Terms (express terms + implied terms)

Express Terms

- Oral Terms (the ascertainment of the contractual term may involve difficult question, but
simply it is a task of judge to decide)

-Written terms (use the parol evidence rule)

Parol Evidence Rule (PER)

It is a general rule that the parties cannot adduce extrinsic evidence to add on, verify or
contradict the written document. The purpose behind this rule is said to be the promotion of
certainty. Lord Hobhouse in Shogun Finance Ltd v Hudson backed up this statement by
stating that the PER is fundamental to mercantile law and the certainty of the contract
depends on it. On the other hand, if this rule were to be held applied rigidly to all cases, there
is no doubt that PER would produce considerable injustice. Hence, it is subjected to
numerous exceptions.

a) The rule will not apply where the written document was not intended to contain the
whole of the agreement (Allen v Pink). Lord Wedderburn has remarked, when the
writing is the whole of the contract, the parties are bound by it and parol evidence is
excluded; when it is not, evidence of the other terms must be admitted. On this view,
the parol evidence rule does not give arise to injustice because it will never prevent a
party from leading evidence of terms which are intended to be the part of the contract.
b) Extrinsic evidence is admissible to prove
-terms must be implied into contract (Gillespie Bros & Co v Cheney, Edgar & Co)
-custom must be implied into contract (Hutton v Warren)
-to show that the contract is invalid on the ground of mispresentation, fraud, or non es
factum. (Campbell Discount Co v Gall)
-to show that documents should be rectified
-to show that the contract has not come into effect (Pym v Campbell)
-to prove the existence of the collateral agreements (Mann v Nunn & City and
Westminster Properties Ltd v Mudd)

In City and Westminster Properties Ltd v Mudd, a lease entered into by party
contained a covenant which stated that the tenant could use the premise for business
 purposes only. The tenant have been induced to sign the lease by the oral assurance
given by the lessor’s agent that lessor would not raised any objection to the tenant
continuing his practice of residing in the premise. In action by the lessor to forfeit the
lease on the ground that the tenant was using the premise for residential purpose. It
was held that the assurance given by the lessor’s agent was admissible to prove that
there was an existence of the collateral agreement despite that the agreement was
contradicting with the previous one.

Implied Terms (statue, common law, custom)

Statue- these statutory implied terms are not based on the intention of the party but the
public policy and on rule of law. As an illustration it can be simply seen on sections
12 to sections 15 of Sale of Good Act 1979. Business to Business (B2B)
-section 12 (1) the seller has the right to sell the goods
-section 12 (2) the goods sold are free from incumbrances or charges in favour of the
third party.
-section 12 (5A) it is classified as a condition.

-section 13 (1) the goods sold should be corresponds with the description.
-section 13 (1A) it is classified as a condition.

-section 14 (2) the goods sold shall correspond with the satisfactory quality.
WILL NOT APPLY
-section 14(2c) buyer examines the goods, as regards defects which that examination
ought to reveal, examination of the sample, the defects was drawn to the attention
before the contract was made.
-section 14 (3) had the buyer makes known to the seller any particular purpose for the
goods which are being brought, must reasonably fit for purpose.
-section 15 the goods sold must corresponds with sample.

Section 13 of Sales of Goods and Services Act (SOGSA)

-section 13 recounting that an implied term that any service provider will carry out the
service with reasonable care and duty. This term will only implied where the service is
provided in a course of business.
Business to Consumer – B2C Contract

Consumer Rights Act 2015 (CRA 2015)

The function of these implied term is not to give effect to the intention of the party, but to
provide some protection for the expectations of purchaser.

Custom- a contract may encompass and incorporate any relevant custom of the market, trade
or locality in which the contract is made (Hutton v Warren). If a custom is inconsistent with
the express term of the contract, it ought to be void. (Palgrave, Brown & Son Ltd v SS Turid
(Owners).

Common Law- there are generally two types of terms implied in common law which was
recognized by Lord Bridge in Scally v Southern Health and Social Services Board. The first
type is known as terms implied in fact. This nomenclature seeks to convey the idea that term
is being implied as the matter of fact to give effect to what the courts perceived to be the
unexpressed intention of the parties to the particular contract. The second type are known as
terms implied in law, which the terms are less directly linked to the unexpressed intention of
the parties to particular contract and given more concern to the nature of the implication.
There are two types of test must be satisfied before a term can be implied into a contract. One
such if it is known as ‘officious bystander’ test.

