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Explain the different types of business agreement and the importance of the key element required for the

formation of a valid contract.


Common Law:Common law, also known as case law or precedent, is law developed by judges through decisions of courts and similar tribunals rather than through legislative statutes or executive branch action.

Formation of contract
Offer and Acceptance:The offer and acceptance formula, developed in the 19th century, identifies a moment of formation when the parties are of one mind Offer and acceptance analysis is a traditional approach in contract law used to determine whether an agreement exists between two parties. Agreement consists of an offer by an indication of one person (the "offeror") to another (the "offeree") of the offeror's willingness to enter into a contract on certain terms without further negotiations. Promise:An avowal to do something or to refrain from doing something, conveyed in such a way as to assure another that it will be done, and that can be considered binding. Consideration:Consideration is simply something of value received by a promisor from a promisee. It can take the form of a right, interest or benefit accruing to one party, or some forbearance, detriment, loss, or responsibility, given, suffered or undertaken by the other. If there is no consideration there is no contract. Agreement:A mutual understanding between two or more legally competent individuals or entities about their rights and duties. An agreement usually leads to a contract Contract:Contract is always enforceable by law. A contract is a legally binding agreement concerning a bargain which is essentially commercial in its nature and involves the sale or hire of the commodities such as good, service and lands. Any contract can only be legal when it has four main important factors, which is that it needs to have an offer, an acceptance, a consideration and an intention.

Kinds of contract
Express contract:A contract in which all elements of a contract are specifically stated (offer, Acceptance, consideration), and the terms are stated, as compared to an "implied" contract in which the existence of the contract is assumed by the circumstances. Implied contract:Legally enforceable agreement that arises from the conduct, assumed intentions, some relationship among the immediate parties, or due to the application of the legal principle of equity. Quasi contract:A term used in the civil law. A quasi-contract is the act of a person, permitted by law, by which he obligates himself towards another, or by which another binds himself to him, without any agreement between them.

Performance basis
Executed contract:1. Contract document signed by all parties to it. 2. Contract performed fully as stipulated in the contract document. Executory contract:An executory contract is one in which some future act or obligation remains to be performed according to its terms. An executory contract is a contract which has not yet been performed or executed. Unilateral contract:A contract is a legally enforceable agreement between two or more parties with mutual obligations. The remedy at law for breach of contract is "damages" or monetary compensation. In equity, the remedy can be specific performance of the contract or an injunction. Both remedies award the damaged party the "benefit of the bargain" or expectation damages, which are greater than mere reliance damages, as in promissory estoppels.

Bilateral Contract:A bilateral contract is sometimes called a two-sided contract. A bilateral contract is a contract which requires agreement and performance from both parties to the contract. One party promises to do X and the other party promises to do Y. Bilateral contracts may not require negotiation but often this is a component.

Validity Basis
Valid Contract:A valid contract is a law binding agreement which will be signed by both parties. Valid contract meets all the legal requirements to be enforceable. Void Contract:A void contract cannot be enforced by law. A void contract implies that the involved parties are not liable to any legal obligations or rights, meaning that the parties are not legally bound with reference to that contract. In fact, a void contract means a contract has ceased to exist and that there is no contract existing between the two parties. For an example, a storekeeper agrees to purchase stolen goods. The thief has no recourse at law because the agreement to purchase the goods was void as it assisted a thief to get the benefit or his crime Voidable contract:A voidable contract, unlike a void contract, is a valid contract. At most, one party to the contract is bound. The unbound party may repudiate the contract, at which time the contract is void. Illegal contract:A contract is considered illegal when the action required by one or both parties is against criminal or civil law or detrimental to the good of the public. An illegal contract can include a contract in which the end result is illegal or the steps to reach the end result are illegal. Enforceable contract:A right or obligation is enforceable if the party obligated can be forced or ordered to comply through a legal process.

