Advaith Govind

Roll No: 829

IIIrd Semester

NUALS

CONTRACTS PROJECT:

STANDARD FORMS

OF

CONTRACT

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Table of Contents

Acknowledgement.......................................................................2

.........................................................................................................

Introduction...............................................................................3

What are Standard Forms of Contract(SFCs)?...................7

The English and Indian View...................................................22

Conclusion................................................................................23

Bibliography..........................................................................24

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ACKNOWLEDGEMENT

I express deep sense of gratitude to my teacher, Professor Dr. Balakrishnan K Sir for giving me an

opportunity to work upon the topic of my interest. I also thank my parents and friends who were always in

constant support and guidance. I am always indebted to Lord Almighty for his blessings to bring out my best.

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INTRODUCTION

The Indian Contract Act brings within its ambit the contractual rights that have been granted to the

citizens of India. It endows rights, duties and obligations on the contracting parties to help them to

successfully conclude business- from everyday life transactions to evidencing the businesses of multi-

national companies. The Indian Contract Act, 1872 was enacted on 25th April, 1872 [Act 9 of 1872] and

subsequently came into force on the first day of September 1872. The essence of the India Contract Act has

been modelled on that of the English Common Law. 1

A Standard Form Contract (SFC) is also called as adhesion or boilerplate contracts. In such type of contract

one party stands in the dominating position compared to the other party. The terms and conditions of the

contract are prefixed by the dominating party and the other party is left with no option then to 'take it or leave

it'. Thus the fundamental right to negotiate prior to entering into the contract is highly effected by such

arrangements.2

The Indian Contract Law does not differentiate betwen SFC's and general contracts. Therefore,

SFC's are not ilegal per se. Since these contracts puts the other party into 'take it or leave it' positon, they do

not force them to enter into the contract. However, judiciary in many countries is empowered to adopt he

principle of natural justice and make god any injustice

ocuring due the fulfilment of such contracts. Like In Israel, the Standard Form Contract Act 1982 defines a

set of depriving conditons that may be canceled by a court of law, including unreasonable exclusion or

limitation of liabilty, unreasonable privileges or obligatory arbitration by the seler of service provider or

unreasonable obligation and unreasonable limitations upon the consumer.

The law of contract is assuming new forms and dimensions. These days there has been an increase in the

practice of concluding contracts in the standardized forms. Thus the need for much legality to be involved in 1 "History Of The Indian Contract Act 1872 | Law Teacher." Law Teacher | Law Essays, Dissertations & Coursework. N.p., n.d. Web. 5 Oct. 2014.2 :: INTERNATIONAL INDEXED REFEREED RESEARCH JOURNAL ::. N.p., n.d. Web. 5 Oct. 2014.

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contracting is never a pre requisite now. People get involved in standard legal contract with or without their

knowledge in their day to day activities.

Having discussed about the Indian Contract Act 1872 and the concept of Standard form of Contracts. Now

let’s discuss the need for a standard form of contract in the Indian context.

To follow the principles laid down in the Indian Contract Act to the letter, one would require each and every

clause in an agreement to be discussed, negotiated and then finalized, once a consensus is arrived at. People

enter into contractual relations with one another all the time. It is not practically possible to negotiate the

terms and conditions of each and every one of these contracts. Commercial and business sense dictates that

people spend only so much time on negotiation as would be warranted having regard to the nature and the

value of the contract being entered into. Men of commerce have found that certain conditions are implicit in

every contract, having regard to the trade usages or customary practices in existence. Yet, in order to avoid

needless disputes or litigation, they prefer to have these spelt out in writing. This has given rise to the printed

form. Purchasers of insurance, for example, normally agree only on the price, the term, the monetary limits

of coverage, and in a very rough sense, the risks to be covered. All the other provisions are left for the insurer

to set unilaterally in the form of a policy. Such contracts gain their legitimacy from the fact that the rules

underlying them have evolved out of long practice and have gained binding force by virtue of their being

valid trade usages and/or customary practices.

Purchasers of a cricket ticket agree on even less. All that is discussed, if at all, is the location of the seat in

question, and consequently, the price of the ticket. All other provisions are set out on the reverse of the ticket

that the viewer obtains after having tendered the price of the ticket, and the ticket issued in pursuance of the

conclusion of the agreement between the parties.