Officious bystander test lies in the statement that prima facie left in any contract is left to
imply and need not to be expressed is something so obvious that goes without saying.

Another way of testing whether the term can imply into contract is a business efficacy test.
Parties must be necessarily giving the transaction with some business efficacy. (The
Moorcock 1889). The business efficacy test was drawn together and summarized by Lord
Simon in BP Refinery Ply Ltd v Shire of Hasting. Firstly, it must be reasonable and equitable.
Secondly. It must be so obvious that it goes without saying. Then, it cannot contradict with
any express terms of the contract. Lastly, it must be given business efficacy that no terms will
be implied if the contract is effective without it. In the case of Mark and Spencer plc v BNP
Paribas Security Service Trust co Ltd, Supreme Court has affirmed that a term will only be
implied if it satisfied business efficacy test.
A question arise here is whether a contract will be lack of commercial or practice coherence
without the implied term or whether the implied term is necessarily to make a contract work.
The fairness and the reasonableness of the term may be a necessarily requirement, but not
sufficient one. Thus, it is not appropriate for a court to apply hindsight or seek to imply of the
implied terms into the contract because it is fair and reasonable.

There are some requirements before the terms can be implied into a contract.

-Attempts to imply a term into contract failed where one party did not know of the term it
alleged to be implied. (Spring v NASDS).

-Where both parties are not clear that the term will be implied into contract (Luxor
(Eastbourne) Ltd v Cooper)

-Where the party already entered into a written contract containing the detailed terms agreed
between them. Courts are reluctant to imply terms into the contract. (Mark and Spencer plc v
BNP Paribas Securities Service Trust Co)

- the terms will not be implied into contract if it would be inconsistent with the express
wordings. (Duke of Westminster v Guild 1985).

Apart from when courts intend to apply officious bystander test and business efficacy test as
a matter of fact, the court will apply the nature of the relationship as the matter of law. Thus,
the terms are implied into contract of employment (Crossley v Faithful &Gould Holdings
Ltd) and between landlords and tenant (Liverpool cc v Irwin 1977). In the case of Crossley,
the Court of Appeal declined to held that there was an implied term within the contract of
employment which provided that an employer should take reasonable test on an employee’s
economic well-being as it will place a major extension burden on employer in such broad
terms. It would be unreasonable for the employer to consider the employee’s financial
circumstances where he takes lawful business decision which may affect employee’s
economic wellbeing.

In Liverpool City Council v Irwin, the HOL held that there was a implied duty to take
reasonable care (stair, lifts) on the landlord of the premises. In another way, terms implied
into the employment contract that the employers should not overburden its staff in a way
defecting their health. (Johnstone v Bloomsbury Health Authority 1992). In this case, Dr
Johnstone overworked for 88 hours a week as a result he has become ill. He seeks for a
declaration that he should not work more than 72 hours a week. The defendant argued that Dr
Johnstone are obliged to work for 40 basic hours and available on call for another 48 hours.
Dr Johnstone asserted that the contractual obligation is void under s2(1) of Unfair
Contractual Terms Act 1977 as it was held contrary to public policy. The defendant appeal
was dismissed on the ground that the working of such hours would be reasonable to foresee
its result of damage to health. In the case of Attrill v Dresdner Kleinworth Ltd the employer
should not in a way to damage the relationship of confidence between the employer and
employee by going back on his own words or previous promises.

Distinguishing Warranty and Condition (classifying terms as condition by parties, statue and
courts)

Firstly, a term can be classified as a condition by statue. Section 12 to Section 15 of the Sales
of Goods Act 1979 implied a certain term into conditions. Sales by description, sales by
satisfactory quality, sales accordance to example and sales which fitness for all purpose,
whereas the implied terms on section 12(2), the goods are free from charges and
incumbrances from third party is stated as a warranty.

