Standard form of Contract

The Standard Form Contracts are standardized contracts that contain a large number of terms
and conditions in fine print, which restrict and often exclude liability under the contract. This
gives a unique opportunity to the giant company to exploit the weakness of the individual by
imposing upon him terms which often look like a kind of private legislation and which may go
to the extent of exempting the company from all liability under the contract. The battle against
abuse has fallen to the courts. The courts have found it very difficult to come to the rescue of
the weaker party.
Devices Developed by the Courts for the Protection of Individuals in Standard form of
Contract
The law of contract has in recent time to face a problem, which is assuming new dimensions.
The problem has arisen out of the modern large scale and widespread practice of concluding
contracts in standardized form. People upon whom such exemption clauses or standard form
contracts are imposed hardly have any choice or alternative but to adhere. This gives a unique
opportunity to the giant company to exploit the weakness of the individual by imposing upon
him terms, which may go to the extent of exempting the company from all liability under
contract. It is necessary and proper that their interests should be protected. The courts have
therefore devised some rules to protect the interest of such persons.

A valid contract requires offer and acceptance. It is in the essence of acceptance, that such
acceptance must be a valid acceptance, that is to say, an acceptance made, fully conscious of
and alive to the terms and conditions of the proposal. Of course, this is not to say that a man
who signs an agreement blindfolded will be relieved from his obligations under that
agreement, simply because he later chooses to discard the blindfold. However, what Section
2(b)1 does require is that the acceptor must have a real opportunity to review the proposal
and decide on whether to accept it or not.

A standard form contract is a contract between two parties that does not allow for negotiation,
i.e. take it or leave it. Sometimes it is referred to an adhesion contract or boilerplate contract.
It is often a contract that is entered into between unequal bargaining partners. It’s a type of
contract, a legally binding agreement between two parties to do a certain thing, in which one
side has all the bargaining power and uses it to write the contract primarily to his or her
advantage.

OVER VIEW
It would be difficult for large-scale organizations to draw up a separate contract with every
individual. They therefore keep a printed form of contract. Such standardized form of
contracts contain large number of terms and conditions in “fine print” which restrict and often
exclude the liability, and therefore his only function is to accept the offer whether he likes its
terms or not.

NATURE
A standard form contract is a contract, which does not allow for negotiation, i.e. take it or
leave it. It is often a contract that is entered into between unequal bargaining partners. It’s a
type of contract, a legally binding agreement between two parties to do a certain thing, in
which one side has all the bargaining power and uses it to write the contract primarily to his
or her advantage. Sometimes it is referred to an adhesion contract or boilerplate contract.
An example of an adhesion contract is a standardized contract form that offers goods or
services to consumers on essentially a "take it or leave it" basis without giving consumers
realistic opportunities to negotiate terms that would benefit their interests. When this occurs,
the consumer cannot obtain the desired product or service unless he or she acquiesces to the
form contract.

Let’s take another example, that, when an individual is given a contract by the salesperson of
a multinational corporation. The consumer is in no position to negotiate the standard terms of
such contracts and the company's representative often does not have the autonomy to do so.
While adhesion contracts, in and of them, is not illegal per se, there exists a very real
possibility for unconscionability.

DEVICES
In the Contract of Adhesion, the individual has no choice “but to accept”; he doesn’t
negotiate, but merely adheres2. Therefore individual deserves to be protected against the
possibility of exploitation inherent in such contracts. Some of the modes of protection which
has been developed by the courts are as follows;

REASONABLE NOTICE
It is the duty of the person who is delivering a document to give adequate notice to the
offeree of the printed terms and conditions. Where it is not done, the acceptor will not be
bound by the terms.

In Henderson v. Stevenson, the plaintiff bought a steamer ticket on the face of which was
these words only: “Dublin to Whitehaven”; on the back were printed certain conditions one
of which excluded the liability of the company for loss, injury or delay to the passenger or his
luggage. The plaintiff did not see the back of the ticket, nor was there any indication on the
face about the conditions on the back. The plaintiff’s luggage was lost in the shipwreck
caused by the fault of the company’s servants. This was laid down by the House of Lords that
the plaintiff is entitled to recover the loss which he suffered from the company in spite of the
exemption clauses.

In Parker v. South Eastern Rail Co, the plaintiff deposited his bag at the cloakroom at a
railway station and received a ticket. On the face of the ticket it was printed: “See back”; and
on the back there was a notice “the company will not be responsible for any package
exceeding the value of ₤ 10”. A notice to the same effect was also hung up in the cloakroom.
The plaintiff’s bag was lost and he claimed the full value of his bag which was more than ₤
10. The company relied upon the exemption clause. The plaintiff contended that although he
knew there was some writing on the ticket, he did not see what it was as he thought that the
ticket was a mere receipt of the money he paid.

In M/s Prakash Road Lines (P) Ltd v. HMT Bearing Ltd, it has been held that the carrier is
bound to deliver the goods consigned at the appointed destination or else he will be liable to
pay compensation for the same. Merely printing on the lorry receipt that the goods are
transported at the owner’s risk will not absolve the transporter from his duty unless it is
proved that such terms were brought to the notice of the plaintiff. Mere printing on the lorry
receipt cannot be deemed to be the term of contract unless the plaintiff’s knowledge and the
consent about the same.

NOTICE SHOULD BE CONTEMPORANEOUS WITH THE CONTRACT

If a party to the contract wants to have exemption from liability he must give notice about the
exemption while the contract is being entered into and not thereafter. If the contract has been
entered into without any exemption clause then subsequent notice regarding the exemption
from liability will be in effective.