There are six broad reasons as to why consumers agree to be governed by terms set out in a printed form

drawn up by a trader3:

First, the salesman (or other person acting on behalf of the provider of goods and services) who is on the

other side of the table, holding out the printed form, is not disposed to bargain over the boilerplate or lacks

3  Robert A. Hillman and Jeffrey J. Rachlinski, "Standard Form Contracting in the Electronic Age", 77 N.Y.U. L. REV. 429 (2002)

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the authority to do so. That is to say, the provider of goods or services presents the printed form on a take-it-

or-leave-it basis.

Second, the consumer would not understand much of the language of the printed form, even if he or she took

the time to read it.

Third, the business's competitors usually employ comparable terms.

Fourth, the remote risks allocated by the printed form will not likely eventuate.

Fifth, the provider of goods or services seeks to establish and maintain a good reputation with the purchasing

public and generally will stand behind its product.

Sixth, the consumer expects the law to enforce the printed form contract, with the exception of offensive

terms.

The consumer, engaging in a rough but reasonable cost-benefit analysis of these factors, understands that the

costs of reading, interpreting and comparing standard terms outweigh any benefits of doing so and therefore

chooses not to read the form carefully or even at all. The consumer also is under some pressure from the

business's agent to sign quickly and may believe that the events described in the boilerplate are too remote to

be worth worrying about.

Thus, printed forms of contract have arisen as a result of:

(a) the convenience in having a printed form; or

(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 persons to come forward

and enter into such contracts; and

(c) the willingness of the customer to allow the provider of goods or services to draw up the terms of the

contract upon certain assumptions as to the conduct of the provider, and his or her perceptions as to the

likelihood of the contract being enforced to the letter.

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WHAT ARE STANDARD FORM CONTRACTS (SFCs)?

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There is a certain drawback in the field of contracting and it is that the parties do not regard the legal

enforceability of their agreements as a high priority. It might turn out to be a problem when a standard form

of contracting is used by one of the parties involved as in some tickets, receipts or any standard form

documents. In the most basic sense a Standard Form Contract between two parties, is one where the terms

and conditions of the contract are set by one of the parties, and the other party has little or no ability to

negotiate more favorable terms and is thus placed in a "take it or leave it" position.4 Here the party receiving

the document might not read this. These documents are often considered to be trivial, thus no one take the

risk of reading the conditions laid.

There are certain pre requisites laid on the nature of the document. These standard forms of document are

those which are handed to the party only at the time of contract. The increasing use of standards forms of

contract is something which concerns everybody much more than is commonly realized. The ‘Standard form

contracts’ will be used to include every contract, whether simple or under sealed and whether contained in

one or more documents. The average man, the man in the street or Clapham omnibus,5 is continually making

such contracts. If he rents a house from a local authority or from an owner of an estate his tenancy will be in

a standard from; a person will be supplied with gas and electricity only if he has signed a printed form of

agreement. A person who buys a motor car or an electrical gadget or a wireless set is all subjected to a

standard form contract. Here the bargaining power of the parties involved will be unequal where on one side

there will an ordinary individual and on the other sides a monopoly or a powerful organization.6

Standard form contracts have a long history in various fields of commerce, particularly in that of

shipping. In other fields of commerce the use of standard form contracts is a new phenomenon and there is a

general tendency for more and more contracts to be embodied in elaborate printed documents where

previously they were made in a simple form, the parties relying on the common law and statutes, such as the

Sale of Goods Act, 1893, to establish their rights and liabilities.

Regarding the document that binds the parties to the contract, it should be one which either the party

receiving it knows, or which a reasonable man would expect to contain contractual conditions. It was a

matter of a cheque book in Burnett v. Westminister Bank7 . Likewise many cases involving such

4 "Standard form contract." Wikipedia, the free encyclopedia. Wikimedia Foundation, Inc, n.d. Web. 3 Oct. 2014.5 The concept was used by Greer LJ in the case of Hall v. Brooklands Auto-Racing Club (1933) 1 KB 2056 Sales, H B. The Modern Law Review. 16th ed. N.p., n.d. Web. 3 Oct. 2014.7 (1966) 1 Q.B. 742.