Special basis:Bailment:Transfer of personal property by one party (the bailor) in the possession, but not ownership, of another party (the bailee) for a particular purpose. Such transfer is made under an express or implied contract (called bailment contract or contract of bailment). Indemnity contract:A contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person, is called a 'contract of indemnity'. - - Illustration - A contracts to indemnify B against the consequences of any proceedings which C may take against B in respect of a certain sum of 200 rupees. This is a contract of indemnity. [Section124]. Contingent contract:According to(Section 31) A Contingent Contract is a Contract to do or not to do something, if some event, collateral to such Contract, does or does not happen. Agency contract:Rules of conduct and commissions paid to agents. For example, under the rules of conduct agents may be required to submit all of their business to only that agency. The contract also lists commission schedules. Guarantee contract:A contractual obligation to pay a debt, to perform a service, or to otherwise compensate for an obligation that another (the primary debtor) is committed to with a third-party (i.e. a lender), in the event that the primary debtor defaults. Wagering contract:A contract which is of the nature of wager. Contracts of this nature include various common forms of valid commercial contracts, as contracts of insurance, contracts dealing in futures, options, etc. Other wagering contracts and bets are now generally made illegal by statute against betting and gambling, and wagering has in many cases been made a criminal offence.

The essential elements of a valid contract are as follows.


1. Offer and acceptance: There must a 'lawful offer' and a 'lawful acceptance' of the offer, thus resulting in an agreement. The adjective 'lawful' implies that the offer and acceptance must satisfy the requirements of the contract act in relation thereto. 2. Intention to create legal relations: There must be an intention among the parties that the agreement should be attached by legal consequences and create legal obligations. Agreements of a social or domestic nature do not contemplate legal relations, and as such they do not give rise to a contract. An agreement to dine at a friend's house in not an agreement intended to create legal relations and therefore is not a contract. Agreements between husband and wife also lack the intention to create legal relationship and thus do not result in contracts. Try to work out the solution in the following cases and then go to the answer. 3. Lawful consideration: The third essential element of a valid contract is the presence of 'consideration'. Consideration has been defined as the price paid by one party for the promise of the other. An agreement is legally enforceable only when each of the parties to it gives something and gets something. The something given or obtained is the price for the promise and is called 'consideration' subject to certain exceptions; gratuitous promises are not enforceable at law. The 'consideration' may be an act (doing something) or forbearance (not doing something) or a promise to do or not to do something. It may be past, present or future. But only those considerations are valid which are 'lawful'. The consideration is 'lawful'. unless it is forbidden by law; or is of such a nature that, if permitted it would defeat The provisions of any law; or is fraudulent; or involves or implies injury to the person or property of another; or is immoral; or is opposed to public policy (sec.23). 4. Capacity of parties:The parties to an agreement must be competent to contract. But the question that arises now is that what parties are competent and what are not. The contracting parties must be of the age of majority and of sound mind and must not be disqualified by any law to which they are subject (sec.11). If any of the parties to the agreement suffers form minority, lunacy, idiocy, drunkenness etc. The agreement is not enforceable at law, except in some special cases e.g., in the case of necessaries supplied to a minor or lunatic, the supplier of goods is entitled to be reimbursed from their estate (sec 68).

