonableness. The above answer is a based on the premise that there was a valid constructive notice about the exclusion of liability when Mogul placed the disclaimer Placed prominently at the ‘start-machine’ of each car wash. If indeed there was a valid exclusion because of the notice the terms are deemed to have been part of the contract. Whether or not the disclaimer is indeed part of the contract will not affect the liability of Mogul to the injured party as far as the personal injury sustained is concerned. The issue on the effective on the disclaimer will does have relevance only as far as the claim for damages sustained by the car. There is therefore a need to determine whether the notice of disclaimer was part of the contract. As we dig deeper into the facts, it was stated that Mogul just recently placed the disclaimer to ten of its sites, which means that these disclaimer might not have been read the customers including the injured party in the case at bar. It is said that the courts are not very enthusiastic about constructive notice. In a case between Olley -v- Marlborough Court Ltd (1949) the plaintiff booked into a hotel and property was later stolen from their room. Refusing to pay, the hotel management claimed to be protected from liability by a notice displayed in the room which excluded any responsibility for any loss or damage to goods. The court held that they were not protected since the contract had been made before the plaintiff went to her room. If we apply the same reasoning, it may be said that the disclaimer notice as a basis of defense were not seen by the complainant in the case at bar. The same reasoning could be gleaned in the case where notice was only visible once drivers had entered into a contract by passing through the automatic barrier - Thornton -v- Shoe Lane Parking Ltd. (1941). It would be impossible either to think of the application of the case of Spurling Ltd -v- Bradshaw (1956), where although there was a defect in the notice there had been a long history of dealings between the two companies, always on the basis of an exclusion of liability, since case facts say the placing of notice was just recent. Moreover, the case of Hollier -v- Rambler Motors (AMC) Ltd (1972) could not be invoked by Mogul because under said case, the course of dealing must be more than three or four occasions during the past five years. There the injured party will win this case both as to the damages for personal injury and damages to the car despite the disclaimer notice. Case B When will the Court imply terms into a contract? Answer: Under existing jurisprudence, there are two separate situations when terms will be implied into a contract by the court and they are: (i) in ‘specific’ contracts, and (ii) to give effect to intention of parties. Terms implied in specific contracts include contracts for renting properties and contracts of employment. It is said that in rental agreements, if there is no express term to cover, for example, either the Landlord’s or the tenant’s obligations, then there are a set of terms that will be implied. This principle is also applicable with a contract of employment. It is known that in many obligations that are not expressly spelled out such as to the duty of care owed by the employer to the employee and the duty of good faith owed by the employee to the employer, the court will just have to imply the terms to afford resolution of cases. Terms implied to give effect to intention of parties are applicable when the either or both parties have omitted through inadvertence or careless draftsmanship certain provision in their contracts. In such a case, the court will add a term to implement the presumed intention of the parties and to give business efficacy to the contract (that is an unusual word - ‘efficacy’ - not one that you come across very often, so look up its meaning in your dictionary!). This judicial power was first exercised in The Moorcock (1889) where there was a contract for mooring the ship The Moorcock alongside a jetty for the purpose of unloading and storing the cargo. Both parties were aware that at low tide the ship would rest on the river-bed but there was no express term in the contract warranting the suitability of the river-bed. The ship was damaged when the tide went out and the court held that the wharf owners were liable since they had impliedly represented that the river-bed was suitable. In other words, there was an implied term in the contract that the river bed would not cause damage to the vessel at low tide. Nevertheless, implying a term is not automatic; the courts will not imply a term into a contract merely because it is reasonable to do so. There is a test to do that. The test used is called the ‘officious bystander’ test. This test was set out in Shirlaw -v- Southern Foundries [1926] Ltd (1939) as follows:- Prima facie that which in any contract is left to be implied and need not be expressed, is something so obvious that it goes without saying; so that, if while the parties were making their bargain an officious bystander were to suggest some express provision for it in the agreement, they would testily suppress him with a common, "Oh, of course". Still another application is the case of McRae -v- Commonwealth Disposals Commission (1951) where the plaintiffs contracted for the salvage of a sunken ship. They mounted a salvage expedition and later discovered that there was no wreck at that point. They successfully sued for damages for breach of an implied term in the contract that there was a wreck at the specific site. It must be stated that for a term to be implied it must have been intended to be included by both parties, not just one. There is a further reiteration in the case of Trollope & Colls -v- N.W. Metropolitan Regional Board (1973). Case C Facts: Fred bought three cases of apples from a wholesaler for resale in his greengrocery store. When he purchased the fruit the contract contained a term which excluded "all liability of the seller for breach of conditions implied by statute, common law or otherwise". When Fred offered the apples for sale in his shop he placed the same notice on the box in which the apples were displayed. That morning Jane bought two apples from Fred to eat at lunchtime. When she bit into the apples they were rotten and