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conditions were treated as ‘where it would be quite reasonable that the party receiving it should assume that

the writing contained no condition and should put it in his pocket unread’. This was iterated in the case of

Chapelton v Barry Urban District Council.8 The claimant, David Chapelton hired a deck chair from Barry

UDC for use on the beach. There was a notice on the beach next to the deck chairs stating that the deck

chairs could be hired at 2$ for three hours and also 'respectfully requested' the public to obtain tickets issued

by the chair attendants. The claimant obtained a ticket and put it in his pocket without reading it. In fact there

was an exclusion clause printed on the ticket excluding the council's liability for personal injury caused in

using the deck chair. The claimant was injured when he sat on the chair. The fabric of the deck chair split

away from the frame. He brought an action against the council and they sought to rely on the exclusion

clause contained in the ticket. It was held that the exclusion clause was not incorporated into the contract. A

reasonable person would regard the ticket as nothing more than a receipt and would not expect it to contain

contractual terms. Furthermore, the wording of the notice suggested that a person could obtain the deck chair

and get a ticket later. The notice constituted an offer and collecting the chair would amount to acceptance. It

would not be open to the council to introduce new terms after the contract had been formed.9

Another relevant case in this aspect is that of Thornton v Shoe Lane Parking Ltd.10 the claimant

was injured in a car park partly due to the defendant's negligence. The claimant was given a ticket on

entering the car park after putting money into a machine. The ticket stated the contract of parking was subject

to terms and conditions which were displayed on the inside of the car park. One of the terms excluded

liability for personal injuries arising through negligence. The question for the court was whether the term was

incorporated into the contract ie had the defendant brought it to the attention of the claimant before or at the

time the contract was made. This question depended upon where the offer and acceptance took place in

relation to the machine. It was held that the machine itself constituted the offer. The acceptance was by

putting the money into the machine. The ticket was dispensed after the acceptance took place and therefore

the clause was not incorporated into the contract.

On the other hand, a railway or a steamship ticket or a receipt for goods deposited has been able to be

a contractual document. Thompson v London, Midland and Scotland Railway Co11 is a very important

8 [1940] 1 KB 5329 "Chapelton v Barry UDC." e-lawresources.co.uk. N.p., n.d. Web. 3 Oct. 2014.10 [1971] 2 QB 163; [1971] 1 All ER 686; [1970] EWCA Civ 211 [1930] 1 KB 41

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case in this respect. The claimant was injured whilst stepping off a train. The railway company displayed

prominent notices on the platforms excluding liability personal injury and damage to property due to

negligence. The tickets also stated they were subject to terms and conditions displayed on the platform. The

claimant was illiterate and could not read the signs. She argued that the exclusion clause was not

incorporated into the contract as the railway company had not brought the clause to her attention at the time

the contract was made.It was held that the clause was incorporated. There is only a requirement to take

reasonable steps to bring the clause to the attention of a reasonable person. There was no duty to ensure that

every traveller was aware of the clause. The claimant was therefore unsuccessful in her claim for damages.

 

The conditions stated in the document must be brought to the notice of the party before or at the time of

contracting. If they are not communicated to him until after the contract is concluded, they will be of no

effect.12 In Olley v. Marlborough Ltd.13 certain property of the plaintiff was stolen from his hotel bedroom

owing to the negligence of the hotel management. On arrival at the hotel he had signed the hotel register

which contained no mention of any exemption clauses, but in the bedroom there was a notice disclaiming

liability for article stolen or lost. It was held that the notice was ineffective as this was brought into his notice

at the time of contracting.

Conditions will not necessarily be incorporated into a contract by reason of the fact that the parties have, on

previous occasions, dealt with each other subject to those conditions.14 This principle was laid in the case

Hollier v Rambler Motors.15 Here the claimant had used the services of the defendant garage on 3-4

occasions over a five year period. Each time he had been asked to sign a document excluding liability for any

damage. On this occasion the contract was made over the phone and no reference to the exclusion clause was

made. The garage damaged the car during the repair work and sought to invoke the exclusion clause through

previous dealings. It was held that there was not a sufficient number of or regularity of transactions to

amount to a previous course of dealings capable of incorporating the exclusion clause. It was not reasonable

to expect the claimant to remember the clause from one transaction to the next. Consequently the garage was

liable to pay for the damage.

12 Chitty, Joseph. "The Terms Of The Contract." Chitty On Contracts. 24th ed. Bombay: Sweet & Maxwell, 1977. 679.13 [1949] 1 K.B. 53214 [1972] 2 WLR 40115 Ibid

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Another landmark case in this category is the British Crane Hire v Ipswich Plant Hire.16 Here both parties

were in the business of hiring out plant machinery. The defendants, Ipswich Plant Hire (IPH), were doing

some work on some marsh land and needed a dragline crane urgently so contacted the claimant, British

Crane Hire (BCH), to hire one. The hire of the crane was dependent upon having the claimant's driver.

Unfortunately the crane sank in the marsh land so much that it was out of sight. It was accepted that this was

not that fault of either of the parties. However, it cost a great deal of money to get it out. The contract

between the parties was concluded over the phone. A copy of the terms and conditions of hire were handed to

the defendant on delivery of the crane, although the defendant had not yet read or signed it. The contract also

specified that the risk of hire remained with the hirer.