5. Free consent:Free consent of all the parties to an agreement is another essential element. This concept has two aspects.(1) consent should be made and (2) it should be free of any pressure or misunderstanding. 'Consent' means that the parties must have agreed upon the same thing in the same sense (sec. 13). There is absence of 'free consent,' if the agreement is induced by (i)coercion, (ii) undue influence, (iii) fraud, (iv) mis-representation, or (v) mistake (sec. 14). If the agreement is vitiated by any of the first four factors, the contract would be voidable and cannot be enforced by the party guilty of coercion, undue influence etc. The other party (i.e., the aggrieved party) can either reject the contract or accept it, subject to the rules laid down in the act. If the agreement is induced by mutual mistake which is material to the agreement, it would be void (sec. 20) 6. Lawful object:For the formation of a valid contract it is also necessary that the parties to an agreement must agree for a lawful object. The object for which the agreement has been entered into must not be fraudulent or illegal or immoral or opposed to public policy or must mot imply injury to the person or the other of the reasons mentioned above the agreement is void. Thus, when a landlord knowingly lets a house to a prostitute to carry on prostitution, he cannot recover the rent through a court of law or a contract for committing a murder is a void contract and unenforceable by law. 7. Writing and registration:According to the Indian contract Act, a contract to be valid, must be in writing and registered. For example, it requires that an agreement to pay a time barred debt must be in writing and an agreement to make a gift for natural love and affection must be in writing and registered to make the agreement enforceable by law which must be observed. 8. Certainty:Section 29 of the contract Act provides that Agreements, the meaning of which is not certain or capable of being made certain, are void." In order to give rise to a valid contract the terms of the agreement must not be vague or uncertain. It must be possible to ascertain the meaning of the agreement, for otherwise, it cannot be enforced Illustration. A, agrees to sell B a hundred ton of oil" there is nothing whatever to show what kind of oil was intended. The agreement is void for uncertainly. 9. Possibility of performance:Yet another essential feature of a valid contract is that it must be capable of performance. Section 56 lays down that "An agreement to do an act impossible in itself is void". If the act is impossible in itself, physically or legally, the agreement cannot be enforced at law.

Illustration. A agrees with B, to discover treasure by magic. The agreement is not enforceable. 10. Not expressly declared void: The agreement must not have been expressly declared to be void under the Act. Sections 24-30 specify certain types of agreements that have been expressly declared to be void. For example, an agreement in restraint of marriage, an agreement in restraint of trade, and an agreement by way of wager have been expressly declared void under sections 26, 27 and 30 respectively. Explain the rules of offer and acceptance in a given scenario , also considering any impact of new technology Offer:An offer sets out the terms upon which an individual is willing to enter into a binding contractual relationship with another person. It is a promise to be bound on particular terms, which is capable of acceptance. Acceptance:Acceptance means the signification by the offeree of his willingness to enter into a contract with the offeror on the terms offered to him by the latter. Without an acceptance there can be no contract, the offeree by acceptance agrees to be bound by all the terms of the offer. For any acceptance to be legal it must be communicated to the offerer and must be a mirror image of the offer. Rules of offer and acceptance:- An offer is not bound if another person accepts the offer on his behalf without his authorisation - If the offeree rejects the offer, the offer has been killed and cannot be accepted at a further date. The offer also cannot be accepted after the time period specified in the offer, or if no time was specified, after a reasonable period of time - An invitation to treat is not an offer, but an indication of a person's willingness to negotiate a contract A person making an invitation to treat does not intend to be bound as soon as it is accepted by the person to whom the statement is addressed." - The acceptance must be communicated - If the offeror dies, the offeree may accept only if the acceptance is done without the knowledge of the death; conversely, the estate of a deceased offeree may not accept an offer. - An offeror may cancel an offer before it has been accepted, but the revocation must be communicated to the offeree, although not necessarily by the offeror. - Acceptance

The offer cannot be accepted if the offeree knows of the death of the offeror. In cases where the offeree accepts in ignorance of the death, the contract may still be valid, although this proposition depends on the nature of the offer An offer is rendered invalid upon the death of the offeree

Rules of acceptance
Communication of acceptance:There are several rules dealing with the communication of acceptance: 1. The acceptance must be communicated: Depending on the construction of the contract, the acceptance may not have to come until the notification of the performance of the conditions in the offer as in Carlill's case, but nonetheless the acceptance must be communicated. Prior to acceptance, an offer may be withdrawn. 2. An offer can only be accepted by the offeree, that is, the person to whom the offer is made. 3. An offer is not bound if another person accepts the offer on his behalf without his authorisation: see agent (law). Postal acceptance rule:As a rule of convenience, if the offer is accepted by post, the contract comes into existence at the moment that the acceptance was posted. This rule only applies when, impliedly or explicitly, the parties have in contemplation post as a means of acceptance. It excludes contracts involving land, letters incorrectly addressed and instantaneous modes of communication. Asses the importance of intention and consideration of the parties to the agreement Intention to create legal relations:To create a contract there must be a common intention of the parties to enter into legal obligations, mutually communicated expressly or impliedly. It is open for the parties to use express language to indicate an intent (or lack of) to impose legal obligations on each other. Alternatively, this intention can be impliedly from the circumstances.

