Standard form contract

Introduction

“Standard form Contracts” are ‘take it or leave it’ contracts i.e.

a contract signed between two parties that has no room for
negotiation. The customer is in no position to renegotiate the
standard terms of the contract and the company’s
representative usually does not have the authority to do so.
Such contracts are also known as- “ Contracts of adhesion ”
which means that the individual has no choice ‘but to accept;
he does not negotiate, but merely adheres’, “Compulsory
Contracts”, they being a kind of imposition; and “Private
Legislation”, they being a kind of code of bye-laws on the basis
of which the individual can enjoy the services offered.
The fundamental right to negotiate is affected by this type of
arrangement popularly these types of contract are known as
adhesion or a boilerplate kind of contract. Most common type
of standard form of contracts are insurance company contract,
on purchasing a washing machine, signing up for your e-mail,
social networking sites, etc.
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.

For large organizations, it is very difficult to draw up a separate

contract with every individual. Therefore, they keep printed
forms of contract i.e. SFC’s containing a large number of terms
and conditions in “fine-print” which restricts and often excludes
the liability of the other party under the contract. Briefly, one
can say that the SFC’s have arisen as a result of:

a) The convenience in having a printed form;

b) The fact that one party stands in a position where the terms
dictated by it can be imposed upon the other, notwithstanding
the will of the other, and since the terms of such bargains are
known to the former even prior to the entry into the contract,
the former prints it out and keeps it ready, waiting for the
persons to come forward and enter into such contracts; and

c) The willingness of the customer to allow the provider and his

or her perceptions as to the likelihood of the contract being
enforced to the latter.
Objectives

A Standard form Contract is a contract between two parties

that does allow negotiation.
On one hand they undeniably fulfil an important role of
promoting economic efficiency while on the other
hand it has turned out to be a tool that leads to exploitation of
the common mass.
There is a furious debate whether the court should enforce
standard form contracts or not.
The important issue being how to avoid the exploitation of the
weaker section.
The following objective: -
· To facilitate an in depth understanding of the topic ‘Standard
Form Contracts’.
· To address various issues attached to the topic.
· To analyse each issue with a wholesome view and explain the
same with the help of case laws.
· To give suggestions and opinions regarding the same.

The method of research is a combination of both “Descriptive”

and “Analytical method”.
Analysis

1. First reason why people accept SFC, they don’t read the
contract clauses thoroughly as even after reading they
don’t find it worthy of giving so much time in writing
down the clauses.

2. In certain contracts, there are clauses like if you accept

the given terms and condition then they will tell the full
terms and condition of the contract.

3. SFC kind of contract the party generally focus on the

price mentioned in the contract; he doesn’t really care
about other different clauses which might be exploitative
in nature.

4. Manufactured pressure on the party is created by another

party to sign SFC, earlier all the negotiation and the
terms had been discussed orally and explained to them.
So, it becomes a kind of bounding on the party to sign
the contract.

5. The major point SFC’s are that they are take it or leave
basis, so they don’t have any choice but to accept the
contract.

It is easy to exploit the party entering into standard form of

contract, there are certain rules made to protect the interest of
the weaker party. Specific procedure has been mentione in order
to protect the weaker party in SFC contract.
Explanation

Reasonable Notice
A reasonable notice must be given by the person delivering the
document to give adequate information about the terms and
condition laid down in the contract. This principle was
propounded in the case of Henderson V. Stevenson from House
of Lords. Case facts were that, a person buy a ship ticket on face
of it only boarding place and arriving place was written on it but
on its back side there were certain terms and conditions which
party didn’t see nor anything was written on face of it to turn
over and look at the back of ticket. Simple reason given by court
was that a person cannot agree to a term if he had not seen it
or is not told of it

Notice of the terms and condition should be given before or at

the time of contract when it is to be signed. As clearly said by
Lord Denning it is duty of the party relying on a clause to its
benefit to make it clear to other party the terms and condition
of contract in the famous case of Thornton V. Shoe Lan
Parking Ltd.

Contractual Document
For a standard form of the document, there must be a
contractual document signed between the parties in order to
make it enforceable in court. The basic problem lies between
identifying the document as a contract document or as a receipt.
Different between these two is, if the document clearly explains
the express and implied a condition in the document then it is a
contractual document if not then it is a receipt. The contract
must be signed by the person accepting the terms and conditions
mentioned in the document.
 Misrepresentation, Fraud, Mischief and other elements which
makes a contract void should not present in the contract in order
to make an agreement enforceable by law.

