Terms of Contract

WHAT ARE TERMS OF CONTRACT?

The terms of contract are the statements, promises or propositions which form part of the contract and which define the respective rights and obligations assumed by the parties under the contract. The term of contract define the scope and extent of the contract. If a statement forms an integral part of a contract, it is said to be a term of the contract such that when it is breached, the party offended may sue for damages. A term of a contract must however be distinguished from a mere misrepresentation. A mere representation is a statement made in the negotiation which does not qualify as a contractual term but rather induces the other party to enter into the contract.

Certain terms of contract may be significant than others. In this phase , the law categorizes them into conditions, warranties and innominate terms. A condition is a term of contract which so essential that its breach entitles the injured party to rescind the contract and sue for damages. However with a warranty, its breach may entitle the injured party to sue for damages but does not entitle him to repudiate the contract. Innominate or intermediate terms however cannot be pre-classified either as a condition or a warranty. In determining the consequence of a breach of such term , when it happens, the courts do not look at the importance ofh te breach itself but rather the consequence of the breach after it has happned. Such that where the breach is very serious, the courts classify it as a condition which entitles the party to terminate the contract as well as sue for damages but where it is less the court considers it as a warranty which does not entitle the aggrieved party to terminate the contract but could rather sue for damages.

ASCERTAINING THE TERMS OF A CONTRACT

Where the contract has been made orally, the terms will be found in the statements of the parties. If any of the statements turn out not to be true, a party can sue for damages if the statement in question constitutes a term of contract and where it is a mere misrepresentation, the party misled may be entitled to certain remedies depending on whether the breach is innocent, fraudulent, negligent etc, but the innocent party cannot sue for a breach of contract because the statement is not a term of contract.

TESTS OF ASCERTAINING THE TERMS OF AN ORAL CONTRACT

The test is an objective one thus, the courts look to see whether considering all the circumstances a reasonable third party would assume that the party making the statement intended that it will be a term of contract or not. In making such determination the level of importance attached to such statement are important and this can be found in the case of Bannerman v White. : In this course of making negotiation for the purchase of hops, the buyer asked the seller if Sulphur had been used in their treatment, adding that if it had, he will not even bother of the price. The seller answered that no Sulphur was used. This later resulted in a contract. It was found later by the buyer that Sulphur had been used in the cultivation of the hops. The jury found out that the buyer attached greater importance to the sellers answer and the seller was aware that the statement should be part of the contract. Thus, the statement by the seller that Sulphur had not been used was a term of contract and a breach of it entitled the buyer to reject the goods.

However, where the party to whom the statement was made was given an opportunity to make an independent investigation or to verify the statement, it would be clear that such statement will not amount to a term of contract. This is illustrated with the case of Eccay v Godfrey where a seller of a boat stated that it was sound but advised the buyer to survey it. It was held that the statement is not a term of contract. Here it could be inferred that the maker of the statement did not want to undertake any contractual liability for its accuracy since he advised the other party to take steps to verify his statement.
Three broad tests are generally used by the courts to determine whether a particular statement was a term of contract

RELATIVE MEANS OF KNOWLEDGE OF THE PARTIES: Where the party who makes the statement has a special knowledge or skill superior to the other party, the courts are likely to infer that there was an intention that the statement should constitute a term of contract. Hence the maker of the statement by reason of his superior knowledge as compared to the other party can be presumed to have undertaken contractual responsibility of the accuracy of the statement.

In Oscar Chess v Williams, the plaintiffs were car dealers. The defendant wished to obtain from them on hire purchase a new Hillman Minx car and to offer to them his second hand Morris car in part exchange. The amount to be paid by the defendant depended on the age of the Morris car. The defendant relying on the date stated on the car’s registration book informed the plaintiffs that the car was a 1948 model. The plaintiffs accepted this as the year of manufacture of the car and based on this valued it for 290 pounds. The agreement was carried out and 8 months later, the plaintiffs found out that the date of the Morris car was to 1948 but 1939 making the value of the car only 175 pounds and not 290 pounds.it turned out that the date on the registration book had been altered by a pervious holder before it reached the defendant. The issue was whether the statement made by the defendant about the year of the manufacture of the car constitute a term of contract. It was held that the statement did not amount to a term of the contract. Lord Denning LJ relying on the means of knowledge of the parties explained that the seller had no special knowledge about the year when the car was manufactured and his only reliance was the registration book…in this circumstance an intelligent by stander would say that the seller did not intend to bind himself so as to warrant that it was a 1948 model.

This case may be contrasted with that of Dick Bentley Production v Harold Smith Ltd : In this case, the plaintiff Bentley asked the defendant Smith a car dealer to find him a “well vetted” Bentley car. Smith found a car which he told Bentley had done only 20, 000 miles since it was fitted with a replacement engine and gear box. The statement was untrue so Bentley sued for damages. The Court held that the defendant’s statement was a term of contract and the plaintiff was entitled to damages. Denning explained that Smith was in a position to know of which he did not do so…he ought to have known better.

Even where a party expresses an opinion on a matter, the fact of his superior knowledge or means of knowledge may result in an inference that he was warranting that he had reasonable grounds for the opinion he expressed. In other words, the courts will construe that the opinion was sound and reliable and was made with reasonable skill and care. The case of Esso Petroleum v Mardon illustrates this. An experienced representative of Esso Petroleum company told Mardon who was thinking of operating a petrol station, that the company estimated that the throughput of petrol on the site would reach 200,000 gallons in the third year of operation, and thereby persuaded Mardon to enter into a tenancy agreement for the site for three years. After transaction Mardon found out that not more than 60000 to 70000 could be realized. Mardon continued to loose money and was unable to pay for the petrol supplied. Esso then sued to recover possession of the site and the money due. Mardon claimed damages that the forecast or representation constituted a term of the contract. The court held that, Esso had special knowledge and skill and that they had much experience at their disposal and were in a better position than mardon. Therefore if the forecoast turned out to be an unsound forecast, such as no person of skill or experience should have mad,e there is a breach of warranty.

RELIANCE AT THE TIME OF CONTRACTING: Generally if A is relying on B’s statement at the time of contracting and B knows that A is relying on his statement, it is likely to beheld to be a term of contract. The courts seeks to establish whether the statement was designed to be part of the contract and not just an incident in the preliminary negotiations. Thus the smaller the interval between the statement and the time of contracting, the more likely it is that A is relying on that statement.

In Bannerman v white, the seller contended that the statement was merely preliminary to the contract and not part of the contract. The buyer contended that the whole interview was one transaction and that since he had declared the importance he attached to his inquiry the seller should have known that if Sulphur had been used there was no need to go on with the purchase of the hops. The jury found that the seller’s statement was understood and intended by both parties to be part of the contract and the seler should have therefore known that the buyer was relying on the statement he made at the time of contract.

