Exclusion clauses and limiting terms
Pharmacist Adebayo has a contract to provide drugs and first aid supplies to the Benue State University, Makurdi. These provisions are required for the University Sports Festival to hold over the weekend. He contacts Freddy Pharmaceuticals, a wholesale distributor in Oshodi, Lagos.
Fortunately, all the required products are available. The goods can be delivered via the services of a transport company, which shuttles between Lagos and Benue. Adebayo pays for the order and signs a receipt issued to him. Subsequently, arrangements are made for despatch of the products to Makurdi.
However, the transport vehicle encounters some mechanical problems. This results in the delay of conveying the goods, eventually arriving on Monday, after the close of the Sports Festival. Consequently, Adebayo loses the contract with the university and seeks to recover his losses from Freddy Pharmaceuticals.
The distributor denies any responsibility for the loss, citing an imprint at the back of the receipt, which states that “the company shall not be liable for any damage, lateness or non-delivery, resulting from the conveyance of goods.” Adebayo maintains that he was not aware of this provision and did not even realise that there was anything written at the back of the receipt. Had he been informed, he may have made his own arrangements for the delivery of the goods. For this reason, he is holding Freddy Pharmaceuticals accountable for the late delivery and subsequent losses. In view of this, what is the legal position?
In business, parties to a contract are free to limit or exclude obligations arising from their transaction. Disputes regarding these exclusion clauses may occur when a party, usually the seller, claims exemption from his liability, thereby depriving the buyer of compensation to which he should have been entitled. These exclusion clauses or limiting terms are often written in a receipt, ticket, form or notice, which the buyer may or may not have read. To protect consumers, the courts have designed separate rules in respect to documents signed by the buyer and those not signed.
The legal issues to be considered are:
- The validity of an exclusion clause that the buyer is not aware of.
- The responsibility of the seller to bring such terms to the buyer’s attention.
- The effect of signing a document containing exclusion clauses.
In the case of Parker v. South Eastern Railway Company, the rules for determining the validity of an exclusion term in a document, not signed by the buyer, were established as follows:
If the person receiving the document did not see or know that there was any writing on it, he is not bound by the conditions.
- If he knew that there was writing on the document, and realised that the writing contained conditions, then he is bound by those conditions.
- If he knew that there was writing on the document, but did not know or believe that the writing contained conditions, nevertheless he would be bound if the party delivering the document to him had done all that was reasonably sufficient to give him notice that the writing contained conditions.
From this, it is apparent that the law aims to protect a party to a contract who receives unsatisfactory services from his transaction and is entitled to some compensation arising from that. It would be difficult for the person responsible for the loss to absolve himself of liability on the basis of an exclusion clause or limiting term that the injured party is unaware of. The issuance of documents like receipts or delivery notes, with such terms written on them, may not be sufficient to bind the parties to those terms. There is an additional responsibility, on the part of the person issuing the document, to make reasonable efforts towards notifying the receiving party of these terms.
In this case, Adebayo concluded the transaction and was issued a receipt, which eventually turned out to contain an exclusion clause, absolving Freddy Pharmaceuticals of any liability arising from the conveyance of goods purchased. The receipt was not read by Adebayo, neither was the exclusion clause brought to his notice. On this basis, he is making a claim for a full refund of expenses incurred, including the losses resulting from the cancelation of his contract with Benue State University.
However, there is one major detail that cannot be overlooked: the fact that the document issued to Adebayo was signed by him. The position of the law with regard to documents signed by the injured party, incorporating exclusion clauses or limiting terms, is very different. In the absence of fraud, duress or misrepresentation, the person who signs a document is bound by the excluding term, whether or not he reads it.
In the case of L’Estrange v. Graucob, a customer signed a form printed by the sellers of an automatic slot machine which she ordered from them. The document contained a clause, in a very small print, stating “any express or implied condition, statement or warranty, statutory or otherwise not stated herein is hereby excluded”. When the machine was eventually delivered, it did not work well. The buyer sued the sellers for breach of contract. The sellers relied on the exemption clause in their defence. The buyer maintained that she knew nothing about the contents of the order form, as she had not read it before signing. In addition, the exemption clause could not easily be read because of the smallness of the print.
Nevertheless, it was held by the court that when a document containing contractual terms is signed, then in the absence of fraud and misrepresentation, the party signing it is bound, and it is “wholly immaterial whether he has read the document or not”.
In view of this, Adebayo is bound by the terms of his transaction, not because he has read or been notified of the terms, but because by signing it, he has signified his assent.
Principles and cases are drawn from Sagay: Nigerian Law of Contract