Unreasonable or Unfair terms

Pointing out unreasonable terms in the contract can be one the
protective safeguard for the weaker party. Unreasonable terms
of contract can be said about those terms in the contract which
contradicts the very purpose of the contract or are against the
public policy. In Lilly White V. Mannu-Swami this principle has
been clearly explained in the case. In this case the laundry
receipt contained a condition that in case of loss or destruction
of cloth only 15% money of the market price of cloth will be
returned these clauses were held unreasonable from the court
and was held that the clauses were against the public interest.

In an Indian financial case of Seven Day Adventists Vs. M.A

Uneerikutty and Anr. MANU/ SC/3291/ 2006 it says that if any
consideration of several clauses mentioned in the contract is
unlawful then agreement itself is void and the decision of the
court says that this type of cases are against the public policy, if
any type of clauses violating public policy that contract is void.
This doctrine is not only applicable to harmful cases but to the
cases with harmful tendencies

In the case of contract with the government certain points must

be observed in order to prevent exploitation of the other party
in the contract. As the decision from the government had been
taken in bad faith. Decision is based on irrational or irrelevant
consideration.
 Decision has been taken without following the prescribed
procedure in the system. If these things are not followed
diligently contract will be termed as irrelevant by the

court and party will be protected by certain clauses against

exploitation of contracted party.

Theory of Fundamental breach

It’s one of the tools to protect the weaker party from exploitation
through this theory. What happens in theory there is a core or
fundamental of the contract which is bounding on both parties
to follow them and if that is not followed then there will be a
breach of contract. In the case of breach of contract, the weaker
party will not be bound to follow the contract in case of breach
of contract by other party. Test of fundamental breach of
contract can be done through sec 11 of 1977 unfair contract act
which says the contract will be void if it will not satisfy the
reasonableness of the contract.

In case of Food Corporation of India Vs. Laxmi Cattle Feed

Industries MANU/SC/8041/2006, Supreme Court held that in
case of breach of contract, the plaintiff has to prove all the
essentials of breach of contract. If the plaintiff is not able to
prove, it will not be considered as breach of contract.

Exemption Clauses and Third Party

Under this clause we have to take a look at the doctrine of privity
of contract which says that the contract is between the two
parties who have contracted with each other and no third party
is entitled to enjoy the right provided in the contract nor hold
any liability.
As the third party does not hold any responsibility for the
irregularity in the contract, he is not entitled to any benefit from
the contract.

Ambit and authority of Contract Act

Under the Indian contract, there is no such form or condition

which is binding on the parties. Parties may agree to contract in
a particular mode which is not probihited under the law. Problem
that is prevalent in the Indian context is that there is no such
specific rule provided in Contract Act, different provision has
been mentioned in different kinds of Act which govern activity of
contract like specific provision of railways act, public transport
control by the government. Different kinds of rules provided by
the government to contract in coffee industry, tea plantation
which is entered into by workers with the industry.

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.

Case law
Rule in L. Estrange v. Graucob Ltd.
FACTS: Mrs. L signed an agreement without reading it under which she
purchased a cigarette vending machine. Agreement excluded all kinds of
defects. Machine was totally defective.
• HELD: “It is true that the dt’s practically made no efforts to bring the
defects to the knowledge of the pt. but where a document containing
contractual term os signed unless there is some fraud or
misrepresentation, the party signing it is bound and it is wholly
immaterial whether he read them or not”
• Analysis: weaker party was exploited by the business community.
Individuals deserve some protection against possibility of exploitation
inherent in such contracts. Hence courts have evolved some protective
devices .
Standard Form Contracts Protective Devices
Reasonable notice

It is the duty of the person delivering the document to give adequate

notice to the offeree of the printed terms and conditions. Otherwise
acceptor is not bound by these terms. Henderson v. Stevenson

FACTS: Pt bought a steamer ticket. Which contained on the face, words

“Dublin to White heaven” on the back, certain terms, one of which
excluded liability of the Co. for loss, injury or delay to the passenger or
his luggage. Pt had not seen back of the ticket not there was any
indication on the face about the conditions on the back. Pt’s luggage was
lost by the ship wreck caused by the fault of Co’s servants.

HELD: Pt was entitled to recover his loss from the Co. inspite of
exemption clause.