Secondly, a term can be classified as conditions by courts. There are two ways which the
courts decide to classify a term as condition (the importance of the term and binding
authority).

where the performance of the terms goes to the root of the contract, a party must have
intended the terms as a condition of a contract. (Hill v Couchman) although the term must go
to the root of the contract, it need not to be every case that should deprive the innocent party
of the benefits which he would intend to obtain from the contract (Bunge Corp v Tradax
Export SA). When seeking to ascertain of the significance of the contract, the courts would
have to regard the views and practices of commercial community. As Kerr LJ has stated the
court is, in absence of any other ‘more specific guide, making a value judgement about the
commercial significance of the terms in question (The Naxos).

The second way the court decide a term to be a condition is that binding authority requires
the terms to be condition. In some industries, the party trades on standard terms and the
decision of that particular terms are a condition. Thus, a stipulation of a voyage charterparty
relating to the time oat the vessel is expected to load is generally expected to load is generally
treated as a condition. (The Mihalis Angelos). The governing factor here is for certainty. But
certainty carries a price. The price is that, in some cases, a party was held to be entitled to
terminate the contract for a breach of condition, even he suffers little or no hardship. In Acros
Ltd v Ronaasen & Son, timber, described in the contract as half an inch thick, for the purpose
of making cement barrels. The timber delivered was, 9/16 inch thick but did not impair its
utility for making cement barrels. Nevertheless, the defendant was held entitled to reject the
timber, even though the motive in doing so is clearly that the market price of the timber has
fallen. Professor Brownsword has stated that the objection of this case is not that the buyers
are allowed to reject goods which they could use, but allowing them to take advantages of the
falling market price. In short, the buyers in this case is acting in a bad faith. The defendant in
this case acted in bad faith because the reason which they exercise the right to terminate the
contract was not the real reason.

Thirdly, the method of classifying the terms into condition is the parties’ own classification
of the contractual term. In Lombard North Central plc v Butterworth. The contracting parties
are able to classify a term as a condition. A contract for the hire of computer stated clearly in
the agreement that the essence of the contract that the hirer should pay the instalment
promptly. The hirer failed to pay the instalments promptly, whereupon the owner retook the
possession of the computer and sued the hirer for damages. The Court of Appeal held that
failure of making punctual payment of the essence of the contract entitled the claimant to
repudiate the contract and seek for redress for the future loses of the instalment.

However, there must be satisfied that the parties intended to use the word condition in its
technical sense. In Schuler AG v Wickman Tools Sales Ltd, a four years distributorship
agreement stated that it shall be the condition of this agreement that Wickman should at least
once in a week, send its representative for visiting the named manufacturers for the purpose
of soliciting orders. Wickman failed to visit the named manufacturer. Schuler held that they
were entitled to terminate the contract because Wickman had breached a condition proposed
on the agreement. This argument was rejected by House of Lords. Lord Reid states that the
word ‘condition’ used is an indication, that the party wish the condition to be in a technical
sense, but it was no means of conclusive evidence. On the fact that the failure even one to
visit a named manufacturer is so unreasonable that it compelled Lord Reid to interpret
‘condition’ in its none technical sense. The vital factor in this case was that the contract was
poorly-drafted.

Innominate terms/ intermediate terms

This approach is firstly introduced in the case of Hong Kong Fir Shipping Co Ltd v Kawasaki
Kisen Kaisha Ltd 1962. This approach has given a greater degree of remedial flexibility and it
can focus on the attention on the consequence of breach by allowing a party terminate
performance of the contract only where the breach of innominate term has resulted a serious
consequence on himself. The court in deciding whether one was right to terminate an
agreement, have to regard to all relevant circumstances of the case. Albeit the list of the
factor is extremely broad, it largely depends on the fact of the case. In Hong Kong Fir
Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd, the claimant chartered a ship to defendant for
a period of 24 months. The ship chartered was unseaworthy on the ground that the machinery
was ancient, the engine room staff was incompetence. Defendant claimed that the contract
leaded to an end. There was a term in the contract ‘the ship would in every way fitted for the
purpose of cargo service. Thus, there was a breach of condition. The claimant sued for the
wrongful termination of the agreement, that the defendant was not entitled to terminate the
contract but merely entitled to seek for damages. It was held that the defendant was not
entitled to terminate the contract. At the end of the day, the charter party still have 20 months
of use. The charter party was not deprived of substantially the whole benefit of the contract.