Domestic and social relationships Between Husband and Wife Where a husband and wife who are living together as one household make an agreement, court will assume that they dont intend to be legally bound, unless there is evidence to the contrary.

Separated husband and wife Where parties are divorced, separated, or in the process of separating, the negotiation do not take place in the context of natural love and affection therefore there is no room left for the application of such a presumption and the court will generally find that the requisite contract intent existed.

Commercial Agreement
Presumption:Where parties negotiate and agree in a business setting, it is assumed that the parties intended the agreement to have legal consequences. Therefore, the party claiming that an agreement relating to business matter is of no legal effect has the heavy obligation of demonstrating that to be the case.

Government Activities
Commercial Agreements If a government contract arises out of the commercial need for the operation of government, for example the order of stationary or contracts to purchase vehicles, the usual contractual principles apply to determine whether a contract has been formed. Consideration:When at the desire of the promissory, the promisee or any other person has done or abstained from doing or does or abstains from doing or promise to do or abstain from doing. Something such act or abstinence or promise is called a consideration for the Promise Consideration itself means some right, interest, profit or benefit accruing to one party or some forbearance, detriment, loss of responsibility given, suffered or undertaken by the other Consideration therefore means the element of exchange in a bargain, and in order to satisfy the requirements of English law it must be

valuable consideration, i.e. something which is capable of being valued in terms of money or moneys worth, however slight. It may take the form of money, goods, services, a promise to marry, a promise to forbear from suing the promise, etc.

Executer, executed and past consideration:


Executed consideration Consideration is an act in return for a promise. If , for example, A offers a reward for the return of lost property, his promise becomes binding when B performs the act of returning A s property to him. A is not bound to pay anything to anyone until the prescribed act is done. Executed consideration:Executory consideration is a promise given for a promise. If, for example, customer orders goods which shopkeeper undertakes to obtain from the manufacturer, the shopkeeper promises to supply the goods and the customer promises to accept and pay for them. Neither has yet done anything but each has given a promise to obtain the promise of the other. It would be breach of contract if either withdrew without the consent of the other. Both executed and executor consideration is provided at the time when the Promise is given; the act required as executed consideration is given subsequently (e-g the return of lost property). Anything which has already been done before a promise in return is given is past consideration which as general rule is not sufficient to make the promise binding. In such a case the promissory may by his promise recognize a moral obligation (which is not consideration), but he is not obtaining anything in exchange for his promise (as he already has it before the promise is made). Importance of consideration: Consideration is part of the glue that makes a contract binding Consideration can also be a promise to do, or not, do something The courts will not enforce a simple contract unless it is supported by valuable consideration, which is therefore an essential element in most contracts.

Explain the importance of contracting parties having the appropriate legal capacity to enter into a binding agreement.