In Schawel v Reade, the plaintiff wanted a horse for stud purposes . He went to the defendant’s stable which had been advertised for sale by the defendant. Whilst examining the horses, the defendant interrupted him saying ‘you need not look for anything: the horse is perfectly sound’ and if there was anything the matter with the horse I will tell you the plaintiff stopped with the examination and a few days later the price was agreed. Three weeks later, the sale was concluded. The horse turned out not to be fit for stud purposes. The trial judge asked two questions: did the defendant, at the tiem of the sale, represent to the plaintiff that the horse was fit for stud purposes. The trial judge asked two questions: did the defendant, at the time of the sale, represent to the plaintiff that the horse was fit for stud purposes?, did the plaintiff ac on that representation in the purchase of the horse? The question was whether the representation was to be part of the contract. The jury found that the statement constituted a term of the contract.

REDUCTON OF TERMS INTO WRITING : Where the parties reduce their oral agreement into writing, the omission or exclusion of an oral statement from the written document may lead to the inference that the parties did not intend it to be a term of contract. In Routledge v Mckay, the plaintiff and defendant were discussing the possible purchase and sale of the defendant’s motorcycle. Both were private citizens. The defendant taking the information from the registration book said on October 23, that the cycle was a 1942 model. On October 30, a written contract was made which did not refer to the date of the model. The actual date was later found to be 1930. The court of appeal refused the clam for damages by the buyer partly on the ground that the statement was omitted from the written contract and partly on the basis of the time interval between the making of the statement and the conclusion of the contract.

WHAT ARE COLLATERAL CONTRACTS?

When part of the statement made in an oral contract is omitted from the written agreement, it is said not to be part of the terms of contract. However, a party could be given a contractual effect even though it was not part of the resulting contract itself. This could be done when the plaintiff could establish that it formed part of a collateral contract or was a collateral term. Collateral contracts are contracts that exist side by side another contract the consideration of which is the entering into of that contract. In a collateral contract where a party fails to fulfill the part of the collateral contract even though it does not form part of the main contract, the other party can sue for its breach. The principle of collateral contract serves as a means of ensuring remedial flexibility in the law of contract. In De Lassale v Guildford a tenant declined to hand over his counterpart of a lease agreement unless the landlord’s oral assurance that the drains were in good order. The court held that in addition to the terms contained in the lease, thee was a collateral contract under which the landlord promised that the drains were in good order and the tenant was entitled to damages for breach of that term or undertaken.

It must be noted however that a collateral term can exist even though the collateral term contradicts the express terms of the main contract. in City and Westminster Properties Ltd v Mudd : The contract was a lease which contained the covenant not to use the premises for other purposes other than trade. Under an earlier lease the defendant had been contrary to the terms of the lease by sleeping there. He insisted that he would not sign the new lease unless the plaintiffs agreed to his sleeping there. The landlord who was unwilling to include that effect in the lease lease assured the plaintiff that he could sleep there. The landlord brought an action later for the forfeiture of the premises on the ground that the defendant was going contrary to the express terms of the written lease. The action failed even though the collateral contract was in contravention with the terms expressed in the written contract. The court found that all the ingredients for the existence of a collateral contract was present.

WHAT IS THE PAROLE EVIDENCE RULE?

WWRITTEN CONTRACTS –PAROLE EVIDENCE RULE
Where parties have formally recorded the whole f their agreement in writing, the written document, prima facie is taken to be the whole contract. The terms of such a written contract are , therefore, said to be limited to the contents of the written document and nothing more. The parole evidence rule is that where the agreement is wholly reduced into writing, extrinsic evidence will not be admitted to add, vary, or contradict the terms of the written agreement.

In Motor Parts Trading co v. Nunoo, the appellants, relying on a written agreement signed by the respondent, instituted proceedings for arrears of instalments due under the agreement, damages for breach of contract and an injunction. The respondent contended that the written agreement did not contain all the terms agreed upon between the parties; that there was an oral collateral agreement not included in the written agreement because the appellants wanted to evade payment of income tax on the amount involved in the transaction; that the appellants did not honour this collateral agreement and , therefore, he repudiated the written agreement.
In the High Court, Charles, J. found that the collateral agreement was obtained by fraud in that the appellants had no intention of carrying it out. He therefore dismissed the claim in whole. It was held, allowing the appeal, that when a transaction had been reduced into or recorded in writing by agreement of the parties, extrinsic evidence is in general inadmissible to contradict , vary , add or subtract from the terms of the document.

In Wilson v Brobbey, in an action to recover the value of goods credited to the defendant by the plaintiff, the plaintiff tendered in evidence an invoice signed by the defendant. Although the defendant who was a literate admitted signing the document, he contended signing it as a guarantor on behalf of one A and not as the purchaser and he had not read the document. In an appeal by the defendant, it was held dismissing the appeal that where parties had embodied the terms of their contract in a written document, extrinsic or oral evidence would be inadmissible to add to , vary, subtract from or contradict the terms of that agreement.

WHAT ARE THE EXCEPTIONS TO THE PAROLE EVIDENCE RULE?

• Parole evidence may be admissible to establish or prove the existence of a collateral contract De Lassale v Guildford
• The parole evidence may be admissible to establish a vitiating factor such as duress, fraud, misrepresentation, undue influence etc. Curtis v Chemical Cleaning and Dyeing Co.
• Parole evidence may be admissible to establish the plea of non est factum (not my deed). Gallie v Lee
• The parole evidence may be used to show that the operation of a contract has been suspended until the occurrence of some event. Pym v Campbell
• Where the word or phrase in a written document is ambiguous the parole evience is admissible to explain such word or phrase. Robertson v Jackson.
• Where it can be shown that a written document is incomplete in that it was not intended to contain all the terms of the contract, then extrinsic evidence may be admitted to fill the gaps. Allen v Pink
• Where it is shown that a written document was intended to record a previous oral agreement and does not accurately reflect the pervious oral agreement, extrinsic evidence will be admissible to ‘rectify’ or correct the written document prior to its enforcement. Joscelyne v Nissen

Signed contracts
Where a document contractual terms is signed, in the absence of fraud or misrepresentation, the party signing it is bound by its terms and it is wholly immaterial whether he read the document or not.

L’ESTRANGE V F. GRAUCOB: The claimant purchased a cigarette vending machine for use in her cafe. She signed an order form which stated in small print ‘Any express or implied, condition, statement of warranty, statutory or otherwise is expressly excluded’. The vending machine did not work and the claimant sought to reject it under the Sale of Goods Act for not being of merchantable quality. Held- In signing the order form she was bound by all the terms contained in the form irrespective of whether she had read the form or not. Consequently her claim was unsuccessful.