The Court held that the term relating to risk was not incorporated into the contract as the defendant was

unaware of it at the time the contract was made, however, the court implied the term into the contract as both

parties were in the business of plant hire and it was known to both that the use of such terms was prevalent in

the trade.

The House of Lords observed that the plaintiff could not be said to have accepted a term “which he has not

seen, of which he knew nothing, and which is not in anyway ostensibly connected with that which is printed

and written upon the face of the contract presented to him”. The result would have been otherwise for words

like “For conditions see back” had been printed on the face of the ticket to draw the passengers’ attention to

the place where the conditions were printed. The principle would, therefore, seem to be that where a written

document is presented to a party for acceptance, a reasonably sufficient notice must be given to him 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 the ticket contains conditions”. This was recognized in the case of Parker v South

Eastern Railway Co.17

Here the plaintiff deposited his bag in the cloakroom at a railway station and received a ticket. On the faced

of the ticket were printed, among other things, the words, “see back” and on the back there was a notice that

“the company will not be responsible for any package exceeding the value of 10 euros”. 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

16 [1975] QB 30317 [1877] 2 CPD 416

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bag which was more than 10 euros. The company relied upon on 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 for the money paid by him. It was held that no proper notice of the

condition laid had been given. Thus the plaintiff was not bound by the conditions.

It is not necessary that the conditions contained in the standard form document should have been read by the

person receiving it, or that he should have been made subjectively aware of their import or effect. These are

the rules which have been laid down by the courts regarding notice in such circumstances18:

1. If the person receiving the document did not know that there was writing or printing on it, he is not

bound.

2. If he knew that the writing or printing contained or referred to conditions, he is bound.

3. If the party tendering the document did what was reasonably sufficient to give the other party notice

of the conditions, and if the other party knew that there was writing or printing on the document, but

did not know it contained conditions, then the condition will become the terms of the contract

between them.

Reasonable sufficiency of notice is something for the court to decide on. This condition was delivered on the

landmark judgment Parker v South Eastern Railway Co. But it is for the court, as a matter of law, to decide

whether there is evidence for holding that the notice is reasonably sufficient.19 The cases where the

conditions were printed on the backside of the document, the notice were held insufficient.

It is quite immaterial that the party receiving the document is some personal, but non-legal, disability, such as

blindness, illiteracy, or an inability to read out language. But it has to provide the condition that it is

reasonably sufficient to class of people to which the party belongs.

When printed notices are exhibited, it is sufficient if the party to be bound has, before or at the time of

making the contract, had his attention drawn to the notice20 or received a printed document which refers him

18 Ibid19 Supra n.820 Birch v Thomas [1972] 1 W.L.R.294.

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to the notice.21 Lord Denning stated that “The party who is liable at law cannot escape liability by simply

putting up a printed notice, or issuing a printed catalogue, containing exempting conditions. He must go

further and show affirmatively that it is a contractual document and accepted as such by the party affected”22.

There should be no fraud or misrepresentation involved in a standard form contract. The leading authority in

the case of misrepresentation is Curtis v Chemical Cleaning & Dyeing Co.23 The plaintiff delivered a white

satin wedding dress to the defendant for cleaning. She was asked to sign a receipt, which made her

responsible for any damage to beads and sequins, which she did without reading the receipt. Now, the receipt

contained a clause that excluded the company from any damage to the dress. When the dress was returned

there was a stain on it. When plaintiff sought damages the defendants pleaded the exemption clause.

Even though the acceptor had signed the document, the defendants were held liable and the reasoning was

that a party to the contract cannot rely on the exclusion clause to avoid liability or misrepresentation or fraud.

The same was held in Chau v Van Pelt24. A rule, which is a modern development in this regard. It stated

that when the other party has a reason to believe that the party manifesting written assent would not do so if

he knew that the writing contained a particular term; the term is not a part of the agreement.