There are some categories of people whose power to make contract is limited by law . The main categories are minors, and people considered incapable of contracting due to mental disorders or drunkenness. The contracting capacity of a corporation depends on what type of corporation it is. Minor:The basic common law rule is that contracts dont bind minors (children under 18 years old. There are however, some types of contract which are binding on minors and which are merely voidable. Contracts binding on a minor:The only contracts which are binding on a minor are contracts for the supply of necessaries. Necessaries are interdependent as including not just the supply of necessary goods and services, but also contracts of service for the minors benefit. Contract for necessary goods and services:Under the sale of goods Act 1979 , s.3(2) necessaries means goods suitable to the condition in life of the minor or other person concerned and to his actual requirements at the time of sale and delivery. This effectively means that a minor will be bound by most consumer contracts, but usually not by commercial ones. The sale of goods act also provides that if necessaries are sold to a minor, but before receiving he goods the minor decides that they are no longer wanted, there is no obligation to accept and pay for them. Nor is the minor bound by a contract which contains oppressive or exceptionally onerous terms. Where there is binding contract for necessaries, the minor is only bound to pay a reasonable price for them, which need not be the contract price. Contracts of services for minors benefit:Minors are also bound by contracts of service, providing these are on the whole beneficial to them. In practice, this generally means contracts of employment under which a minor gains some training experience or instruction for an occupation. Contracts void able at common law:Apart from contracts for necessaries which bind the minor, the general rule at common law is that a minors contracts are voidable. In other words, these contracts are not binding on the minor, but bind the other party. Thus these contracts are valid when they are made, but can be terminated by a minor at any time before becoming 18 or within a reasonable time afterwards. This category covers contracts which involve a longterm interest in property such as land, shares and partnership. If such a contract is terminated before any money is paid or obligations created, the position will be as if the contract had never been made in first place but problems can arise where obligations are

incurred or money is paid. And then the minor terminates the contract. The law is unclear, but it seems likely that a minor would be liable to pay any debts arising before such a contract is terminated. When the minor has already paid money under a contract and then terminates it, whether that money can be recovered will depend on whether the minor got anything in return for it.

Remedies against minors:Clearly, the rules on minors and contracts have the potential to create injustice for example, where an adult is unaware that the other party to a contract is a minor. Consequently, the equitable remedy of restitution which is used to make anyone who has been unjustly enriched give back their profit has been applied to minors. If a minor fraudulently obtains goods and than keeps them, an order for restitution can be made to make the minor give them back to the claimant. In practice, this equitable remedy has become less important in the light of the power granted by s.3 of the minors contracts act1987. Under this act, where an adult has entered into an unenforceable contract with a minor, or a contract which the minor has terminated, the courts may give any property required by the minor under the contract back to the adult , provided it is just and equitable to do so. The equitable remedy of specific performance can never be used against a minor, nor can it be used by a minor, because the remedy requires mutuality between the parties . If an adult realize that they are making a contract with a minor they may ask for a guarantee from another adult. Minors and tort:Minors can usually be liable under tort law so long as they are old enough to know the nature of what they are doing, but this rule cannot be used as an indirect way of enforcing a contract which would be binding on a minor. Very young children:With very young children, the courts may take the view that they lack the mental capacity to enter a contract, so that the rules on mental incapacity would apply. Mental incapacity:This category covers people suffering from mental disability and those who are drunk when the contract is made. In general, contracts made with someone in either state will be valid, unless at the time when the contract is made, that person is incapable of understanding the nature of the transaction. And the other party knows this. In such

circumstances, the contract is void able: the party suffering from mental disability or drunkenness can choose whether or not to terminate it. When one party is incapable, through drunkenness or mental disability, of understanding the nature of the transaction, but the other party does not realize this, the courts will ignore the incapacity. Corporations:A corporation is a legal entity, usually infact a group of people, which is treated by the law as having a separate identity from the person or persons who constitute it. There are four main types of corporation: reregistered companies, corporations established by statute, chartered corporation and limited liability partnerships. Each has a different level of contracting ability. Registered companies:Under the companies Act 1989, a company can be liable for a contract made outside its stated activities in the memorandum of association if the other party has acted in good faith. Statutory corporation:The statue creating each corporation will specify the purposes for which the corporation may make contracts and any contract entered into which is outside those powers cad be declared ultra vireos and therefore void. Chartered Corporation:These are corporations set up by royal charter. They have the same contractual capacity as an adult human being of full capacity, and can enter into any kind of contract. Limited liability partnership:Limited liability partnerships benefit from unlimited capacity, so that they dont raise any problems of capacity in the context of contract law.

