Commercial law Essay Example | Topics and Well Written Essays - 2000 words - 4

Commercial law - Essay Example There are three specific kinds of exclusion clauses that would apply to a contract. The first is the kind of exemption clause that excludes liability completely. Another kind of exemption clause is when duties arising under a contract are partly eschewed. The last kind of exemption clause is an indemnity clause which passes on the legal liability arising out of a breach of contractual terms to a third party. The existing problems with exemption clauses have arisen mostly in relation to standardized contracts that businesses enter into with customers, because such exemption clauses are part of the fine print associated with a contract and may not always be thoroughly examined by customers. In the case of Thornton v Shoe Lane Parking Ltd2, the Court also held that in order for an exemption clause to be legally applicable, especially if it is unusual or onerous, clear notice must be provided to the customer about the existence of such a clause. Case law on exemption clauses has moved from a rule of law doctrine to a rule of construction approach where a fundamental breach of contract arises. Exemption clauses may not be valid when a fundamental breach of a contract occurs, in which case the entire contract would be invalidated. The concept of fundamental breach was first defined in the Suisse Atlantique3 case, as a â€Å"well known type of breach which entitles the innocent party to treat it as repudiatory and to rescind the contract.† Hence, in effect, if Party A has an exemption clause limiting or eliminating its liability altogether in a contract but is guilty of a fundamental breach of contract that is of such a large scale that it is essentially equivalent to invalidating the contract, then its exemption clauses will not apply. The injured party would have the option, not only to avoid performing its side of the contract but also suing Party A for damages arising