Henderson v. Stevenson

OBSERED: Pt could not be said to have accepted the a term which he has
not seen, of which he knew nothing and which is not in any way
ostensibly connected with that which is printed and written upon the face
of the contract presented to him. The result would have been otherwise, if
words like “for conditions see back” had been printed on face of the ticket
to draw the passengers’ attention to the place where the conditions were
printed.
PRINCIPLE: “Where a written document is presented to a party for
acceptance, a reasonably sufficient notice shall be given of the presence
of terms and conditions. Notice will be regarded as sufficient if it will
convey to the minds of people in general that ticket contains conditions.
Parker v. South Eastern Railway Co.
FACTS: Pt. deposited a bag at railway station and received a ticket – on
the face words “see back”, on the back, “the co. will not be responsible
for any package exceeding the value of $10.” – a notice to the same
effect was also hung up in the cloak room – pt.'s bag lost – claimed full
value of the bag which was more than $10 – co relied on the exemption
clause. Pt. contended – 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 for the money paid by him.
HELD: Pt. knew that there was there was writing on the ticket but he did
not know or believe that the writing contained conditions. Nevertheless,
he would be bound because there was reasonable notice that the writing
contained conditions.
Some more Examples
Obliterated instruction – no notice
Instruction in French language –valid notice
No defense of illiteracy and unable to read

Types of documents and requirement of notice:

1. Contractual document and mere receipts. Eg. Bill of lading,

railway receipt, hiring chairs at a beach, cinema tickets, car parking
receipt, etc. A document is said to be contractual if it embodies a
contract i.e., person to whom it is delivered should know that it is
supposed to contain conditions. But where the paper is not supposed
to express the conditions of the contract it will be regarded as a
mere voucher, etc., and extra care shall be taken to communicate
its terms than mere warning on the face of it.

Chapelton v. Barry Urban District Council

FACTS: Pt. on a beach hired two chars from the Council – received
two tickets, glanced and slipped them into pocket – while siting on a
chair he had the misfortune to through canvas with result that he
suffered injury – tickets carried the words “Council will not be liable
for any accident or damage arising from hire of chairs”
 Pt. argued he had no idea that there were any conditions on these
tickets

HELD: Council was liable for his injury

REASONS: Lord Slesser “the ticket is no more than a receipt, and

is quite different from a railway ticket which contains terms upon
which railway co agrees to carry the passenger. The object of ticket
in this case was that person taking it might have evidence that he
had paid the hire and the term printed on it was no part of the
contract.

Thornton v. Shoe Lane Parking Ltd.

FACTS: Pt. parked his car in automatic car park – a notice at

entrance “Cars parked at the owner’s risk” - pt. slipped money into
a machine which brought forth a ticket, gate barrier opened and pt.
parked his car – he looked at the ticket for parking time and notice
some words but didn't pay attention to them – the words excluded
co liability for any damage to the car or customer – while taking the
car back pt. was injured - claimed compensation – dt’s sought the
defense of exemption clause

HELD: Co. was liable for his injury

REASONS: “Exemption clause was so wide and so destructive of

rights that the courts should not hold any man bound by it unless it
is drawn to his attention in the most explicit way”

Lord Denning “In order to give sufficient notice, it should be

printed in red ink with a red hand pointing to it, or something
equally startling”
2. Contracts signed by acceptor

10 Where party has signed a contract, he can be protected

1. By the doctrine of fundamental breach – Eg. Estrange v.
Graucob
2. Unreasonable terms
3. Misrepresentation
4. Oral assurances
5. By the determination of whether party would have signed the
document had he been aware of such term

Curtis v. Chemical Cleaning And Dyeing Company

FACTS: Pt. delivered a white satin wedding dress to the dts for
cleaning. On being asked to sign the receipt while signing on her
enquiry she was told she shall take the responsibility for sequins
and beads – she then signed the receipt without reading the
conditions – receipt in fact contained condition “co. is not liable for
any damage howsoever caused “ - when the dress was returned
there was a stain on it. On sued by the pt. dt’s claimed defense of
exemption clause

HELD: Co. was liable

Lord Denning: “By the failure to draw the attention to the width of
the exemption clause the assistant created the false impression that
the exemption only related to beads and sequins and that it did not
extend to the material of which the dress was made. This was
sufficient to disentitle them from relying on exemption clause.

3. Notice of unusual terms

Where a condition is particularly onerous or unusual, a clear, fair

and reasonable effort shall be made to bring such terms to the
attention of the party concerned.
 Interphoto Library v. Stifleto Visual programmes

FACTS: Dts. an advertising agency required certain transparencies

– pt. dispatched 47 transparencies with a delivery note which stated
that “the same were to be returned within 14 days and that holding
fee of $5 per day for each transparency would be charged if they
were not so returned“ - dts did not use them and kept them aside
for further two weeks – an invoice arrived from pt. claiming $3,783
holding fee – dt pleaded absence of notice.

4. Contemporaneous Notice

Notice of the terms shall be given before or at the time of contract.