Theory of Fundamental breach of contract is yet another method to protect the weaker section from

exploitation. Even when adequate notice of the terms and conditions in a document has been given, the party

imposing the conditions may not be able to rely on them if he has committed a breach of the contract which

can be described as “fundamental”. This rule has been sated by Lord Denning in J Spurling Ltd v

Bradshaw 25

Here the defendant used the services of a warehouse to store goods on a regular basis. Each time he delivered

goods to the warehouse he was asked to sign an invoice which contained an exclusion clause. This invoice

came after the contract had been agreed. On one occasion he stored some barrels of orange juice and again

signed the invoice. When he went to pick them up, however, some of the barrels were empty and one

21 Watkins v Rymill (1883) 10 Q.B.D.178.22 Harling v Eddy [1951] 2 K.B.73923 [1951] 1 KB 80524 (1977) 74 DLR (3d) 244 (BCSC).25 [1956] 1 WLR 461

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contained dirty water. Consequently he refused to pay for the storage. The claimant warehouse owners

brought an action for the agreed price of storage relying on the exclusion clause to demonstrate that they

were not liable for the damage to the goods. The defendant argued the clause had not been incorporated into

the contract as he signed the document after the contract was made.

The court held that the clause was incorporated through previous dealings. The defendant would have been

aware of the term from the previous contracts and therefore it did form part of the contract. The claimant was

entitled to payment and the defendant had no right to claim compensation for the damage to the orange juice.

What constitutes fundamental breach? "Every contract contains a 'core' or fundamental obligation which

must be performed. If one party fails to perform this fundamental obligation, he will be guilty of a breach of

the contract whether or not any exempting clause has been inserted which purports to protect him." This may

be illustrated by Davies v Collins26? The plaintiff entrusted to a dyer and cleaner a uniform for cleaning. On

the docket given to him when he handed over the uniform was a clause which exempted the cleaner from

liability for damage arising from necessary handling and limited his liability to ten times the cost of cleaning.

The defendant sent the uniform to be cleaned by a sub-contractor and it was never returned. The plaintiff

claimed the full value of the uniform. It was held that the mere fact of the particular limitation clause in the

contract was sufficient to exclude any right to sub-contract the performance of the substance of the contract.

Limitation clauses of this kind do not apply where the goods are lost not within the four corners of the

contract but while something was being done which was outside the terms of the contract altogether, or when

loss takes place in the course of some operation which was never contemplated by the contract at all. In

Alderslade v Hendon Laundry Ltd27, on the other hand, the plaintiff's handkerchiefs were lost in the

laundry itself and, therefore, the exemption clause effectively limited the defendant's liability to twenty times

the charge made for laundering.

Another illustration of fundamental breach is Alexander v Railway Executive28. On depositing his luggage at

the parcel office of a railway station, paying ordinary rates, the plaintiff received a ticket containing

conditions one of which exempted the defendants from liability for misdelivery or loss of any article

exceeding £ 5 in value unless a special charge for the same was paid. The defendants allowed the plaintiffs

26 (1945) 1 A11 ER 24727 (1945) 1 KB 189 (CA).28 (1951) 2 KB 882: (1951) 2 A11 ER 442

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friend to take away the luggage and in an action by the plaintiff relied on the above exemption clause. But it

was held that "an essential part of the executive's duty was to take care of the deposited goods; that they had

committed a fundamental breach of the contract in allowing an unauthorized person to have access to the

goods and to take them away and, therefore, they could not rely on the exemption clause to shield them from

liability."

In Interfoto Picture Library v Stilletto29, unusual terms of contracts were documented by the defendant. In

this case the claimants ran a photo library the defendant was in advertising. The claimants advanced some

transparencies to the defendant for his perusal and he was to get back to them as to which photos he would

like to use. The package of the photos contained a document stating that if any transparencies were kept

longer than 14 days a £5 +VAT holding fee would be charged per photo per day. The defendant had not read

this document and then forgot about the transparencies and failed to return them for 6 weeks. The claimants

brought an action claiming a holding fee of £23,783 as specified in the contract. 

But it was held that the term was not incorporated into the contract. Where a term is particularly onerous the

person seeking to rely on the term must take greater measures to bring it to the attention of the other party.

A similar situation was countered another case30, where the party was sent apparently two similar documents

for counter-signature, and one for return to the sender had additional clauses on the reverse side which were

written in a foreign language and to which the other party’s attention had not been drawn in any way. That

party was held to be not bound by those terms even though he signed and returned those documents.31

This case reiterated the importance of the remarks of Lord Denning in Spruling (J.) Ltd v Bradshaw32. It is

a landmark case on exclusion clauses and bailment. This case is best known for Lord Denning’s red hand

rule comment where he said:

29 [1989] QB 43330 Harvey v Ventilatoren Fabrik Oelde [1988]31 Singh, Avtar. "Standard form contracts." Contract and Specific Relief. 11th ed. Lucknow: EBC Publishing (P) Ltd, 2013. 74. Print.32 [1956] 1 WLR 461