inedible. Fred has now discovered that all the apples in the box he purchased are equally as bad. (i) Advise Fred whether he can bring any legal action against his supplier. Answer: The issue between Fred and the wholesaler is whether the disclaimer is applicable considering considering that it is part of the contract. This is no question that it is part of the contract, that is before signed the contract he knew the same or could have expected that the apples could be rotten. The governing law on the case facts is Sale of Goods Act 1979 and the Supply of Goods (Implied Terms) Act 1978) which provides that a for contracts for the sale of goods (or the supply of goods under a Hire Purchase or Conditional Sale Agreement) where one of the parties deals as a consumer, the implied terms relating to title, description, quality, fitness for purpose etc. can never be excluded. Where the contracts are between dealers, however, the implied terms (except section 12) can be excluded subject to the requirement of reasonableness, except for the implied term as to title. Since Fred is not a consumer but a dealer dealing with another dealer the implied terms (except section 12) can be excluded subject to the requirement of reasonableness, except for the implied term as to title. The remaining issue therefore is the ‘reasonableness requirement’. Present jurisprudence requires that for exclusion of implied terms relating to the sale or supply of goods, the requirement of reasonableness will take into account such things as:  the relative strength of bargaining positions of the parties  whether the buyer received an inducement to agree to the term, or could buy elsewhere without the term  whether the buyer knew or ought to have known of the existence and extent of the term  whether goods were manufactured, processed or adapted to the buyers special order. There was a case between George Mitchell (Chesterhall) Ltd -v- Finney Lock Seeds Ltd [1983], concerning the purchase of cabbage seeds by the plaintiff. The court in that case took account of the fact that the seller could have insured against liability without significantly affecting prices. There was negligence of the suppliers and the seeds were not cabbage seeds and the farmer lost anticipated profits of £60,000. In applying the criteria, exclusion clause was not allowed because of the negligence. In applying the principle from the case of Mitchell above, in the case at bar, the seller could have opened the boxes in front of Fred before could have taken and sold the same. The case facts tell us that it was only after Jane’s discovery of the defect that Fred had chance to know the defect. This is a contract for the supply of goods and therefore there is an implied condition under the Sale of Goods Act to the effect that the apples will be of satisfactory quality fit for the purpose intended (s.14(2)) It is a sale in the course of a business and therefore this implied condition applies to this contract. Moreover, there was no discount in prices whatsoever that could have induced Fred to purchase under an implied agreement that the goods are of a lower quality. Hence, it is submitted that the exclusion clause is not valid. I therefore advise Fred to proceed against the wholesaler from whom he bought the apples. Write the wholesaler through his solicitor and demand the whole value of the three cases of apples and ask for damages as a result of the inconvenience and actual damages suffered personally and including that of his Customer Jane. If wholesaler pays then there in need to go court otherwise legal remedy is the only option. (ii) Advise Jane as to her legal position against Fred Answer: The relationship between Jane and Fred is that Jane is a consumer and as such she has different rights as compared with Fred. The governing law on the case facts also is Sale of Goods Act 1979 and the Supply of Goods (Implied Terms) Act 1978) which provides that a for contracts for the sale of goods (or the supply of goods under a Hire Purchase or Conditional Sale Agreement) where one of the parties deals as a consumer, the implied terms relating to title, description, quality, fitness for purpose etc. can never be excluded. Applying the facts in the case at bar, the disclaimer made by Fred would be invalid as far as Jane is concerned and therefore she could always go after Fred. Moreover, Section 14 (3) of the Sale of Goods Act is clear in providing that the buyer must make known the purpose for which they intend to use the goods to the seller. If such is done, then there is an implied condition that goods supplied under the contract are reasonably fit for that purpose, whether or not this is a purpose for which such goods are normally supplied. Therefore the remedy is a full refund of the purchase price. Fred, the retailer is not entitled to insist on giving a credit note, a replacement or a reduction instead. Jane can, of course, agree to accept one of these alternatives, but that is up to her since she also can sue for damages in some circumstances. However, it must be pointed out for practical reasons, it must be pointed out that the case facts as far as Jane is concerned has only bought two apples and for her to go to court would not only be a waste of money but also time and effort. Moreover, the fact that it is just an apple, he could just demand refund for her money from Fred and warn Fred that he should be careful about the products for sale otherwise, he could be losing his license doing business or be brought to court for damages that might be suffered by eating defective apples. But then common sense will tell not any one, not even a blind may eat a rotten apple because the taste is obvious and one would not continue eating that apple. References: Legislations cited: 1. Sale of Goods Act 1979, s.14(2) 2. Supply of Goods (Implied Terms) Act 1978) 3. Unfair Contract Terms of 1977 Cases cited: 1. George Mitchell (Chesterhall) Ltd -v- Finney Lock Seeds Ltd [1983] 2. Hollier -v- Rambler Motors (AMC) Ltd (1972) 3. McRae -v- Commonwealth Disposals Commission (1951) 4. Olley -v- Marlborough Court Ltd (1949) 5. Shirlaw -v- Southern Foundries [1926] Ltd (1939) 6. Spurling Ltd -v- Bradshaw (1956) 7. Thornton -v- Shoe Lane Parking Ltd. (1941) 8. Trollope & Colls -v- N.W. Metropolitan Regional Board (1973). Read More