In Ampurius Nu Homes Holdings Ltd v Telford Homes, the parties entered into a development
contract on 2008 under which the defendant procure that the works were carried out by them.
As a result of financial downturn in 2009, the defendant was unable to obtain the finance
required to develop two of the four blocks. The work has therefore stopped in June 2009 and
was not able to resume the works until 4 October 2010 when it obtained necessary funding.
The claimant purported to terminate the contract on 22 October 2010 but it was held it was
not entitled to do so. Although the defendant has breached its duty to procure that the works
were carried out, the consequence of the breach were not sufficient serious to entitled the
claimant to terminate the contract. When deciding whether the claimant had been deprived of
substantially whole benefit of the contract, consideration has been given to the circumstances
as the date on which the claimant purported to terminate the contract. It has shown that the
defendant had already resumed the work on 4 October so that the effect was not to postpone
the contract but to delay the project, consequence could be made good by an award of
damage. The benefit which was intended by the claimant would obtain from the contract was
a grant of 999 years of lease. Hence, view from the perspective of that long-term benefit, the
delay which had occurred was not particularly significant and it certainly did not deprive the
claimant’s substantially whole benefit of the contract.

Exclusion Clauses/ Limitation Clauses

Common Law Control

-incorporation (signature, unsigned documents, course of dealings)

-construction (contra proferentum rule, negligence, courts attitude)

-fundamental breach

Statutory Control (business to business, business to consumer)

Bound by signature?

A general rule here is derived from the case of L’Estrange v F Graucob Ltd. In this case, the
claimant bought an automatic slot machine from defendant. She signed an order form which
contained an exclusion clause which exclude all the express and implied warranties. Whilst
the claimant found out that the machine did not work, she brought an action against the
defendant for breaching an implied term that the machine was fit for purpose for the goods
sold. Judgement had been given to the defendant that they had excluded their liability by the
virtue of exclusion clause which incorporated into the contract by claimant’s signature.

It was held that the nature of the document which had been signed must be contractual to
invoke exclusion clause. In the case of Grogan v Robin Meredith Plant Hire, the defendant
was held not entrapped by his own signature while he signed for consent on a time sheet.
Auld LJ held the court must consider whether the document which has been signed could be
regarded as a contractual document having legal effect or was it just a simply administrative
document to give effect for the exclusion clause.

The general rule does not apply in addition of Grogan, where the signature had been procured
by fraud or misrepresentation or fraud or where the defence of non es factum is made out.
The defence of non es factum applied to the case where an illiterate person signed a deed
which had been read to him incorrectly by another person. In such case, the illiterate person
was not bound by the deed. In another words, he can raise the defence of non es factum,
which means ‘this is not my deed’. The effect of successfully raising up this defence can lead
the contract to void so that the contracting party could not rely on an exclusion clause. In the
case of Gallie v Lee, a widow left her house for her nephew. However, her nephew wishes to
raise up some money for the security of the house. So, her nephew asked for a friend’s help
for raising up the money. The nephew arranged a document assigning the house to the friend
of nephew. The widow did not read the contract due to her broken glasses, but she signed it
after the friend told her that it was a deed of gift for the nephew. The friend raised the money
on the mortgage with the respondent building society but made no payment to the building
society, the nephew or the widow. The building society seek to recover the possession from
the widow, who invoked the defence of non es factum. The House of Lords held that the
defence of non es factum was not made out on the fact of this case. As Scott LJ in Norwich
and Peterborough Building Society v Steed, when there is a dilemma between holding a
person to a bargain which he has none consenting mind and the third-party reliance to their
detriment of the validity of the signature, the court will always tend to protect the innocent
third party because the signer of the deed has, by signing, enables the fraud being carried out,
enables the false documents going into circulation. If the signer of the deed had to bear the
consequences for that further goal, the defence of non es factum had to be construed within a
narrow confine.

When dealing with illiterate person, originally conceived, the doctrine of non es factum only
applies to person who were unable to read. But in the case of Saunders, it was held that the
doctrine was not confined to person who are blind and illiterate but also intends to those, who
are permanently or temporarily unable through no fault of their own to have without
explanation of any real understanding, or content of a particular document, whether that
derived from illness, defective education or incapacity. The lordships did not said that the
defence could never be available for a person of full-capacity, but it would only available to
him in a most exceptional cases and would not be available simply because he was too busy
or lazy to read the documents.