INUSAH V DHL WORLDWIDE: The def was a limited liability company operating as carriers. The plf presented a parcel containing 22 American express traveler’s cheques valued at US $6,000 at the office of the defs to be delivered to his bankers in London. After the plf had paid the postage he was issued an air bill which he read and signed. Subsequently, the plf was informed by his bankers that they received only three travelers cheques valued at $1,500 from the defs. Following the refusal f the defs to pay him the difference, the plf brought an action against to, inter alia, recover the balance and damages for breach of the contract to deliver. The cover found that the air bill contained a disclaimer clause limiting the liability of the defs in the event of any special, incidental or consequential damages arising out of carriage to $100. Held- the general rule was that when a document containing contractual terms was signed, in the absence of fraud or misrepresentation, a party full age and understanding bound to the contract to which he appended his signature. In such a case, the plf was literate trained professional, a man full age and responsibility. Since he read he disclaimer clause limiting the def’s liability to $100 and then signed the contractual document.

Where a party who is seeking to rely on a contractual clause in a written contract is guilty of misrepresenting its effect to the other party, he may be precluded from relying on such clause, even if the other party has signed the contractual document.

CURTIS V CHEMICAL CLEANING AND DYEING CO.
The claimant took her wedding dress to the cleaners. She was asked to sign a form. She asked the assistant what she was signing and the assistant told her that it excluded liability for any damage to the beads. The form in fact contained a clause excluding all liability for any damage howsoever caused. The dress was returned badly stained. Held- The assistant had misrepresented the effect of the clause and therefore could not rely on the clause in the form even though the claimant had signed it.

What is the Doctrine of non est factum?

The general rule is that a party of full age and understanding is normally bound by his signature to a document, whether he read the document or not. In certain circumstances, however, a party who has been misled into executing a deed, or signing a document of a class and character different from that which he intended to execute or sign can escape liability on the signed document by pleading the defence of non est factum in action brought against him for the enforcement of the document. The mistaken party will escape liability if he is able to satisfy the court that he signed instrument is radically different from what he intended to sign and that his mistake was not due to his carelessness. Where the plea is upheld, it makes the document entirely void such that even the innocent party cannot acquire any rights under it. The plea of non est factum applies where
• A party’s signature has been procured by the fraud of another party
• The other party’s fraud was such as to lead the party to believe that the nature and contents of the document were fundamentally different from what they actually were and
• The party who has signed is not guilty of negligence is so signing

The signed document is not valid merely on grounds of fraud but also on the grounds that the mind of the signer did not accompany the signature.

LEWIS V CLAY: The def was induced to sign a promissory note by the cunning deception of a friend who caused him to believe that he was merely witnessing the friend’s signature on several private and highly confidential documents. The documents produced to the def for his signature were entirely covered with blotting paper except for four blank spaces that had been cut out in it. The def signed his name in the blank spaces. Held- the def could successfully plead non est factum.

What is the Scope of the doctrine of non est factum?

A mere negligence in not reading the document before signing it will cause an attempt to rely on the plea to fail.
SAUNDERS V ANGLIA BUILDING SOCIETY (GALLIE V LEE)
Mrs Gallie, a woman of 78 years, signed a document which stated it was the sale of her interest in her home to Mr Lee. Mr Lee then used that document to obtain a mortgage on the property for £2,000. He failed to keep up repayments on the mortgage and the building society sought possession of the property mortgaged. Mr Lee was a friend of Mr Parkin who was Mrs Gallie’s nephew. Mrs Gallie knew that they wished to raise some money and she had agreed to help them. She had told them she would assign her house to the nephew as a gift on condition that he allowed her to remain there rent free for life. She had been told by the two men that the document she signed gave effect to that agreement. She signed the document in both their presence but could not find her glasses so had not been able to read it. The agreement between Mr Lee and Mrs Gallie had been held to be voidable for misrepresentation. However, in the action against the building society Mrs Gallie raised the plea of non est factum (it’s not my deed). Held- The House of Lords found against Mrs Gallie. The document was not radically different to that which she believed it to be in that she believed that she was relinquishing her rights to the property in any event. Furthermore the House of Lords stated that the plea of non est factum should not be too widely applied and reserved for those who through no fault of their own are unable to read the document eg blind, illiterate or incapacitated through age.

The injured party is not without remedy if he cannot rely on the plea of non est factum. He can sue the person who defrauded him for the fraud or misrepresentation. However the effect of the fraud is to make the contract voidable ensuring that an innocent third party who acquires an interest in the in the subject matter of the contract before it is avoided acquires a good title.

NKRUMAH V SERWAH
The plf, an educated man, brought, an action for, inter alia, a declaration of title and or order of possession of a house against the first def and the second def respectively. The trial judge found on the evidence that the plf sold the house to the second def who in turn sold it to the co-def. the o-def eventually sold it to the first def. the plf appealed against this decision and contended, inter alia, that the transaction between the co-def and the second def and first def could be rebutted by the plea of non est factum. Held- apart from the fact that the plea of non est factum was not open to the co-def because she had not pleaded it, there was nothing from the evidence to support the plea it was clearly borne out that in her dealing with the second def, she had full knowledge of legal advice and there was not the slightest indication that she was coerced or pressurized into executing the deeds of the assignment. Besides, as her lawyer verified on her behalf, the relevant documents there could not have been the result of any mistake as to the essential nature or character of the document she executed to support the plea
The onus of proof rested on the one who pleaded non est factum to establish it.

Illiterate persons and written contracts

It is immaterial that the party receiving the document is under a personal, but non-legal, disability, such as blindness, illiteracy or inability to read the language provided that the notice is reasonably sufficient for the class of persons which the party belongs, he will bound by the conditions.

THOMPSON V LONDON, MIDLAND AND SCOTTISH RAILWAY: The plf who could not read, had an excursion ticket bought for her by her niece. On the face of the ticket was printed the words: ‘for the conditions see back’, on the back was a notice that the ticket was issued subject to the conditions in the def company’s timetables and excursion bills. On the excursion bills excursion tickets were stated to be issued subject to company’s current timetables. The timetables which could be obtained for 6 pence each stated: excursion tickets are issued subject to the general regulations and to the conditions that the holders shall have no rights against the company in respect of injury (fatal or otherwise) however caused. Held- when the ticket was accepted the contract was complete. Also the fact that the plf could not read did not alter the legal position that she was bound but the special contract made on the excursion ticket on the acceptance of the ticket, and that the indication of the special conditions by reference to the timetables was sufficient notice of their existence and contents.

Based on the decision in this case, chitty on contracts states that the general rule on the binding nature of exemption clauses, so far as illiterate parties are concerned is as follows: it is immaterial that the party receiving the document is under some personal, but non legal disability such as blindness, illiteracy, or inability to read our language. Provided the notice is reasonably sufficient for the class of persons to which the party belongs (example passengers on a ship or railways), he will be bound by the conditions.