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“I quite agree that the more unreasonable a clause is, the greater the notice which must be given of it. Some

clauses which I have seen would 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.” 33

The facts of the case goes like this. The defendant used the services of a warehouse to store goods on a

regular basis. Each time he delivered goods to the warehouse he was asked to sign an invoice which

contained an exclusion clause. This invoice came after the contract had been agreed. On one occasion he

stored some barrels of orange juice and again signed the invoice. When he went to pick them up, however,

some of the barrels were empty and one contained dirty water. Consequently he refused to pay for the

storage. The claimant warehouse owners brought an action for the agreed price of storage relying on the

exclusion clause to demonstrate that they were not liable for the damage to the goods. The defendant argued

the clause had not been incorporated into the contract as he signed the document after the contract was made.

Thus it was held that the clause was incorporated through previous dealings. The defendant would have been

aware of the term from the previous contracts and therefore it did form part of the contract. The claimant was

entitled to payment and the defendant had no right to claim compensation for the damage to the orange juice.

Here are a list of cases were the fundamental breach of contract was not upheld as there was no departure

from the main purpose. The first one is that of Gibaud v Great Eastern Railway34. Here a cycle deposited at

a station of the defendant-railway company was not in fact taken to the cloakroom, but was left in the

booking hall itself and from there it was stolen, the company was held to be protected by the clause in the

ticket which exempted the company from liability. The Court of Appeal could find no fundamental breach as

it was no part of the contract that the cycle should be necessarily stored in the cloakroom. Thus, under a

contract of carriage or bailment if the carrier or bailee uses a place other than that agreed on for storing the

goods, or otherwise exposes the goods to risks quite different from those contemplated by the contract, he

cannot rely on clauses in the contract designed to protect him against liability within the four corners of the

contract, and has only such protection as is afforded by the common law. This is known as the Four Corners

Rule.35The other case is Hollins v J.Davey Ltd36.

33"J Spurling Ltd v Bradshaw." Wikipedia, the free encyclopedia. Wikimedia Foundation, Inc, n.d. Web. 5 Oct. 2014. 34 [1921] 2 KB 42635 "Case Law Quotes | Four Corners Rule." Case Law Quotes | A. N.p., n.d. Web. 5 Oct. 2014.36 [1963] 1 QB 844

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Courts have looked into the terms of the contract in relation to the bargaining powers of the parties and have

interfered in cases where the bargaining power of the parties was not equal. The standard form of contracts is

mostly contracted between parties having unequal power. Thus the bargaining power of the parties is a

concern. Countries have legislated Unfair Contract terms Acts to protect deprived parties and to curb the

regulation of not-feasible conditions in the contracting documents.

Let’s see a handful of cases that would explain the Indian position. The first one is that of Life Insurance

Corporation of India v. Consumer Education and Research Centre and others37. The Honourable

Supreme Court in this case held that "if a contract or a clause in a contract is found unreasonable or unfair or

irrational one must look to the relative bargaining power of the contracting parties. In dotted line contracts

there would be no occasion for a weaker party to bargain or to assume to have equal bargaining power. He

has either to accept or leave the services or goods in terms of the dotted line contract. His option would be

either to accept the unreasonable or unfair terms or forego the service forever. With a view to have the

services of the goods, the party enters into a contract with unreasonable or unfair terms contained therein and

he would be left with no option but to sign the contract".38

The next case is that of In Central Inland Transport Corporation Limited v. Brojo Nath39. The Plaintiffs

in this case worked in a company which was dissolved by Court’s order and they were then inducted into

defendant Corporation upon latter’s T&C. After years of serving Corporation, plaintiffs were arbitrarily

kicked out of the Corporation by virtue of Rule 9(i) of said T&C which provided for termination of

employees’ services on three months’ notice on either side upon which three months’ salary to be paid by

Corporation. Plaintiffs requested Court to quash Rule 9(i) on grounds of unconscionability. Therefore it was

held as unconscionable and opposed to public policy for it adversely affected the rights and interests of the

employees and created a sense of insecurity and subservience to unfair and unreasonable terms of

corporation. Hence, it was void according to S.23 of ICA.40 Moreover the unequal bargaining powers in the

Indian context was correctly imaged in Superintendence Company of India (P) Ltd v. Sh. Krishan

Murgai41.