Analyse the specific contract terms which reference to their importance and impact of these terms are broken.
1. Terms and Standard Form Contract:-Terms in the contract are obligations that the contracting parties are to fulfill. -Terms which are against the statutory regulations may render the contract void

-Terms that are legally unfair may be Terms unenforceable -It is therefore important that terms are to be clearly understood by contracting parties before they sign on the agreement. 2. When terms are broken:-When the terms in the agreement are broken by a party, the other party may seek for remedies through legal action. When terms are broken, it may lead to impact including lawsuits and ill feeling between including parties . This may further lead to termination of relationship between parties and both may incur expenses for costly legal tussles. 3. Representation and terms:-Statements made during the process of negotiation that leads to formation of a contract can be either contract A representation, something said before the contract a term in the contract -Representation not written in the contract -Terms Written in the contract 4. Remedies:-Different remedies are available depending on whether A term is broken. A representation is untrue (misrepresentation) -You can claim for breach of contract if the statement is not true and it becomes a term of the contract -Usually, lesser remedy is given to representation than terms in contract

5. A person with special knowledge:If the statement made by a person with special knowledge, it is more likely to be t reated as a contract term 6. Express terms:-

-Legal agreement must be complete in its terms to be a valid contract -When an agreement appears vague or incomplete, the court will seek to uphold it by looking at the intention of the pa rties looking at the intention of the parties 7 Oral evidence:-

-Parol evidence rule When a contract is in writing, and all the necessary terms are present, the court will interpret the terms of the contract by reference to the written document of the contract by reference to the written document only except - Oral evidence may be given of trade practice or custom The parties may agree orally that their written consent should not take effect until a condi tion precedent has been satisfied - The document is not intended to comprise all the agreed terms 7. Discuss:- Activity 8. Standard form contract:- The standard form contract is a standard document containing terms and condition - on which they contract with their customers - The individual must usually take it or leave it probably because the supplier is the only supplier in the market 9. Standard form contract:-For example, you have no choice but to sign on the standard form contract if you want to advertise in, say, newspaper or TV station even though if you don't agree with some of th e terms. One of the problems with standard form contract is that the dominating party tries to excl ude is that liability for the terms in the contract 10. Exclusion clauses:-A clause in a contract to exclude liability or to restrict it by limiting damages -Also known as exemption clause.

Apply and analyze the law on standard form contracts It is a type of contract, that a legally binding agreement between two parties to do a certain thing, in which one side has all the bargaining power and uses it to write the contract primarily to his or her advantage A standard form contract means a written agreement drafted into a template. Such an agreement is prewritten and generally used where contracts are routinely signed during the regular course of business. Examples may include cell phone plans, cars or real estate. A standard-form contract is known as standardized contract. Standard-form contract is usually a preprinted contract containing set clauses. Such contract is mostly used by a business or within a particular industry by making slight additions or modifications in order to meet the specific situation. Since a standard-form contract favors the drafting party, they can amount to adhesion contracts. Unforeseeable contingencies affecting performance, such as strikes, fire, and transportation difficulties can be taken care of with the help of standard-form contract An example of an adhesion contract is a standardized contract form that offers goods or services to consumers on essentially a "take it or leave it" basis without giving consumers realistic opportunities to negotiate terms that would benefit their interests. When this occurs, the consumer cannot obtain the desired product or service unless he or she acquiesces to the form contract. There is nothing unenforceable or even wrong about adhesion contracts. In fact, most businesses would never conclude their volume of transactions if it were necessary to negotiate all the terms of every Consumer Credit contract. Insurance contracts and residential leases are other kinds of adhesion contracts. This does not mean, however, that all adhesion contracts are valid. Many adhesion contracts are Unconscionable; they are so unfair to the weaker party that a court will refuse to enforce them. An example would be severe penalty provisions for failure to pay loan installments promptly that are physically hidden by small print located in the middle of an obscure paragraph of a lengthy loan agreement. In such a case a court can find that there is no meeting of the minds of the parties to the contract and that the weaker party has not accepted the terms of the contract. Discuss the effect of exemption clauses in attempting to exclude contractual liability. Sometimes, contract terms are considered to be so unfair to one of the contracting parties that the legislature or the courts have been prepared to intervene an injustice. Exemption Clauses:-