In Ghanaian law, there is no presumption that an illiterate person appreciates or understands the meaning and effect of a legal instrument, or any instrument, simply because he signed it or put his mark on it-

KWAMIN V KUFFOUR: A lease was signed between a gold coast chief and an English gold prospector. After the signing of the lease, an agreement was entered into which contained a clause whereby the plf’s predecessor in office, another chief was alleged to have agreed to give up all his rights and interest in the land, which was the subject matter of the lease, in consideration of a payment to him of £300. It was an agent of this predecessor chief who signed this agreement, which had been drawn up on their behalf by the English prospector. All the Africans involved in the transaction were illiterate. The plf then alleged that the clause was understood only to be intended to confirm, and recognize the lease granted by the other chief in so far as it purported to surrender the rights of the Enkawie stool, which he represented, it was invalid and ineffectual. Held- although the agreement had been read over to the parties, this was not enough. It had to be further proved that the plf’s agent had assented to the legal document with intelligent appreciation of its contents.

In the interest of fair dealing between a literate and illiterate party, the law imposes a quasi-fiduciary relationship. Ghanaian law places an obligation on the literate party to the contract to explain the contents of the contract to the illiterate party such that if the literate party does not discharge his good faith duty, by explaining the contents of the contract to the illiterate party, the contract is void. This is given legislative backing in section 4 of the illiterate protection ordinance (cap 262)

Section 4—Conditions to be Fulfilled by Persons Writing Letters for Illiterates.
Every person writing a letter or other document for or at the request of an illiterate person, whether gratuitously or for a reward, shall —
Reading and explanation.
(1) Clearly and correctly read over and explain such letter or document or cause the same to be read over and explained to the illiterate person;
Illiterate’s mark.
(2) Cause the illiterate person to write his signature or make his mark at the foot of the letter or other document or to touch the pen with which the mark is made at the foot of the letter or other document;
Writer’s name and address.
(3) Clearly write his full name and address on the letter or other document as writer thereof

Also the case of WAYA V BYROUTHY: The plf, an illiterate signed with his thumbprint a purported hire purchase agreement with the def. under it, the plf was to hire purchase the lorry from the def who was given the right of seizure under the agreement in the event of default. The lorry was seized and the plf claimed for the return of the lorry or its value with damages for unlawful seizure. Held- Where an illiterate executes a document, any other party to the document who relies upon it must prove that it was read over, and, if necessary, interpreted to the illiterate.

The plf must also prove that the defendant fully appreciated the meaning of the effect of the said document before he signed it.

BOAKYEM V ANSAH
The Odikro of Kotropei, by a deed of conveyance, granted a piece of land situate on the Kpong-Senchi road in Akwamu to the plf. The execution of the deed of conveyance was attested to by the def., the Mankrado of Senchi and the head of his family; both attesting witnesses were illiterate. In 1960, the def granted permission to two others to build on the said land. The plf sued the Mankrado and the other two. In the High Court, Accra, for: (a) a declaration of title of ownership to the said land, (b) £G200 damages for trespass and (c) perpetual injunction. The main point for the consideration of the trial court was who was the owner of the land of which the land in dispute formed part, the plf’s grantor, i.e., the Kotropei stool or the def’s stool, i.e., the Senchi Mankrado stool? Held- where an illiterate attests to the execution of a document as a witness by making his mark on it, there is no presumption that he has any knowledge of the contents of the documents; the presumption is, rather, the other way round, and a heavier onus rests upon any person claiming that an illiterate who has attested to a document is aware of the contents of such document to prove it. The def was therefore not estopped from denying the title of ownership of the Odikro of Kotropei to the disputed land by the mere fact that he had attested to the document conveying the land to the plf as the evidence did not conclusively prove that the def., an illiterate, understood the contents of the document.

Classification of the terms of the contract

Not all promises or terms in a contract are of the same importance even though they all have to be performs. Non-performance of any term of a contract entitles the injured party to the award of damages by the defaulting party. Certain terms of a contract are considered to be so essential that a breach of them is said to the root of the contract and therefore entitles the injured party to also put an end to the contract. Such terms are known as conditions. A breach of warranty only entitles the injured party to damages. Whether a term is a condition or a warranty is often determined or settled by the consideration of the terms of the contract at the time the contract was made. Some terms fit into neither category and are classified as intermediate or innominate terms. For this class the consequences of their breach can only be determined or evaluated in light of the consequences of their breach. Depending on the gravity of the breach, the injured party may or may not be able to terminate the contract.
Conditions

A condition is a term of a contract which is so essential to the very nature of the contract that its breach entitled the injured party to rescind the contract and sue for damages.

SOCIAL SECURITY BANK LTD V CBAM SERVICES INC: The parties successfully negotiated a contract where the appellant successfully negotiate for the appellant, an agency of MoneyGram, a worldwide money transfer service with respect to Ghana. As part of the agreement between the parties, the appellant reserved the right to determine the agreement by giving 3 months’ notice in writing to the respondent, in addition to whatever advertisement and promotion programs that MoneyGram embarked on, would be responsible for all its advertising and promotional programs and materials for written approval prior to embarking on the programs. The bank terminated the agreement on the ground that such prior written was not given to the respondent before it embarked on such program. Held- a breach of an obligation in a contract that would of necessity, call for an election the part of the non-offending party to exercise his right to determination in the contract, must fit into any one of the following situation: that which goes to the whole root of the contract not merely a part of it, or that which makes further performance impossible or, that which affects the very substance of the contract.

A waiver or a right to terminate a contract or forbearance may be either oral or written and may either be inferred from the conduct of the party affected by the breach complained of. The question a particular conduct would amount to a waiver that is intended to be acted upon is, of course, determinable on case by case basis.
Warranties

A breach of warranty does not entitle the innocent party to repudiate the contract or treat himself as discharged from the obligation to perform the contract. In NEOPLAN (GHANA) LTD V HARMONY CONSTRUCTION CO LTD, the court accepted the definition of a warranty as a term of a contract which was collateral to the main purpose of the contract, that is, which is not so vital as to effect a discharge of the contract, if the circumstances are, or become inconsistent with it.

BETTINI V GYE
The def entered into a contract with the plf for the exclusive of the use of his services as a singer in operas and concerts, both public and undertaking that he would be in London at least six days before the commencement of the engagement, for rehearsals. He arrived only two days before the engagement commenced and the plf thereupon refused to go with the contract, he sued the def for breach. The issue was whether the stipulation or terms of the contract ‘to arrive in London 6 days before’ was a condition of the contract or warranty. Held- with regard to the length of the contract and the nature of the performances to be given, the rehearsal clause was not vital to the agreement. Thus it was not a condition but merely a warranty and accordingly its breach did not entitle the pf to treat the contract as terminated.

