Contract Law Essay Example

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In the field of contract law, parties may enter negotiations that leads to making of the contract. In these negotiations, the parties decide on prices of the goods and services that are to be offered1. Just like our case, Widget plc required a widget manufacturing machine and therefore they negotiated with Machine plc and reached an agreement and made the contract official by printing and delivering the documents to Machine plc.

In the making of the contract, the parties agree on time for fulfillment of the promise made and the conditions of goods to be delivered. The manner in which the offer is made and its acceptance when documented becomes enforceable in law.

However, the contract at times is comprised of other conditions that may not be made known to the parties during the making of the contract. These conditions are what forms the exemption clauses in the contract law as included in the English law. Just like in our case, Widget plc requires that the supplier delivers the goods within time or be fined £100 per week that the delivery is delayed. Similarly, Machine plc also had undocumented condition that they would accept the liability for damages with larger businesses than Widget plc. This retrospect paper seeks to provide directives on how Widget plc can handle the situation citing the English law and how it may be applied with the exemptions that both parties possess for the handling of liabilities for damages.


Under the law of contract, it is evident that the contract between two or more parties in the business requires that there has to be an offer tabled, acceptance of the offer which will be followed by payment and a promise for the fulfillment of the offer2. The time frame for the performance should be notes when a valuable payment is made by the party offering the duties to be performed. Moreover, the terms and conditions need be included regarding the fulfillment of the promise made by the party responsible for performing the duty.

In the case of Widget plc and Machine plc, these factors have been considered to a larger extent. Widget plc offered Machine plc to supply the machine for manufacturing widgets. This offer was accepted by Machine plc and a timeframe given for the performance of the duty. The contract between the Widget plc and Machine plc was made in official manner in that after Widget contracting Machine plc over the phone, the agreement was followed by a printed document sent to Machine plc. In this way, the documentation provides the background for enforcement of the law in case one of the parties breeches the terms of the contract.

Machine plc breached the terms of contract by failing to supply the machine within the time frame that was agreed upon during the contracting. Therefore, Widget plc has grounds to sue Machine plc for the losses incurred due to the delay in delivering the machine.

Nevertheless, the exemptions included in the policies for the two companies inhibit fast action of the law suit. This is because the exemptions are in order and have to be considered before either of the companies can be declared to be liable for the damages incurred.

In business operations, it is not uncommon for parties to a contract to regulate the extent of consequences in the event of breach of the contract. Such agreements must be made before signing of the contract and should be part of the contents of the contract before it is witnessed by the parties. These clauses may either be required by the law, or may be agreed upon mutually by the parties involved. Exemption clauses ought to be incorporated into a written contract before signing, for as long as all the parties are aware3. By signing the contact, the parties acknowledge the binding nature of the clauses as forming part of the contract. However, if there is an established business practice or relationship relating to the operation of such a clause within the parties, it is acceptable as a binding condition due to the ordinary nature of business between such parties.

According to the contract law under exemption clauses, it is noted that there are three forms of clauses, that is, limitation clause, indemnity clause and exclusion clause. A limitation clause usually limits the extent to which a party in breach would be liable. It serves to quantify the rights of the innocent party in instances of breach of the contract. One of the common practice is similar to the present case which involves limitation of payable amounts in damages resulting from a breach.

On the other hand, an exclusion clause entails the exclusion of a party in breach from any liability. The indemnity clause seeks to make an arrangement for indemnification should a breach occur. For instance, A and B can enter into a contact which specifies that should B default, C will indemnify A. These clauses are however not absolute because they are subject to a determination by the courts as to their enforceability or otherwise. In determining this enforceability, courts will usually examine the conduct with the intention of confirming that there is a monetary aspect in the clauses.

To begin with, the clause must be incorporated into the contract. The courts have since determined that such a clause must be included in the contract or at least made known to the contracting parties. In Olley v Marlborough4, the claimant had checked into a hotel. A contract was entered into to that effect and the contract was signed at the reception desk. The contract did not contain any exclusion clause. However, at the back of the door inside the hotel room, there was a notice to the effect that the hotel would not be held liable for any properties that would be lost, damaged or stolen within the premises. Within the duration of her stay there, her fur coat was stolen and she sued for it. The court held that the notice was not effective. The court reasoned that neither the contents nor the very existence of the notice was made known at the time of signing the contract. In any case, she only saw it after she had signed the contract and therefore the court opined that it did not form part of the conditions under the contract.

In Thornton v Shoe Lane Parking5, the court established that parties must have knowledge of the clause. Here, Thornton was injured in a car part. Upon entering the car park, he was issued with a ticket after inserting money into a machine. Parking was subject to the terms and conditions that were displayed within the car part were indicated on the ticket. Incidentally, one of the conditions was that there would be no liability for any injuries sustained while at the car park. The court held that the clause was not valid as acceptance was in effect by inserting money into the machine while the machine itself was the offer. In the present case, there exists a limitation clause which was known to both parties. There ordinary course of business was conducted in such a manner that the limitation clause was understood to form part of the conditions even though not expressly stated within the contract itself.

Under the limitation clause, it is to be noted that Machine plc is to be liable for the loss experienced by Widget plc. This is because the clause provides that if one party leads to the other party losing money due to breach of the contract, then the party responsible for the loss is to be limited to the liability. Therefore, Widget plc should sue Machine plc just like it is indicated in their contract that the supplier delaying for a week is limited to £100 a week. Therefore, it implies that Machine plc is limited to five times the amount for a week since they delayed for five weeks.

Besides, the normal profit without the new machine implied that the Widgets plc was £2,000 per week and the possible profit had the machine been supplied on time would have been £5,000 per week. This, as provided under the unfair contract terms act 1997 of United Kingdom, under section 1 (3), it is stated that liability is present when and during business activities. Therefore, since the contracting of Machine plc by Widget plc was a business activity, then liability is present.