When does the defendant was precluded from relying on this defence? It was held that the
general rule is whenever there was a element of carelessness on a person who signs the
documents, he would failed to raise up this defence. In United Dominions Trust Ltd v
Western, the defendant signed a loan agreement with the claimant company in connection
with a purchase of a car and he leave it to the garage owner to fill in the details, including the
price. Little does he know; the garage owner raised the price of the car and the claimant
company paid over the loan of the car in good faith. The court held that the defendant cannot
raise up the defence of non es factum on the ground that he acted on his own carelessness.

Unsigned Documents

In situations where the document is not signed, the exclusion clauses can still be effective
through few grounds.

The notice must be given at and before the time of the concluding the contract. In Olley v
Marlborough Court Ltd, a notice in a bedroom of a hotel, which purported to exempt the
hotel proprietors from any liability for any article lost or stolen in the hotel, was not held to
be incorporated into contract with a guest, whose fur in stolen from her bedroom, because the
notice was not seen by the guest until after the contract had been concluded at the at the
reception desk. In Thorton v Shoe Lane Parking, the claimant received a ticket when he was
entering a car park and he had to pay money to the machine. The ticket stated that the
contract of parking was subjected to terms and conditions which were displayed on the inside
of the parking. The terms and conditions included the exclusion clause. Lord Denning in this
case held the machine was making an offer and the conduct of entering the money into the
machines was acceptance of the offer. The ticket was given after the acceptance took place,
thus the exclusion clause was not incorporated.

Second, terms contained in a document must intended to have contractual effect. In

Chapleton v Barry UDC, the claimant hired a deck chair from defendant. On paying his
money for the deck chair, he has given a ticket, unknown to him, contained a list of terms and
conditions, including an exclusion clause. The claimant was injured when he sat on the deck
chair when it gave away. The claimant sued the defendant, who relied by way of defence on
the exclusion clause contained in the ticket. It was held that they could not rely on the
exclusion clause because it contained in a mere receipt, which does not intend to have any
contractual effects.

Thirdly, reasonable steps must be taken to bring the terms to the attention of another party. In
Parker v South Eastern Railway, it was established that the test is whether the defendant took
the reasonable steps to bring the notice to the attention of the claimant. In Thompson v
London, Midland and Scottish Railway Co Ltd, the claimant, despite was illiterate and unable
to read the exclusion clause contained in the railway timetable, was held liable for the
exclusion clauses. The defendant has taken reasonable steps to bring the attention to the
claimant, even though the clauses were contained not in a conspicuous condition. It would be
a doubt that this liberal view would have been taken today.

Other than that, if the clause was not in front of the ticket (Henderson v Stevenson) or the
reference to the clause is obliterated (Sugar v London, Midland, Scotland Railway Co Ltd),
the clause if likely incorporated into the contract. The reference to the terms on a website
may amount to give a reasonable notice, at least in the case where the notice is easy and
straightforward to refer to. (Impala Warehousing and Logistic Co Ltd v Wanxiang Resources
Pte Ltd).

It was held that the more unusual or unreasonable the clause, the greater the degree of notice
is required. Denning LJ famously said in J Spurling v Bradshaw that some clauses need to be
printed in red ink on the face of the document with a red hand pointing to it before the notice
could be held to be sufficient, which is referred as ‘red hand rule’.

In Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd, the defendant orders
photographic transparencies from the claimants, not having dealt with them before. The
claimant sent them 47 transparencies, together with a delivery note which contained a number
of conditions. Condition 2 stated that holding fee of $5 a day was payable every day if the
transparencies were kept in excess of 14 days. The defendant put the transparencies away and
forget them. The defendant eventually returned the transparencies after a month. The
claimant sent the invoice of $3783, which the defendant refused to pay. The Court of Appeal
held that the condition 2 was not incorporated into the contract because insufficient notice
had been given to the defendant and in absence of the express provision in the contract, the
claimant only entitled to pay a lesser amount. It was held that the party which to incorporate a
onerous term must prove that the term has been fairly and reasonably drawn to the attention
of another party.

Course of Dealing

Terms may also be incorporated into contract by course of dealing. The guidance given by
the House of Lords in Mc Cutcheon v David MacBrayne Ltd, it was held that the course of
dealing must be both regular and consistent. What constitutes a ‘regular’ course of dealing
depends upon the facts of the particular case. Thus, in Henry Kendall Ltd v William Lillico
Ltd, the House of Lords held that 100 similar contracts over 3 years constituted a course of
dealing. But, in Hollier v Rambler Motors AMC Ltd, three and four contracts were held not to
be a course of dealing between the parties.