37 (1995) 5 SCC 482

38 "Law Related To Standard Form Of Contracts - Corporate/Commercial Law - India."Articles on All Regions including Law, Accountancy, Management Consultancy Issues. N.p., n.d. Web. 5 Oct. 2014.39 (1986)IILLJ171SC40 "Central Inland Water v. Brojo Nath Ganguly and Anr." N.p., Web. 5 Oct. 2014.41 (1981) 2 SCC 246

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The theory of fundamental breach has now found statutory recognition to some extent in the (English)

Unfair Contract Term Acts, 1977(UCTA).

The basic purpose of UCTA 1977 is to restrict the extent to which liability in a contract can be excluded for

breach of contract and negligence, largely by reference to a reasonableness requirement, but in some cases by

a specific prohibition. S.6 (2) states that as against a person dealing as consumer, liability for breach of the

obligations arising from ss.13, 14 or 15 of the Sale of Goods Act 1979 (seller’s implied undertakings as to

conformity of goods with description or sample, or as to their quality or fitness for a particular purpose)

cannot be excluded or restricted by reference to any contract term. The Act gives the greatest protection to

consumers. Under s12(1) (1) A party to a contract ‘deals as consumer’ in relation to another party if – (a) he

neither makes the contract in the course of a business nor holds himself out as doing so; and (b) the other

party does make the contract in the course of a business; and (c) in the case of a contract governed by the law

of sale of goods or hire-purchase, or by section 7 of this Act, the goods passing under or in pursuance of the

contract are of a type ordinarily supplied for private use or consumption42.

The effect of the provision is that it is no longer necessary for the courts to resort to “fundamental breach”.

The same result can be attained by resorting to the test of reasonableness under section 11 of the UCTA,

1977. This approach was evident in the decision of the House of Lords in George Mitchell (Chesterhall) Ltd

v Finney Lock Seeds Ltd43. Here he Claimant farmer George Mitchell purchased 30lb of Cabbage seed from

the defendants for £192. The claimant planted the seed over 63 Acres and spent many hours of labour on the

crops. The cabbage seeds only produced a small green leaf plant not fit for human consumption. The contract

contained a clause which limited liability to the price of the seeds. The claimant had lost £60,000 + interest

on the defective seeds. The Court of Appeal held that the clause was unreasonable as the buyer would not

have been aware of the fault whereas the seller would.

Now looking at this problem through the Indian aspect, it was the Law Commission of India who had made

efforts to look into this issue.

42 "Ucta Law Essay | Best Custom Essays Service." Best Custom Essays Service | Custom Essays, Custom Term Papers, Affordable Custom Thesis, Custom Research Papers and Affordable Custom Dissertations. N.p., n.d. Web. 5 Oct. 2014.43 [1983] QB 284

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The 103rd Report of the Law Commission of India which was specially constituted to look into this

complex matter of application of Standard Form Contracts analyzed all the issues and the relevant provisions

and finally gave certain critical views to improve the provisions of the Indian Contract Act, 1872.

“The main issue in the application of SFC’s as inferred from all the above discussed issues is that of

exemption clauses, which provides for exclusion of liability. The 103rd LCI report clearly expressed that the

present Indian Statute Law is inadequate to deal with these issues. As early as 1909, Shankaran Nair J, in his

dissenting judgment expressed the opinion that Section 23 of the Contract Act hits such exemption clauses;

but this view has been rejected by the High Courts in later decisions, already referred to. There are a few

cases where the Courts have valiantly tried to come to the rescue of the weaker party. But the legal basis of

such decisions is elusive.”

The Recommendations of the Commission were:

The Commission felt that the solution to this problem would be to enact a provision in the Indian Contract

Act, 1872, which will combine the advantages of the (English) Unfair Contract Terms Act, 1872 and Section

2.302 of the Uniform Commercial Code of the United States.

The Law Commission therefore recommended the amendment of the Indian Contract Act, 1872, by inserting

the following new Chapter and section:-

Chapter IV-‘A’

Section 67A: (1) Where the Court, on the terms of the Contract or on the evidence adduced by the parties,

comes to the conclusion that the conclusion that the contract or any part of it is unconscionable, it may refuse

to enforce the contract or the part that or holds to be unconscionable.

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(2) Without prejudice to the generality of the provisions of this section, a contract or part of it is deemed to

be unconscionable if it exempts any party thereto from—(a) the liability for willful breach of contract, or (b)

the consequences of negligence44.