An exemption clause is defined as: a clause in a contract or a term in a notice which appears to exclude or restrict a liability or a legal duty which would otherwise arise. Thus, an exemption clause in a contract is one that attempts to exclude or limit one partys liability towards the other. In some cases , one party to a contract may seek to avoid incurring liability for certain breaches of the contract , or may specify that their liability for such a breach will be limited , usually to a certain amount in damages . This is called a limitation clause . A clause which seeks to exclude all liability for certain breaches is called an exclusion clause. The term exemption clause is commonly used to cover both limitation and exclusion clauses and we have used in it that sense here. Common law controls:The courts have found two ways to regulate exclusion clauses First, they may question whether a clause has actually been incorporated into the contract Secondly , they may question whether the words use in clause can be construed as covering the alleged breach.

Incorporation:There are three ways in which written exemption clauses may be incorporated into a contract - Incorporation by signature - Incorporation by reasonable notice - Incorporation by a previous course of dealing Incorporation by signature:If a document is signed at the time of making the contract, its content become terms of that contract, regardless of whether they have been read or understood . this principle is known as the rule in LEstrange v Graucob(1934) The rule does not apply where there is any misrepresentation as to the nature of the document signed . Incorporation by reasonable notice:If separate written terms are presented at the time a contract is made , those term only become part of the contract if it can be said that the recipient had reasonable notice of them.

In deciding whether reasonable steps have been taken , the courts will look at when notice was given , what form it took , and how serious and unusual the effect of the exemption clause is Time of notice:As a rule, an exemption clause is only incorporated into the contract if notice is given before or at the time of contracting . Form of notice in general:Notice of an exemption clause will only be considered reasonable person would expect to certain contractual terms A document will b e considered to be contractual if the party to whom it is given knows it is intended to have this effect , or if the circumstances in which it was delivered provide reasonable notice of the fact that it contains condition . Effect of clause:Modern cases have stressed that the more unusual or onerous a particular term is, the greater the degree of notice required incorporate it . Incorporation by a previous course of dealing:If two parties have previously made a series of contracts between them, and those contracts contained an exemption, that clause may also apply to subsequent transaction, even if the usual steps to incorporate the clause have not been taken. Interpreting exemption clause:If it is established that an exemption clause has been incorporated into a contract, the courts will then check to see whether the clause actually covers the breach that has occurred. In doing so, they apply what is called the contra proferentem which essentially means that where the words of an exemption clause are ambiguous; they will be interpreted in the way least favorable to the party relying on them. Technically the contra proferentem rule applies to all exemption clauses but the courts tend to apply it less rigorously to those which merely limit liability, rather than exclude it completely.

Other common law controls:There are number of other common law limitations on the effectiveness of exemption clauses.

Misrepresentation:Where the party putting forward an exemption clause misrepresents its effects , the clause will not be binding on the other party. Inconsistent oral promise:An exclusion clause can be made wholly or partly ineffective by an oral promise, given at or before the time f the contract , that conflicts with it . Third parties:Under the common law third parties cannot be protected by an exemption clause in that contract, even if the clause it stated to apply to them. They may, however, get the benefit of an exemption clause by relying on the contract.

Statutory controls:The most important limitation on exemption clauses is statutory and most are contained in UCTA. Unfair contract term Act 1977:This act controls the use of clauses excluding or limiting liability for breach of contract, particularly where one of the parties is a consumer. Dealing as a consumer man of the provisions of UCTA applies only where one of the contracting parties was dealing as consumer. Section 12 explains that a party is dealing as a consumer where they are not making the contract in course of a business and dont suggest that they are doing so, and the other party does act in the course of the business. The main provisions of UCTA:UCTA uses two methods of controlling exemption clauses: declaring them ineffective, and making them subject to reasonableness.