The course of dealing also needs to be consistent. In McCutcheon v David MacBrayne Ltd, a
ferry belongs to defendant sank and the claimant’s car was lost. In the resulting action by
claimant, the defendant sought to rely on an exclusion clause contained in a risk note, which
contrary to their regular practice, they did not ask the claimant’s brother to sign (who made
the arrangement for shipping the car). The House of Lords held there was no consistent
course of dealings on the basis that the exclusion clause could be incorporated into the
contract. Lord Pearce held that there was no course of dealings because the previous
transactions were always been in writing and the present case the transaction was entirely
oral.

Construction of Exclusion Clause (how the court will interpret the exclusion clause)

Contra-proferentem rule

The interpretation of exclusion clause was strictly applied for any party seek to rely on it.
There is a traditional approach called the contra-proferentem rule. The effect of contra-
proferentem rule is that any ambiguity in the exclusion clause is resolved against the party
seeking to rely on it. Andrew Bros Ltd v Singer and Co Ltd. In this case, the claimant
contracted with defendant to buy some new Singers car. One of the car delivered was a used
car. The claimant sued for the damages and the defendant sought, unsuccessfully to rely on
the exclusion clause. Greer J held that the was trying to escape the effect of Wallis but the
only problem that they had included the word condition, yet they omitted the word ‘express’
and this was fatal because the court held that the defendant had broken an express term of the
contract.

Court’s attitude for exclusion clause and limitation clause

In Alisa Craig Fishing Co Ltd v Malvern Fishing Co Ltd, the House of Lords held when the
courts are dealing with the limitation clause, the contra-proferentem rule does not apply with
the same rigour as in the case of exclusion clause. Lord Fraser and Lord Wilberforce said that
the limitation clause and the exclusion clause were not viewed as the same hostility as
exclusion clause because of their role in risk allocation and it is more favorable for the other
party to consent to limitation clause compared to exclusion clause. The decision in Alisa
Craig Fishing Co Ltd v Malvern Fishing Co Ltd was followed by House of Lords in George
Mitchell v Finney Lock Seed.

However, there are voices of objections regarding to this proposition. In the case of
Darlington Futures Ltd v Deco Australia Ply Ltd, the court in Australia refused to make
differentiation between limited clause and exclusion clause and held that a very extensive
limitation clause may in effect equivalent to a complete exclusion clause. The interpretation
of exclusion clause is determined by construing the clause according its natural and ordinary
meaning.

It should be noted that the existence of contra-proferentem rule should only be operated in the
case of genuinely ambiguity. In future, the exclusion clause must be given a more natural
construction albeit, there must be clear and unambiguous words being used. (Photo
Production v Securicor Transport.

Negligence Liability

Fundamental Breach

There are two approach in interpreting whether the breach is fundamental

1. Rule of law approach – if it is a fundamental breach, the liability cannot be excluded,

this approach grew on the guiding hand of Lord Denning as a mean to control
exclusion clause which were mean to be unreasonable. (Photo Production v Securicor
Transport)
 2. Rule of construction approach – a exclusion clause covered a fundamental breach was
a question of fact. (Suisse Atlantique Societe)

In the case of Photo Production v Securicor Transport, the claimant, factory owner entered
into a contract with defendants, which the defendants were contracted to provide periodic
visit to the claimant’s factory during the night for the purpose of checking the factory was
secure. During one of these visits, a employee of defendant started a fire, apparently to keep
himself warm, but got out of control, but eventually burnt the whole factory. The claimant
seek to recover damages for $648 000 from defendants, but the defendant relied on a
exclusion clause which stated ‘under no circumstances they are responsible for any injurious
act or default by an employee… unless such act and default can be foreseen and avoided by
exercise due to diligence by the employee’. The House of Lords in this case held that it was a
question of construction whether or not the exclusion clause covered the fundamental breach
and the defendant was not liable.

Now the rule of law approach has been laid down. The doctrine simply relies on the rule of
construction, according to the more serious of the breach or the consequence of the breach,
the less likely the court will interpret exclusion clause applying to the case.