POSSARD V SPIERS: Madame Poussard entered a contract to perform as an opera singer for three months. She became ill five days before the opening night and was not able to perform the first four nights. Spiers then replaced her with another opera singer. Held- Madame Poussard was in breach of condition and Spiers were entitled to end the contract. She missed the opening night which was the most important performance as all the critics and publicity would be based on this night.

Innominate or intermediate terms

To ensure flexibility and justice on a case by case basis, the nineteenth century distinction, which pre-classified all terms of a contract as condition or warranties has now given way to a more flexible test based on the gravity or seriousness of the breach and its consequence. The new category of terms know as innominate or intermediate terms which lie in between conditions and warranties in that the consequences of such terms does not depend on its prior classification as a warranty or condition but rather on the seriousness of the breach which has occurred and its impact on the contract.

HONG KONG FIR SHIPPING CO LTD V KAWASAKI KISEN KAISHA
Hong Kong Fir Shipping hired out their elderly ship, the “Hong Hong Fir”, under a two-year time charter-party to Kawasaki Kisen Kaisha. It was to sail in ballast from Liverpool to collect a cargo at Newport News, Virginia, and then to proceed via Panama to Osaka. A term in the charter party agreement required the ship to be seaworthy and to be “in every way fitted for ordinary cargo service.” However the crew were both insufficient in number and incompetent to maintain her old-fashioned machinery; and the chief engineer was a drunkard. On the voyage from Liverpool to Osaka, the engines suffered several breakdowns, and was off-hire for a total of five weeks, undergoing repairs. On arrival at Osaka, a further fifteen weeks of repairs were needed before the ship was seaworthy again. By this time, barely seventeen months of the two-year time-charter remained. Once in Osaka, market freight rates fell, and Kawasaki terminated the contract citing Hong Kong’s breach. Hong Kong responded that Kawasaki were now the party in breach for wrongfully repudiating the contract. Held- the clause was innominate term in the sense that it could be broken by the presence of trivial defects and rapidly remediable defects such as missing a nail from one of the timbers as well as defects which must inevitably result in the total loss of the vessel. The unseaworthiness of the ship could be depending on the nature of the defect entitle the charterer to rescind the contract or claim damages if it was trivial. The breach did not substantially deprive the charterer of the whole benefit on the contract and so they were therefore not entitled to terminate the contract altogether.

CEHAVE N.V. V BREME HANDELSGESELLSCHAFT MBH (THE HANSA NORD)
This case involved contracts to sell citrus pulp pellets on GAFTA terms. Cl 7 of the contract said that the shipment was to be “in good condition”. The buyers were to use the product in animal feedstuffs. On arrival in Rotterdam, there was major damage to 1260 metric tons and minor damage to a further 2053 tons. The buyers rejected the shipment and claimed the return of the price which had already been paid. The sellers refused to repay the money, and the goods were sold to X for £33,000. The goods were then resold to the original buyers for the same reduced price. The goods were then used for cattle food. The contract price was for £100,000 and the market price at the time was about £86,000. Held- the term was an innominate term and as the goods were still of merchantable quality the buyers were not entitled to reject the whole cargo. They were entitled to damages.
If there is well established custom, usage or authority to the effect that a particular clause constitutes a condition, the courts will give effect to is as such.

Implied terms

The court in certain limited cases may imply terms into a contract in addition to the terms the parties have themselves included in the contract. Generally terms may be implied into a contract by the court itself, by custom, by statute or by course of dealing.
Terms implied by the court
The court would imply terms into a contract if it is necessary to give the contract business efficacy. THE MOORCOCK,

REIGATE V UNION MANUFACTURING LTD, The plf invested £ 1000 in the capital of the def company. The def company appointed him their sole agent for the sale of certain goods for 7 years. The issue was whether the def company could terminate the agency agreement at any time by ceasing to do business, in the absence of an express term to that effect or whether there should be an implied term that the company could not terminate the agency agreement during that period. Held- it could not imply a term that the company could not terminate the agency at any time by ceasing to carrying on business.

EYRE V MEASDAY: The plf had undergone a sterilization procedure. The gynecologist had emphasized that the procedure was irreversible and the plf and her husband believed that she was sterile after the operation. The fact is that there is a slight risk of pregnancy even after such an operation. Plf subsequently became pregnant. She sued for damages. Held- no such term could be implied because no such terms arose by necessary implication

ATTUWO V AGRIP GHANA LTD: Some months after joining the def company as a n accountant, the plf’s appointment was terminated because for redundancy. He was offered all the benefits, which would have accrued to him under his contract as well as two months’ pay in lieu of notice, but he chose to bring an action claiming damages for breach of contract. He alleged that although the agreement did not specify a fixed term of years it was framed, that it should be construed as a permanent appointment with an implied term that the company would employ him for at least 15 years. Held- the plf’s employment was lawfully terminated upon three months’ notice and there was no grounds for implying any term into the contract that the company would employ the plf for at least 15 years.

Terms implied by custom

Often, the contract is set against the background of customary practice that is familiar to those who engage in the particular trade or business. Thus in addition to the express terms stated by the parties, the courts may imply certain terms based on customs and usages that normally govern contracts of that nature. The assumption is that since the parties contracts with the reference to the, known usages and customs of the trade, business or profession, they must have intended that those terms would apply to their contracts. For the terms to be implied by custom or usage, the court must be satisfied that the custom of usage is notorious or well known, certain and reasonable and must not contradict the intention of the parties.

QUARTEY V NORGUAH: The plf brought an action against the def for 13 cows being the plf’s share of the products of the two cows left with the plf by the def. the plf found his claim on, inter alia, the allegation of terms of a custom of cattle breeders. Held- the court would enforce a usage as a custom once it was proved that it was accepted ad a binding rule regulating the conduct of parties to a transaction within a particular trade.

HUTTON V WARREN: The tenant of a farm on leaving the farm after the required notice by the landlord. Held- to be entitled to a fair allowance for seeds and labour expended on the land, the benefits of which the landlord should reap. This terms was implied in the contract even though there was no express term to that effect.

A custom or usage which would otherwise be implied in a contract may be excluded by the partied, either expressly or impliedly, where it is inconsistent with one of the express terms of the contract.