Occurrence of disputes is common feature in civil construction contracts. Often the disputes arise because of

contract clauses which can be interpreted in more than one way. The job of arbitrator / court becomes more

difficult when various interpretations argued by the parties to the dispute are equally good, reasonable and

plausible. In such circumstances, the Doctrine of Contra- Proferentem becomes a handy tool to the

arbitrator or the judge to decide the matter in accordance with principles of equity, good conscience and

justice. This doctrine, which originated from insurance contracts, states that when a contract provision can be

interpreted in more than one way, the Court will prefer that interpretation which is more favorable to the

party who has not drafted the agreement (or simply that interpretation which goes against the party who has

inserted / insisted on inclusion of the alleged ambiguous clause in the agreement). This doctrine is also

known as "interpretation against the draftsman".

The rationale behind this doctrine emanates from the fact that the parties are often not in equal position. One

party dominates the execution of the agreement while the other party merely signs on the dotted line.

Thus drafting becomes an inevitable part of a contract. Rogers v Bell Aliant is a recent case that involved

minute drafting details being blew up to the crux of the issue in the case. It was referred to as the ‘Million

Dollar Comma’ case. In the original decision, Bell Aliant was successful in arguing that a misplaced comma

in an English version of their contract with Rogers allowed them to terminate the contract early. However, on

appeal, Rogers was successful in arguing that the commas in the French version of the contract were in their

proper position and that it was clear, based on the French version that Bell Aliant could not terminate early.

The case of John Lee & Son (Grantham) Limited v. Railway Executive45 discuss the important aspect of

draftsmanship in contracts. In this case the goods stored in a railway warehouse let to a tenant were damaged

by fire and the tenant brought an action against the railway executive alleging that the accident was due to

their negligence because a spark ejected from their railway engine had caused the fire. The defendants set up

a clause in the tenancy agreement which exempted them for loss of or damage to property however caused

44 http://lawcommissionofindia.nic.in/101-169/Report103.pdf45 1949 2 ALL ER 581 CA.

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(whether by act or neglect of the company or their servants or agents or not) which "but for the tenancy

hereby created would not have arisen". The company was held liable. The words "but the tenancy hereby

created" were confined to liabilities which arose reason of the relationship of landlord and tenant.

Apart from the contractual obligation there is a need for extra-contractual tort standards to protect the rights

of aggrieved parties. This was stated in White v John Warwick & co Ltd46.

Here the plaintiff hired a bicycle from the defendant under a written agreement which included a provision

that "nothing in this agreement shall render the owners liable for any personal injuries". The plaintiff was

injured when the saddle tilted forward. The Court of Appeal found the defendant liable in negligence. The

exclusion clause was sufficient to exclude liability for supplying a defective bicycle, but it was not sufficient

to exclude liability for negligence, only liability for implied terms. Thus an exemption clause is not even

enough to exclude all kinds of liability under the contract. It may still cater tort liability.

Another mode of protection is to exclude unreasonable terms form the contract. A term is reasonable if it

would defeat the very purpose of a contract or if it is repugnant to public policy47. This was pointed out in

Suisse Atlantique Case48.

An example of an unreasonable term is to be found in Lilly White v Mannu-swami49. A laundry receipt

contained a condition that the customer would be entitled to claim only fifteen per cent of the market price or

value of the article in case of loss. The plaintiffs’ new sari was lost. The term would place a premium upon

dishonesty inasmuch as it would enable the cleaner to purchase new garments at 15% of their price, and that

would not be in public interest.

46 [1953] 1 WLR 1285 CA.47 Singh, Avtar. "Standard form contracts." Contract and Specific Relief. 11th ed. Lucknow: EBC Publishing (P) Ltd, 2013. 88. Print.48  [1967] 1 AC 36149 AIR 1966 Mad 13, (1965) 1 MLJ 7

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THE ENGLISH AND THE INDIAN VIEW

The English and the Indian views have already discussed in the above contents. But this could cater as a brief

summary of what we have discussed above. 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 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 the Act, as being opposed to public

policy.

Only those precedents provided in relevant cases like Central Water Transport Corp. Ltd v Brojo Nath acts a

binding rule for similar cases. Moreover the 103rd report of the Law Commission of India act in support to

those unwritten regulations within the country.

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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 or 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 or exemption

clauses are imposed, like reasonable notice should be given, given notice should be contemporaneous with

the contract, theory of fundamental breach, contra proferentem interpretation of the contract, liability in tort,

exemption clauses, third parties etc.

Thus I would like to suggest ways for the improvement of law with regard to Standard Form Contracts

(SFCs):

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.

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BIBLIOGRAPHY

CHITTY ON CONTRACTS : General Principles

Contract and Specific Relief , AVTAR SINGH

ANSON’S LAW OF CONTRACT

The Modern Law Review, H.B.Sales