In Olley v. Marlborough Court Ltd., plaintiff and her husband hired a room in the defendant’s
hotel for one week’s boarding and lodging in advance. When they went to occupy the room
they found a notice displayed there stating “proprietors will not hold themselves responsible
for articles lost or stolen, unless handed to the management for safe custody.” Due to the
negligence on the part of the hotel staff, plaintiff’s property was stolen from the room.

In an action against the defendant to recover the compensation for the loss, they sought
exemption from liability on the basis of the notice displayed in the room. It was held that
notice in the room was not forming the part of contract and therefore the defendants were
liable to pay compensation.

FUNDAMENTAL BREACH OF CONTRACT

Another device which has been adopted to protect the interest of the weaker of the parties to
the contract when they have an unequal bargaining position is to see that enforcing the terms
of contract does not result in the fundamental breach of contract. In a standard form of
contract it is likely that the party having a stronger bargaining power may insert such
exemption clause in the contract that his duty to perform the main contractual obligation is
thereby negative.

In Alexander v. Railway Executive, the plaintiff deposited his luggage in defendant’s cloak-
room and in return received a ticket. A term printed on the ticket exempted the defendant
from liability for loss or mis delivery of luggage. Plaintiff’s luggage was delivered to an
unauthorized person without the production of the ticket. It was held that non-delivery of
luggage to the plaintiff amounted to fundamental breach of contract for which the defendant
was liable.

In Shivraj Vasant Bhagwat v. Shevanta D Indulkar, overloading an insured vehicle was a

mere irregularity and not a fundamental breach so as to enable the insurer to get rid of his
liability.

LIABILITY IN TORT
Even where an exemption clause is exhaustive enough to exclude all kinds of liability under
the contract, it may not exclude the liability of tort. In White v. John Warwick & Co Ltd,
plaintiff hired a cycle from the defendant. The defendant agreed to maintain the cycle in
working condition and a clause in the agreement provided: “nothing in this agreement shall
 render the owners liable for any personal injuries…” while plaintiff was riding the cycle
saddle titled forward and he was thrown and injured.

It was held that although the clause exempted the defendants from their liability of contract, it
did not exempt from liability in negligence.

UNREASONABLE TERMS
Another mode of protection is to exclude unreasonable terms from the contract. A term is
unreasonable if it would defeat the very purpose of the contract or if it is repugnant to the
public policy. In M Siddalingappa v. T Nataraj, where a condition that only eight per cent of
the cost of garment would be payable in case of loss was held to be unreasonable. In RS
Deebo v. MV Hindlekar, laundry receipt contained printed condition restricting liability for
loss or damage to 20 times laundry charges or half the value of the garment, whichever was
less. The condition was held to be unreasonable.

LIABILITY TOWARDS THIRD PARTY

On the basis of the principles of law of contract, a contract is a contract only between the
parties to it and no third party can either enjoy any rights or suffer any liability under it. In
Morris v. CW Martin & Sons, the plaintiff gave her fur garment to a furrier for cleaning.
Since the furrier himself could not do the job, he gave this garment to the defendant for
cleaning, with the consent of the plaintiff. The defendant’s servant stole the garment, for
which the plaintiff bought an action against them. The defendant sought exemption from the
liability on the basis of agreement between the plaintiff and furrier. The defendants were not
allowed exemption and they were held liable.

ENGLISH & INDIAN VIEW

In England, Unfair Contract Terms Act, 1977 severely limits the rights of the contracting
parties to exclude or limit their liability through exemption clauses in their agreements.
Liability for death or personal injury cannot be excluded or restricted through a term in the
contract or notice. Moreover the manufacturer or the distributer cannot exclude their liability
arising out of defective goods or for their negligence, as regards goods supplied for private
use or consumption.

Unlike England, there is no specific legislation in India concerning the question of exclusion
of contractual liability. There is a possibility of striking down unconscionable bargains either
under section 16 of the Indian Contract Act on the ground of undue influence or under section
23 of that Act, as being opposed to public policy.

In Central Inland Water Transport Corp. Ltd v. Brojo Nath, the Supreme Court struck down a
clause in service agreement whereby the service of a permanent employee could be
terminated by giving him a 3 months’ notice or 3 months’ salary. It was held that such clause
was unreasonable and against public policy and void under section 23 of Indian Contract Act.

The Law Commission of India in its 103rd report (May, 1984), on Unfair Terms in Contract,
has recommended the insertion of a new chapter IV- A consisting of section 67-A of Indian
Contract Act. According to this recommendation where the court on the terms of contract or
 evidence adduced by the parties, comes to the conclusion that contract or any part that it
holds to be unconscionable. A contract according to this provision is considered to be
unconscionable if it exempts any party there to from either the liability for wilful breach of
contract, or consequence of negligence.

CONCLUSION
The Standard Form Contracts are standardized contracts that contain a large number of terms
and conditions in fine print, which restrict and often exclude liability under the contract. This
gives a unique opportunity to the giant company to exploit the weakness of the individual by
imposing upon him terms which often look like a kind of private legislation and which may
go to the extent of exempting the company from all liability under the contract. The battle
against abuse has fallen to the courts. The courts have found it very difficult to come to the
rescue of the weaker party.

The courts have evolved and applied certain rules to protect the interest of the consumer,
customer or passenger, as the case may be upon whom standard form contracts or exemption
clauses are imposed, like reasonable notice should be given, notice should be given, notice
should be contemporaneous with contract, theory of fundamental breach, contra proferentem
interpretation of the contract, liability in tort, exemption clauses and third parties etc.

These modes, along with other Acts help the courts in dealing with the problem of Standard
Form Contract.