AFFRETEURS REUNIS SOCIETE ANONYME V LEOPOLD WALFORD LTD
Walford, as a broker, had negotiated a charter party between the owners of the SS Flore and the lubricating and Fuel Oils Co. Ltd. There was clause in the charter party that the owners promised the charterers that they would pay Walford, on signing the charter, a commission of 3 per cent on the estimated gross amount of hire. The owners, defending an action brought by Walford for his commission, pleaded that there was as a custom of trade which stipulated that commission was payable only when hire had actually been earned. The Flore had be requisitioned by the French government before the charter party could be operated and no hire had in fact in fact been earned. Held- the custom that the commission on brokers was payable in respect of hire earned under the charter party had been excluded or negative by the express term in this contract, that the commission was ‘payable on signing the charter, ship lost or not. An alleged custom can be incorporated into a contract only if there is nothing in the express or necessarily implied terms of the contract to prevent such inclusion, and further that a custom will only be imported into a contract where it is consistent with the tenor of the document as a whole.

Terms implied by statute
In Ghana, legislation governing the sale of goods, tenancy agreements and hire purchase agreements, to name a few imply certain standard terms into every contract for the sale of goods, tenancy agreement and hire purchase respectively. Such terms, which are implied by statute, are equally applicable to the parties; contract as the terms they have expressly included in their contract.

FARAH V ROBIN HOOD FLOUR MILLS: The def shipped 2000 bags of robin Hood to the plf. They arranged for an insurance cover upon terms current in the flour trade and in addition a special clause warranted free from claim for damage caused by weevil, insects…a bill of lading, invoices, insurance certificates and bank drafts was delivered to the plf. He wrote to the def that the flour was not fit for human consumption and so had to be destroyed. He instituted an action against the def claiming the value of the flour as breach of contract and in alternative for money paid for the consideration wholly failed. Held- from the nature of the contract and the circumstances of the parties there was an implied condition that the flour sold to the plf would be fit for human consumption.

Standard form contracts and exemption clauses
A standard form contract is a contract, the terms of which are often set put in a printed form in a written document and used as a standard contractual document with little or no variation in all contracts of a particular kind. They are sometimes referred to as adhesion contracts, because they are prepared by one party to the contract, usually the supplier of the goods or services, who includes his/her own terms and conditions an offers them to the customers on a take it or leave it basis.

What are Exclusion clauses?

Exclusion or limitation clauses, a familiar feature in standard form contracts are contractual terms which purport to limit or exclude the liabilities of one party which may arise under the contract. For such a clause to be effective, it must be shown that it was properly incorporated into the contract as a term of it the person seeking to rely on the clause must show that he took reasonable steps to draw the other party’s attention to the printed conditions.

Enforcement of exclusion clauses in contracts

Especially when the contract is made between parties of unequal bargaining power, the general principles of offer and acceptance have proved to be inadequate in dealing with the special problems presented by the use of standard form contracts. In seeking to exempt himself from liability for breach of contract, the party relying on the exclusion clause hereby deprives the other party of all remedies he is expected to have under the contract.
Incorporation of exclusion clauses in the contract

As a starting point, the court must satisfy itself that the excluding or limiting clause is in fact an integral part of the contract. It must be shown that both parties were aware of its existence and consented to its inclusion in the contract. Generally, when the exclusion clause is contained in a written contract and signed by the consumer, the person who has signed the document is normally bound by the clause, even if he did not read the contents of the document or did not understand it, unless there was a misrepresentation of the effect of the clause or unless the person who signed can rely on non est factum. When the document containing the contractual terms is not signed by the person receiving it but is merely delivered to him, it must be shown that the terms of the contract were adequately brought to his notice. The party relying on the clause must show that he did was reasonably sufficient in the circumstances to give the other party notice if the clause before or at the time the contract was made.

PARKER V SOUTH EASTERN RAILWAY: Mr Parker left a bag in the cloakroom of Charing cross railway station, run by the south eastern railway company. On depositing his bag and paying two pence he received a ticket. On the front it said “see back”. On its back, it stated that the railway was excluded from liability for items worth £10 or more. Mr Parker failed to read the clause as he thought the ticket was only a receipt of payment. However, he admitted that he knew the ticket contained writing. Mr Parker’s bag, which was worth more than £10, was lost. He sued the company. The question of law put to the court was whether the clause applied to Mr. Parker. At trial the jury found for Mr. Parker as it was reasonable for him not to read the ticket. Held- if a plaintiff does not see writing that contains “conditions” of the contract and no reasonable effort was made to ensure he was aware of it, then he is not bound by its terms; if he does see it and either does not read it, or does not think that it contains conditions, then he will be bound by its terms so long as the defendant delivered it in a manner that gave him reasonable notice that there were conditions on the ticket.

Whether or not sufficient notice has been given of the exclusion clause us a question of fact based on evidentiary circumstances.

The court deals with a number of broad guidelines.
1. Where the conditions or exclusion clause was printed on the back of a ticket or document, without any reference to it on the face of the document, such as ‘see back for conditions’, the courts are likely to hold that reasonable notice was not given. Also where the conditions printed on the ticket is obliterated by a stamp; faded or otherwise illegible, the courts are likely to hold hat reasonable notice was not given.

RICHARDSON, SPENCE & CO V ROWNTREE
The plaintiff was a passenger on a steamer travelling from Liverpool to Philadelphia. The plaintiff was given a folded ticket, no writing being visible in this form. The ticket, when opened had a great many conditions, one of which limited liability for personal injury or loss of baggage to $100. The plaintiff never read the ticket. The plaintiff was injured whilst on the vessel.

1. Did the plaintiff know that there was writing on the ticket? This question was answered in the affirmative.
2. Did the plaintiff know the writing contained conditions relative to the contract of carriage? This was answered in the negative.
3. Did the defendants do what was reasonably sufficient to give the plaintiff notice of these conditions? This question was answered the negative.

The High Court, Court of Appeal and House of Lords held that in the light of these findings the limitation clause was not available to the defendant.

2. The courts have held that if the particular clause relied on by the party seeking exemption is exceptionally far reaching or unusual in that class of contract, he must show that he took special measures to bring it to the notice of the other party. In other words, the more far-reaching the clause, the greater must be the clarity of the notice given to satisfy the requirement of reasonableness.

THORNTON V SHOE LANE PARKING LTD: The claimant was injured in a car park partly due to the defendant’s negligence. The claimant was given a ticket on entering the car park after putting money into a machine. The ticket stated the contract of parking was subject to terms and conditions which were displayed on the inside of the car park. One of the terms excluded liability for personal injuries arising through negligence. The question for the court was whether the term was incorporated into the contract ie had the defendant brought it to the attention of the claimant before or at the time the contract was made. This question depended upon where the offer and acceptance took place in relation to the machine. Held- The machine itself constituted the offer. The acceptance was by putting the money into the machine. The ticket was dispensed after the acceptance took place and therefore the clause was not incorporated into the contract.

