When Parties form Contracts in Daily Life

In daily life when parties forms a contract the included terms requires incorporation for the purpose to give them effect. Incorporation of terms can be made by several ways that are incorporation by notice, incorporation by virtue of a course of dealing and the most popular and simplest is incorporation by signatures [1] . The general principle of common law is that where a party signs a document upon agreed terms, he becomes bound to do so for which he agreed to do by virtue of signature and then it is immaterial whether the terms were read or not [2] . This principle deemed to be of more importance because it protects the rights of the parties which after relying upon the signatory terms of the contract suffers to detriment. This rule was laid down in l’estrange v f graucobs ltd 1934 which is applicable with subject to two exception i-e fraud and misrepresentation. [3] but it has been criticised and seems very harder to apply in some circumstances where an approach to an incorporation by notice has clearly been developed by which it requires special attention to be drawn to unreasonable or unjustifieable terms. [4] the rule laid down was confusing to some extent and criticised by many authorities while its effect and applicability was in question specially in a case decided in late 80’s [5] .

The further discussion in this essay will lead to clarify the facts for which the rule was not in a strong and clear legal position and furthermore what was its position in scenario of different cases particularly in interfoto v….. [6] .after a thorough study and analysis on the case law [7] where the terms of a contract were incorporated by signature we will see that how and on what grounds it lacks a clear justification.

In the case of l’estrange v f graucob ltd [8] the

Plaintiff contracted with defendant for purchasing of an automatic slot machine. The contract was signed by the plaintiff contained exclusion clause excluding liability of defendant;

“this agreement contains all the terms and conditions under which i agree to purchase the machine specified above and any express or implied condition, statement or warranty statutory or otherwise not stated herein is hereby excluded”

machine was deliverd to plaintiff and later on stoped functioning and therefore plaintiff brought an action against the defendant for damages.

Where in the court, defendant relied upon the exclusion clause [9] in which he had excluded his liability against any warranty and condition, and which was signed by the plaintiff. While plaintiff raised an issue that her sign was got by misrepresentation, as at the time of signing that document she just knew that it was an order form and she was unaware of any terms and conditions.

The county court held that defendant cannot rely upon such exclusion clause, as per opinion of the court he had not taken satisfactory measures to inform the plaintiff about the conditions of the contract [10] , which was later on overruled by court of appeal by giving the reasons that once plaintiff had signed a contract it is immaterial that she read the terms or not and she has also fail to prove any element of misrepresentation, exclusion clause became active as soon as plaintiff signed and she is not entitled to claim any damages [11] .

The decision was passed in favour of defendant and as a result of decision a rule laid down subject to some exceptions that where a party falls in a contract and incorporates its terms by signature than subject to some exceptions i-e fraud, misrepresentation [12] and non es factum [13] he is strictly bound by agreed terms to which the validation was given by signatures. The further discussion in light of findings of lord justices the grounds for lack of clarity will be more effectively analyzed in the cases where parties incorporates the terms of contracts by signatures.

In the case before county court defendant relied upon exclusion clause and the court dealt with the same situation where a clause was added in terms of a contract in which it was stated and agreed between the parties that any “warranty” is excluded and court held that the exclusion clause for warranty is effective for exclusion of warranty but not for condition [14] . [15] And the plaintiff’s references were based upon the cases of railway passengers and clock room ticket cases [16] while the case was on unsigned contracts and of no relevance in current case where the terms are incorporated by signatures. The law laid down by mellish lj [17] is applicable in this situation in which he stated that;

“In an ordinary case, where an action is brought on a written agreement which is signed by the defendant, the agreement is proved by proving his signature, and, in the absence of fraud, it is wholly immaterial that he has not read the agreement and does not know its contents.”

The plaintiff contended in county court that she was induced by misrepresentation while the learned judge [18] neither mentioned nor given any finding on that contention, and she cannot rely upon element of fraud as it was not mentioned anywhere in the pleadings. Hence the plaintiff is not entitled to claim any damages and the decision is in the favour of plaintiff.

On the other hand it was stated that examining all the facts specially the order form signed by both the parties and among them some terms and conditions in small print on brown sheet

“i regret the decision to which i come but i am bound by legal rules and cannot deal with different considerations notwithstanding with legal rules” [19]

And it was also stated by Maugham lj that the formation of terms of contract should be in usual and simplest form and seems to me unfortunate that the most important exclusion clause for excluding conditions and warranty was written in small print and i also think that order confirmation form should have consisted of express exclusion clause rather than on separate brown sheet. with these findings Maugham lj passed a coherent judgement in favour of defendant. [20]

The confusion in the findings and subsequently in rule of l’estranges was subject to two main reasons. firstly Unlike Maugham lj, scrutton lj dealt with the case and affirms its findings in well satisfactory ways [21] and inspite of difference of pinions the coherent judgement by scrutton lj makes it confuse and secondly scrutton lj had decided to which he himself was not agreed [22] .

The clash of opinions between both lord justices makes the rule subject to criticisms as subsequently strongly criticised by lord denning who successfully argued the case for defendant in the case of l’estrange v f graucob. he stated to criticise the rule of l’estrange that;

“the rule of l’estrange represented a bleak winter for law of contract” [23]

As stated by j.r spencer [24] infact rule was laid down four years earlier to earlier by decision of a greater authority by court of appeal [25] and on the same grounds first decision was announced eight years earlier [26] while neither of these cases cited nor relied upon by anyone in l’estranges v graucob and court passed the decision solely on dictim of mellish l j [27] .

In this way spencer criticised the rule of l’estrage that why those cases were not taken into account which where decited by the competent courts on very samae grounds. And in presence of such relevant precedents why it was decide on base of a single dictim of mellish lj.

It is usually said that in l’estrange v graucob miss l’estrange was bound by signatory terms due to her apparent consent irrespective the position of f graucob ltd. However there is an excemtion that where the other party believes or reason to believe that first party does not understood what the terms are in fact than first party is not bound by his signatures. Question arises did’nt the facts of l’estrange v graucob bring l’estrange within the scope of these exemptions of apparent consent? [28] and at the other hand order form provided by f graucob ltd was in most confusing way as per Maugham lj [29] , as it was not only in small print but also separate sheet of brown colour, and on the same grounds many cases were decided and the parties were allowed to deny their apparent consent, than was it not exactly like those cases? For example, In principle the case was exactly same with the case of scriven v hindley where the plaintiff was allowed to deny his apparent consent. [30]

Furthermore it was also notable in l’estrange that why did graucob ltd used the brown sheet with so small printed terms and conditions. was it because graucob ltd believed that the usual and simple print would be easily understandable by customers and they would refuse to do so? The truth is that generally the companies uses these unjustifiable ways to ‘put one over’ people like l’estrange. Then why should people in position of l’estrange not allowed to deny their apparent consent? [31]