A subsequent notice will amount to modification of the contract and
as such will not bind the party unless he assents to it. Eg. Hiring
hotel a week before occupied – on occupying the notice read
“proprietors shall not be liable for articles lost or stolen unless
handed over to the manager for safe custody” – property was stolen
due to negligence of staff 

HELD: Hotel was liable for the loss as the notice was not part of the
agreement

II. Theory of fundamental breach

• Even where adequate notice of terms and conditions has been
given, the party imposing conditions may not be able to rely on
them if he has committed breach of contract which can described as
fundamental
• Every contract will have a core obligation. Breach of such
obligation is not excused even though exemption clause is inserted
to protect him
• Davies v. Collins

• FACTS: pt gave dress for cleaning with a dry cleaner – clause, “no
liability for loss arising from necessary handling and liability limited
to 10 times the cleaning charges” - dress was lost

• Held: dt. is liable for clause having no effect.

III. Strict Construction

Where the clause is widely expressed exempting the liability as to

be highly unreasonable, any ambiguity in the mode of expressing it
is resolved in favour of the weaker party

Hollier v. Rambler Motors AMC Ltd.

FACTS: pt. sent his car to garage fro repairs – dt. carried out the
services to the car 3-4 times in the last 5 yrs. – on each occasion pt.
signed an invoice which excluded liability for damage caused by fire
– this occasion he did not sign any document but this time the car
was destroyed by fire due to negligence of the dt. Pt sued the dt for
loss- dt. argued course of dealing in the past established a perfect
contract which excluded liability for loss due to fire.

HELD: dts. were liable.

REASONS: 3-4 dealings over last 5 yrs was not sufficient to create
such course of dealing between the parties as to amount to notice of
terms. The term if accepted to be noticed, might have excluded
liability for loss due to fire but not liability for loss due to fire by
negligence.

IV. Liability in Tort

• Even where an exemption clause is exhaustive enough to exclude

all kinds of liability under a contract, he may be held liable under
torts for compensation.

• White v. John Warwick & Co. Ltd.

FACTS: pt. hired a bi-cycle from the dt., who agreed to maintain it
in working order – clause, “nothing in this agreement shall render
the owners liable for any personal injuries” - while the pt was riding
the cycle the saddle tilted forward and he was thrown and injured. Pt
claimed compensation – dt relied on exemption clause

HELD: Although the clause exempted dt from liability in contract,

he was not exempt for tortious liability for negligence
V. Unreasonable terms

• A term is deemed unreasonable if it would defeat the very purpose

of the contract or if it is against public policy. Such unreasonable
term is excluded from contract.

• Lilliy White v. Mannuswamy

FACTS: A laundry receipt contained a condition that “the customer

would be entitled to claim only 15% of the market price or value of
the article in case of loss” - pt’s saree was lost – claimed value –
15% was offered – sued for full value – relied on clause limiting
liability

HELD: term was unreasonable and against public policy hence liable
to pay the full value of the saree Lord Denning: “there is always the
vigilance of the common law, which while allowing freedom of
contract, watches to see that it is not abused”
Suggestion

Standard Form Contracts can be utilized as a successful

commercial tool if the common mass reads the document
properly before entering into the contract. So, the root cause of
the problem is the lengthy terms and conditions of the contract,
which may include the exemption clause, and which the common
mass is not in a habit to read.

The following suggestions can help to solve these issues:

1. Any document in the form of a SFC, must have a short

summary in the front of a document which the people can read
and comprehend before entering into the contract. This
summary should include the exemption clause if any, so that the
people are aware about it.

2. As it is next to impossible, that the above suggestion will be

adhered to in each and every SFC drafted, the Indian Contract
Act, 1872 should be amended and a provision for mandatory
adherence of the same should be included in the provision.
Conclusion
The standard form of contract are written in fine print with all
the terms and conditions laid down clearly in the contract. In
Indian context cases are entertained under the rules provided by
Indian Contract Act, there is no any act only made to deal with
standard form of contract specifically. In this type of contract
weaker party can easily be exploited and there is no specific
rule for the prevention from this type of action by dominating
party.

With the evolution of legal system the courts had found different
kinds of method and tools to protect the basic right of the weaker
party by applying the principles of natural justice, precedent of
different cases helping in protecting interest of weaker section.
As through transformation these kind of contract are made on
daily basis in enormous number, that’s why proper scrutiny and
providing a lengthy procedure will not work best thing can be
done is to provide awareness about the rule so that the parties
entering into the contract will read the clauses and try to
understand and ask question on certain clauses if they are not
able to understand it.

Take it leave it as it is the nature of the contract which leads to

commencement of certain cases in court in which there is an
immediate urge to provide justice to the weaker party who
without knowing the specific clauses entered into the contract.

****************