INTERFOTO PICTURE LIBRARY LTD V STILETTO VISUAL PROGRAM
The claimants ran a photo library the defendant was in advertising. The claimants advanced some transparencies to the defendant for his perusal and he was to get back to them as to which photos he would like to use. The package of the photos contained a document stating that if any transparencies were kept longer than 14 days a £5 +VAT holding fee would be charged per photo per day. The defendant had not read this document and then forgot about the transparencies and failed to return them for 6 weeks. The claimants brought an action claiming a holding fee of £23,783 as specified in the contract. Held- The term was not incorporated into the contract. Where a term is particularly onerous the person seeking to rely on the term must take greater measures to bring it to the attention of the other party.

3. For the exclusion clause to be effective, the party relying on it must show not only that he gave the other party reasonable notice of it, but also that notice of the clause was given before or at the time the contract was entered into not after.

OLLEY V MARLBOROUGH LTD: The claimant booked into a hotel. The contract was made at the reception desk where there was no mention of an exclusion clause. In the hotel room on the back of the door a notice sought to exclude liability of the hotel proprietors for any lost, stolen or damaged property. The claimant had her fur coat stolen. Held- The notice was ineffective. The contract had already been made by the time the claimant had seen the notice. It did not therefore form part of the contract.

4. For the exclusion clause to be enforceable, the document containing the clause must be one, which can properly be described as a contractual document, that is, it must be one, which a reasonable person would expect to contain the conditions or terms of a contract.

CHAPLETON V BARRY UDC
The claimant booked into a hotel. The contract was made at the reception desk where there was no mention of an exclusion clause. In the hotel room on the back of the door a notice sought to exclude liability of the hotel proprietors for any lost, stolen or damaged property. The claimant had her fur coat stolen. Held- The notice was ineffective. The contract had already been made by the time the claimant had seen the notice. It did not therefore form part of the contract.

5. Where there has been a consistent course of dealing between the parties of such a nature that any reasonable person would know that the party invariably intends to contract only on certain specific terms if in the particular transaction, he was not specifically notified of those terms.

MCCUTCHEON V DAVID MACBRAYNE LTD, ANDREWS BROS LTD V SINER & CO LTD
By contract the claimants agreed to buy some ‘new Singer cars’ from the defendant. The contract contained a term which excluded ‘all conditions, warranties and liabilities implied by statute, common law or otherwise’. One of the cars delivered was not new but had been used on the road. The claimant sought to reject the car but the defendant argued that the clause was effective to prevent him being able to do so. Since the term implied by s.13 Sale of Goods Act requiring goods to be as described was excluded. Held- The clause was not effective since it did not cover the loss in question. The requirement of the cars being new was an express term not an implied term. Whilst the Sale of Goods Act implies a term that goods must be as described any ambiguity in the effect of the clause would be interpreted against the party seeking to rely upon it under the contra preferentum rule.

Exclusion of liability for negligence

Where a contracting party seeks to exclude liability for his negligence, the courts apply a very strict approach in the interpretation of the clause. This is because the courts consider it mod unlikely that one party would agree to allow the other contracting party to exclude liability for his own negligence. An exclusion clause will not be construed as excluding the party’s liability for his negligence unless the clause expressly, or by necessary implication, covers such liability.

This applicable rules were stated in Lord Morton’s judgement in CANADA STEAMSHIP LINES V THE KING as follow:
1. If the clause contains language which expressly exempts the party relying on the clause from the consequences of negligence, then effect would to be given to it. Example, if the word negligence or its synonym is used in the clause.
2. If not, then the courts ought to consider whether the words were wide enough in their ordinary meaning, to cover negligence on the part of the party seeking to rely on it. In this regard, clause excluding liability for ‘any act or omission’, or, ‘,any damage whatsoever or however arising’, would be sufficient
3. The court, assuming the second test is satisfied, must consider whether or not the clause may cover some kind of liability other than negligence, such as strict liability. This is a matter of construction of the contract.

Sometimes a party is potentially liable both on the basis of negligence in torts and on the basis of strict liability in contract. Here, the courts have adopted the restrictive approach pf interpreting the exclusion clause to exclude liability for breached in contract and not liability for negligence, unless the clause expressly specifies negligence.

WHITE V JOHN WARWICK: The plaintiff hired a trademan’s cycle from the defendants. The written agreement stated that “Nothing in this agreement shall render the owners liable for any personal injury”. While the plaintiff was riding the cycle, the saddle tilted forward and he was injured. The defendants might have been liable in tort (for negligence) as well as in contract. The Court of Appeal held that the ambiguous wording out of the exclusion clause would effectively protect the defendants from their strict contractual liability, but it would not exempt them from liability in negligence.

If however, there is no ground of liability other than negligence to which the clause could reasonably refer, then the courts may be willing to give effect to the clause excluding the party’s liability for negligence.

ALDERSLADE V HENDON LAUNDRY: Ten large handkerchiefs were lost by the laundry. It argued that its liability was limited by a clause in the contract which read: ‘The maximum amount allowed for lost or damaged articles is twenty times the charge made for laundering.’ That was 11s 5d, about one tenth of the cost of the handkerchiefs at £5.

Exclusion of the liability of third parties
The position is quite ambivalent at common law.

ADLER V DICKSON
The plf was a passenger on a vessel, travelling on a first class ticket. The ticket was a lengthy printed document, containing some excluding clauses. The ticket contained a general clause that ‘passengers carried at passenger’ entire risk and particular clause that the company will not be responsible for any injury whatsoever to the person of any passenger arising from or occasioned by the negligence of the company’s servants. While the plf was mounting a gangway, it moved and fell and she was thrown onto the wharf from a height of 16ft and sustained serious injuries. She brought an action for negligence, not against the company, but against the master and boatswain of the ship. Held- while the clauses protected the company from liability they could not avail to anyone else.

SCRUTTONS LTV V MIDLAND SILICONES LTD: A shipping company (the carrier) agreed to ship a drum of chemicals belonging to the plaintiffs. The contract of carriage limited the liability of the carrier for damage to £179 per package. The drum was damaged by the negligence of the defendants, a firm of stevedores, who had been engaged by the carriers to unload the ship. The plaintiffs sued the defendants in tort for the full extent of the damage, which amounted to £593. The defendants claimed the protection of the limitation clause. The House of Lords held in favour of the plaintiffs. The defendants were not parties to the contract of carriage and so they could not take advantage of the limitation clause.

In Ghana, the general rule on privity of contract has, subject to certain exceptions, been abolished by section 5 of the contracts act.
A provision in a contract made after the commencement of this Act which purports to confer a benefit on a person who is not a party to the contract, whether as a designated person or as a member of a class of persons, may, subject to this section and sections 6 as though that person were a party to the contract.
(Subsection (1) does not apply to —
b) a provision in a contract purporting to exclude or restrict a liability of a person who is not a party to the contract.
The effect is that servants or agents of a party to a contract derive no benefit from an exclusion clause in a contract made between their principals and their third parties.

What is the Doctrine of fundamental breach of contract?