A limitation clause must not be unfair or unreasonable. In St Albans City and DC v International Computers Ltd6, Parties entered into a contract for the implementation of the poll tax through the provision of software. International Computer Ltd limited their liability to £ 100,000. The software was intended to hold in the creation of a database for tax payers. During the implementation phase, the software developed errors that cost the council £ 1,313,846 for which the council sued. They also contended that under the circumstances, the limitation clause was unreasonable as interpreted under the Unfair Contact Terms Act7. This contention was challenged by the defendant company. The court held that the defendant company had breached the contract and that they were liable for the resultant losses. On the issue of the limitation clause, the court held that the clause was unreasonable under section 11 of the Act8. When the matter went for appeal, this reasoning was also upheld. The Court of Appeal further determined that the amount in damages was in fact less by £ 484, 000. The same was held in Overland Shoes Limited v Schenkers9. Here, the court held that the clause in the shipping manifest satisfied the reasonableness test. Furthermore, the court was satisfied that this clause was made known to the other party as is required. Under the circumstances, the court felt that in light of this knowledge the defendants could not claim that the clause was unreasonable or even unfair. In any case, the two parties were not strangers to each other and neither was the clause. They had traded with each other for a long time and the clause had always featured in their operations.

The exemption by Machine plc that they would accept the liability for the damages discriminatively depending on the size of the client they are dealing with is inadmissible in the court of law under fairness contract law. This is because the court may draw from common knowledge the idea that the binding nature of the contract should provide objective facts in that the size of the client’s business is not a condition in compensation of the damages10. Furthermore, in the business field, such exemptions would prove to not be in order since the supplier should provide services and goods to the clients equally regardless of the size of the business. This should provide Widget plc with grounds for suing Machine plc for the compensation of the losses incurred during the delay of the delivery of the machine.

However, Widget must take note that the contract law under Sale of Goods Act 1979 provides that the conditions for the contract are to be known during the conclusion of the contract allowing the parties to consider consequences that are to be experienced if the terms and conditions are breeched by either party. Therefore, as much as Machine plc need be considered to be liable for the damages, it is also to be considered that the conditions were not relayed to them during the making of the contract and therefore leaves them with an opportunity to avoid being fined for compensation of the damages. This however is countered with the Unfair Terms in Consumer Contracts Act 1999 which notes that if there is unfairness in the contract that leads to significant imbalance and disadvantaging one party especially the consumer, then the supplier is liable for limit on the damages

On the contrary, it can also be argued that usually, Machine plc allowed their clients to sign the standard form during the making of the contract just like it had been done on seven previous occasions. In this case scenario, the case was different as the contract was made over the phone and conditions were later posted to Widget plc. This provides Widget plc with a gap in the terms of service of Machine plc since Machine plc did not take into consideration all the aspects of its contacting terms. Just like the Unfair Contract Terms Act 1997 provides, the contract between Widget plc and Machine plc limits Machine plc to liability due to negligence since they failed to follow the normal procedure for contracting as they had done before and therefore Widget plc has grounds to believe that the contracting terms for Machine plc had changed since nothing had been made official through signing of the standard form as they had always done.

Lastly, in the application of the exemption clause, there has to be a consideration of whether the exemption is an attempt by the party to avoid liability of the damage causes by themselves. Therefore, the exemption is effective if it operates with an aim of restricting the rights a party may have in the contract. The case between Widget plc and Machine plc makes the exemption clause of Widget plc effective since it serves to ensure that the suppliers try to honor the time frame provided for delivery. On the other hand, the exemption clause by Machine plc is ineffective since it is one directional and the damages are caused by Machine plc and therefore they should be liable for the damages.


Conclusively, the contract law provides that the agreements made during the making of the contract have to be documented in the legal manner to allow for full enforcement of the law in a case that the terms for contracting are breeched. The enforceable terms are provided in cases that the contract is in written whereby one party is required to deliver certain goods and services within the scheduled time and therefore, if these conditions are breeched, then the consumer is protected by the Unfair Contract Terms Act 1997 that requires the supplier to be limited to liability in case of damages. In our case, the exemption clauses provide Widget plc with grounds to push for limiting of Machine plc to liability. This is because the exemption by Widget plc is clearly worded indicating that should the supplier fail to deliver the goods within time, then the supplier is liable to pay £100 for every week the delivery is delayed. On the contrary, Machine plc has ridiculous exemption that discriminates the limiting of liability basing on the size of the business of the client which in the common business knowledge is not admissible even in the court of law.


Unfair Contract Terms Act 1977

St Albans City and DC v International Computers Ltd [1996] EWCA Civ 1296

Olley v Marlborough [1949] 1KB 532

Thornton v Shoe Lane Parking [1971] 2 WLR 585 COA

Twigg F, The Europeanisation of contract law: current controversies in law (Routledge 2013)

Chitty J, Chitty on contracts: General principles (Vol. 1, Sweet & Maxwell 2012).

Cartwright J, Contract law: An introduction to the English law of contract for the civil lawyer (Bloomsbury Publishing 2016).

Chen W, Contract law (Oxford University Press 2012).

1Twigg Flesner, The Europeanisation of contract law: current controversies in law (Routledge 2013).

2Chitty Juliana, Chitty on contracts: General principles (Vol. 1,Sweet & Maxwell 2012)

3Cartwright Joan, Contract law: An introduction to the English law of contract for the civil lawyer (Bloomsbury Publishing 2016).

5 [1971] 2 WLR 585 COA

6 [1996] EWCA Civ 1296

7 Unfair Contact Terms Act 1977

9 [1998] EWCA Civ 234

10 Chen Wishart, Contract law (Oxford University Press 2012).