The following are more important provisions of UCTA:Liability for negligence:Liability for death or personal injury resulting from negligence cannot be excluded nor limit- clauses purporting to do o will simply be ineffective.

Responsibility for negligence which causes some harm short of death or personal injury can only be limited or excluded where it is reasonable to do so. Both these provision apply, regardless of whether one party is dealing as a consumer. Non performance:In a consumer contract, or when dealing on one partys standard business terms , a contract term cannot exclude or restrict liability for non-performance or for performance which is substantially different from what was agreed , unless it is reasonable to do so. Guarantees of consumer good:Guarantees of consumer goods exemptions in consumer guarantees are ineffective. Indemnity clause:Indemnity clauses in consumer contracts are only valid if they are reasonable. Implied terms in sale and hire-purchase contracts:The implied condition that the seller has right to sell the goods in s.12 of the sale of goods Act 1979 can never be excluded. Other terms implied by ss 13-15 of the sale of Goods act cannot be excluded if one party deals as a consumer. Where neither of the parties is dealing as a consumer the exclusion clause will be subject to a requirement of reasonableness. Misrepresentation:Contractual term in any type of contract, which seek to exempt a contracting party from liability for misrepresentation are subject to a test of reasonableness. Meaning of reasonableness:The onus of providing that a term is reasonable is always on the party seeking to benefit from the term (s.11(5)). Under s.11(1) the court should ask itself whether the term in question is a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made. Section 11(2) refers to schedule 2 of UCTA, which lays down a number of issues that the court may consider when deciding whether a term is reasonable for the purposes of .6 and 7. The reasonableness test:-

Where the reasonableness test applies, it is for the party wishing to rely on the exemption to prove that it is reasonable.

The following considerations apply in UK law:Whether the two parties were of equal bargaining power and whether the customer could have obtained the goods or services elsewhere.

Whether the customer received an inducement to accept the term such as reduction in price. Whether the goods were manufactured or processed to the customer's special order. Whether the customer knew or should have known of the term. For limitation clauses, the resources available to the supplier and whether he could have insured himself against the type of loss to which the limitation applies. Unfair term:A contractual term which has not been individually negotiated shall be regarded as unfair if contrary to the requirement of geed faith , it causes a significant imbalance in parties rights and obligations arising under the contract to the detriment of the consumer. Effect of 1999 regulation:Under the 1999 regulations, unfair contract terms are not binding on the consumer . The rest of the contract remains perfectly valid provided that it is capable of continuing in existence without the unfair term.

Case
A contracting case is Steinberg v Scala (Leeds) ltd (1923). The plaintiff, a minor, bought shares in Scala. These shares were not fully paid up, which means that a company issuing such shares can subsequently demand from shareholder payments up to the nominal value of the shares: for example, if a person pays 1 for a share which has a nominal value of 2.50, she can be asked to pay a further 1.50 at a later stage. Scala did make such a request, and Ms Steinberg paid a further 250. The court case arose because she later decided to reject the contract, and wanted her 250 back. She claimed failed: the court held that although terminating the contract means she was free from any further obligation to make payment. She could not get the 250 back

because there had not been a total failure of consideration. She had the shares, so she had got some thing in return for her money.

Judgment of the case:It is a contracting case between Steinberg and Scala. Ms Steinberg bought shares in Scala. These shares were not fully paid up. Then company asked to shareholders to pay the nominal value of shares. Scala did make such a request and Ms Steinberg paid a further 250. Later Ms Steinberg decided to reject the contract and then court case arose because she wanted her 250 back. She claimed failed because court held that she was free from any further obligation to make payment but she could not get the 250 back because there had not been a total failure of consideration.

References wiki.answers.com _ law.yourdictionary.com e.how.com Wikipedia.com Answer.com Scribe.com Contract law book Legal-dictionary.com Out-law.com Courcework.info Experiencefestival.com