The doctrine is based on the concept that a party to a contract is only entitled to rely on an exclusion clause when he is carrying out his contract, not when he is deviating from it or when he is guilty of a fundamental breach of the contract. On this basis a substantive rule emerged which stipulated that certain kinds of breaches and types of contractual terms were so fundamental that no exemption clause, however widely drawn, could exclude liability for such breach. A fundamental term of contract is one which underlies the whole contract such that where it not complied with the performance become totally different from that which the contract contemplated.

NICHOL V GODTS: The plaintiff agreed to sell to the defendant a quantity of oil, described as foreign refined rape oil, but warranted only equal to samples; and having delivered oil which was not foreign refined oil, but which corresponded with the samples, it was held, that the defendant was not bound to accept the same, as he was entitled to the delivery of oil answering to the description of foreign refined rape oil, and that the statement in the contract as to samples related only to the quality of the oil.

KARSALES (HARROW) LTD V WALLIS: Mr. Wallis viewed a used Buick car that was being sold by Stinton for ₤600. Wallis found the car to be in excellent condition, and agreed that he would buy the car if Stinton would arrange financing through a hire-purchase company. Karsales (Harrow) Ltd. bought the car and sold it to Mutual Finance Ltd., which then finally lent the car to Wallis on hire-purchase terms. Wallis had not seen the vehicle since his first viewing. About a week later, the car was left outside, late at night. The following morning, Wallis inspected the car and found it to be in a substantially different state than it was when he first saw the vehicle: the bumper was being held on by a rope, the new tires were taken off and old ones put on, the radio had been removed, the chrome strips around the body were removed, and the car would not run. Wallis refused to pay for the car since it was not in the same condition as when he agreed to make the purchase. Held- the defendant did not have to accept the wrecked vehicle which plaintiff tendered, notwithstanding that warranty of roadworthiness of the vehicle specifically disclaimed. This was because a car that is an undrivable wreck is so fundamentally different from a sound vehicle that its delivery does not satisfy the terms of the contract any more than delivery of 100 lbs. of oranges would have sufficed. Thus it was in breach.

SZE HAI TONG LTD V RAMBLER CYCLE LTD
The respondent dispatched goods by sea from England to Singapore. The bill of lading required that the goods must be delivered ‘unto order or assigns’, that is, goods were to be delivered upon the production of bill of lading. The carrier in breach of this requirement, released the goods to a consignee who did not produce any bill of lading. Under the contract, the carrier’s liability was to cease absolutely after the goods had been discharged from the ship. The carriers sought to rely on this clause to avoid liability for the breach. The Privy Council held that the carrier was liable. Even though the clause, on the face of it was comprehensive. It must at least be modified so as to permit the shipping company from deliberately disregarding their obligations as to delivery. The carrier could not contract to deliver to the holder of the bill of lading and also contract that he was at liberty to deliver to someone who did not hold the bill of lading. Lord Denning pointed out that no court would allow a fundamental breach to pass unnoticed under the cloak of a general exemption clause

ALEXANDER V RAILWAY EXECUTIVE: On depositing his luggage at the parcel office of a railway station, paying ordinary rates, the plaintiff received a ticket containing conditions one of which exempted the defendants from liability for misdelivery or loss of any article exceeding £ 5 in value unless a special charge for the same was paid. The defendants allowed the plaintiffs friend to take away the luggage and in an action by the plaintiff relied on the above exemption clause. Held- “an essential part of the executive’s duty was to take care of the deposited goods; that they had committed a fundamental breach of the contract in allowing an unauthorized person to have access to the goods and to take them away and, therefore, they could not rely on the exemption clause to shield them from liability.”

What are the Modifications in doctrine of fundamental breach?

A number of problems were encountered in the implementation of the doctrine of fundamental breach. First of all the concept of ‘fundamental’ breach was not altogether easy to define. It also in its absolute form did not differentiate between cases where the excluding or limiting clause was contained in a contract between parties of equal bargaining power and cases where intervention was necessary for the protection of the party with a weaker bargaining power. When applied to commercial transactions negotiated and concluded between parties of equal bargaining power, the doctrine was likely to upset fair bargains entered into for the reasonable allocation of contractual risks.

The courts adopted the position that the question as to whether an exemption clause is applicable where there was a fundamental breach of contract was simply a question of the true construction of the contract. On this view, the question in each case is simply whether or not the particular clause can be construed so as to cover the breach. As a rule of construction, the issue whether or not an exclusion clause is effective would depend on the interpretation of the particular contract before the courts and the intentions of the parties.

PHOTO PRODUCTION V SECURICOR TRANSPORT
Generally, the court will not allow a party to rely on an exemption or limitation clause in circumstances in which it would be unfair and unreasonable to allow such reliance; and in considering whether it is fair and reasonable, the court will consider whether the clause was in standard form, whether there was equality in the bargaining power, the nature of the breach and so on. All in all, the court considers all the circumstances of the case, including the nature of the breach to determine whether the clause should operate to exclude the liability of the party.

Thus the application of the doctrine of fundamental breach as a substantive rule of law has now given way to a test of reasonableness. In applying the test of reasonableness the courts consider a number of relevant factors including
1. Whether the contract is commercial one entered into between parties of equal bargaining power or a consumer contract entered into between an individual and a company, where there is a wide disparity in the bargaining power of individuals,
2. Whether there was an opportunity for the other party to insure,
3. The level of remuneration received for the service
4. Any attempt at allocation of risk between the parties and
5. The efficiency of the arrangements

GEROGE MITCHELL (CHESTERHALL) LTD V FINNEY LOCK SEEDS LTD: The Claimant farmer George Mitchell purchased 30lb of Cabbage seed from the defendants for £192. The claimant planted the seed over 63 Acres and spent many hours of labour on the crops. The cabbage seeds only produced a small green leaf plant not fit for human consumption. The contract contained a clause which limited liability to the price of the seeds. The claimant had lost £60,000 + interest on the defective seeds. The Court of Appeal held that the clause was unreasonable as the buyer would not have been aware of the fault whereas the seller would.

1. The clause was not negotiated between persons of equal bargaining power. It was inserted by the seed merchants in their invoices without any negotiation with farmers.
2. The buyers/farmers, had no opportunity at all of knowing or discovering that the seed was cabbage seed, whereas the sellers could and should have known that it was the wrong seed altogether. They should have tested it before putting it on the market.
3. The buyer/farmers were not covered by insurance against this risk, nor could they insure. But, as to the seed merchants, it was possible for them to insure against this risk.
4. Also, such a mistake as this could not have happened without sections negligence on the part of the seed merchants themselves or their suppliers so serious that it would not before to allow them to escape responsibility for it.
5. In all the circumstances, it was held that it would not be fair or reasonable to allow the seed merchants to rely on the clause to limit their liability.