Elements in a Contract 8

Almost all written contracts these days are formalized by signatures that reflect the intention of the parties to be bound by the terms of the contract. There are instances however when parties to a contract sign the agreement without reading the terms that have been laid out.

In Thompson v London, Midland and Scottish Railway (1930), the plaintiff purchased a ticket from the Railway Co. and thereafter boarded a train. On the ticket that was obtained at the time of the purchase, there was a clause (an exclusion clause) that stated that the Railway Co. will not be liable for any personal injury incurred during travel. The plaintiff was unable to read the clause because she was illiterate.

The plaintiff was injured during her journey and brought an action against the Railway Co. and the Railway Co.  relied on the exclusion clause to escape liability. It was held that the clause was a valid term of the contract and the fact that the plaintiff could not read did not make a difference.

In L’Estrange v Graucob (1934) the plaintiff purchased a vending machine and signed a contract with the defendant company without reading the fine print on it which contained an exclusion clause. The vending machine proved defective and the plaintiff brought an action against the defendant company. It was held that regardless of the fact that the plaintiff had not read the fine print in the contract, as long as the party signs the contract then it will be deemed that the party has read the terms in the contract and is thereby bound by the said terms.

However, the rule in L’Estrange v Graucob (1934) will not apply if there was a misrepresentation. In Curtis v Chemical Cleaning and Dyeing Co. (1951), the plaintiff took her wedding dress into the dry cleaners to be cleaned. She was then asked to sign a document and when she queried the defendants as to the terms in the document, she was told that it exempted the defendants for being liable for the loss of beads or sequins, when in fact the document exempted the defendants from liability for any damage done to the dress.

When the plaintiff went to collect her dress, she realized that there was a stain on it that wasn’t there before. The plaintiff brought an action against the defendants and her claim was successful because she was misrepresented as to the nature of the document that she was signing.

In Wilton v Farnworth (1948) (High Court of Australia) it was held that in most instances a person is bound by the terms of an agreement he or she has signed, unless of course, there was fraud or some other special circumstances to prevent the signatory from being bound by the terms in the agreement.

Any term or stipulation that is to be part of the contract must be made prior to the formalization of the contract. In Chapleton v Barry Urban District Council (1940) the plaintiff hired a deck chair from Barry Urban District Council and according to the sign that was posted, payment for the hire of the chair was to be made at a specific counter or booth. The plaintiff followed the instructions and once payment was made he was given a receipt which had an exclusion clause printed on it that excluded liability for injury incurred while using the chairs. The plaintiff sat on the chair and was injured as a result of a faulty chair. He brought an action against Barry Urban District Council and was successful in his claim.

The court held that the terms in a contract must be made or stipulated prior to the acceptance or the formalization of the contract and any term, stipulation or clause that came after the formalization of the agreement would not be part of the contract.

Similarly, in Olley v Marlborough Court Ltd. (1949) the plaintiff checked into a hotel and the contract came into existence at the reception or the front desk. The plaintiff then went into her room and when she shut the door she noticed a sign on the back of the door that purported to exclude liability for any items lost or stolen. The plaintiff’s fur court was later stolen and the plaintiff brought an action against the defendants. It was held that the contract had come into existence before the exclusion clause had been brought to the plaintiff’s attention and therefore it did not form part of the contract.

In Thornton v Shoe Lane Parking Ltd. (1971) the defendant was injured in a carpark after he had purchased a ticket from the ticketing machine and had driven his vehicle into the parking area. There were signs posted on the walls after he had passed the barrier that the company was not liable for any personal injuries incurred while in the parking area.

The matter before the court was whether the signs posted on the walls constituted a term in the contract. It was held that the representation came after the contract had come into existence, i.e. once the plaintiff had paid the money and obtained his ticket and therefore it did not form part of the contract.

In order for exclusion clauses to be valid or enforceable they must be brought to the attention of the other party prior to the formalization of the contract or before the contract came into existence.