“Law Master’s Publication”
“Standard Form Contract”
Prof. Santosh D. Bhosale 110
(..12..)
STANDARD FORM CONTRACT
QUESTION BANK
Q.1. What is a Standard form contract? Discuss the devices evolved by the Court to
protect the weaker parties.
Q.2. Lord Denning: “No customer in a thousand ever read the conditions. If he had
stopped to do so, he would have missed the train or the boat” Describe the
statement with reference to the Standard form contract.
Q.3. What do you know about the Law Commission of India's views towards the
standard form contract?
Q.4. Explain the term “Nature of standard Form Contract” advantages and unilateral
character of the same.
Q.5 Write a detailed note on the standard form contract.
Q.6 Discuss fully standard form contracts.
SHORT NOTES
1.
2.
Standard form contract
Judicial approach to statndard form contract
SYNOPSIS
Standard form of Contract
“Law Master’s Publication”
“Standard Form Contract”
Prof. Santosh D. Bhosale 111
I.Nature of Standard Form Contract-
Due to the enormous increase in the volume and complexities of trade and business,
a business may have to enter into many contracts with its customers or clients. The nature
of such a contract generally does not change person-to-person and contract-to-contract.
Hence, it is a practice developed in modern times to reduce such contracts to ‘standardised
form’ to avoid repetition in writing contracts and save time. The ‘Standard Form Contract’
is the method that evolved for convenience. One party (business concern) prints those
forms according to their terms and conditions, and the other party has to sign them or fill
the gaps in dotted lines. E.g. the Insurance Contracts, Railway carriage contracts, etc. The
terms and conditions may be printed on the back of every receipt issued by the dry cleaner
or every lottery ticket sold by any particular person or institution. Such a contract is not
made by negotiation in terms and conditions. It is not negotiated between the parties. One
of the parties generally prepares a draft of the contract, which the other party has to accept
and sign. ‘Standard Form Contract’ is often described as a “Contract of Adhesion” because
the other individual party has no choice but to accept or adhere to such contract without
negotiations. It is also described as a “Compulsory Contract” or “Private Legislation.”
Such standardised contracts contain many terms and conditions, which restrict or
often exclude liability. They are usually used to exploit customers. Therefore, the question
is whether such a contract is valid and binding.
Facts: Mrs L signed an agreement without reading it under which she purchased a
cigarette vending machine. The agreement excluded liability for all defects in the machine,
which the supplier did not inform Mrs L of. The machine was found totally defective.
The Court held:- that where a document containing contractual terms is signed, then,
in the absence of fraud or misrepresentation, the party signing it is bound, and it is wholly
immaterial whether he has read the same.
1
(1934) All ER 16.
“Law Master’s Publication”
“Standard Form Contract”
Prof. Santosh D. Bhosale 112
II. Protection of Individual-
It is, therefore, becomes necessary to protect individual customers dealing with big
business concerns from exploitation. The Courts, therefore, have evolved a number of
protective devices to protect the individual from exploitation. Namely,1)
should be a Reasonable Notice of the Contractual Terms.-
There
The foremost duty of the person delivering the document is to note the terms and
conditions mentioned therein. The acceptor is not bound by the terms on failure to give
notice.
Facts:- ‘H' bought a steamer ticket; on the face of it were only two words, i.e. “Dublin
to White Haven”. On the back of the ticket, some conditions were printed, which excluded
the company's liability for loss, injury or delay to the passenger or his luggage. ‘H' had not
seen the back of the ticket, nor was there any indication on the face about the conditions
on the back. ‘H’s luggage was lost in the shipwreck because of the fault of the company’s
servants.
House of Lords Held:- that ‘H’ is entitled to recover his loss from the company in spite of
the exemption clause. It further observed that H could not be said to have accepted 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 the face of the ticket to draw the passenger’s attention to the place where
the conditions were printed..
2)
Notice should be Contemporaneous with the Contract-
The notice stated above should be given before or at the time of the contract and not
subsequent.
Facts:- the plaintiff and her husband hired a room in the defendants’ hotel and paid for
one week’s boarding and lodging in advance. When they went to occupy the room, they
found a notice displayed there which stated, “The proprietor will not hold themselves
responsible for articles lost or stolen, unless handed to the manager for safe custody.” Due
to the negligence of the hotel staff, their property was stolen from the room. In action
against the defendants to recover compensation for loss, they sought exemption from
liability based on the notice displayed in the room.
2
(1875) 32 LT 709.
3
(1949)1 K.B. 532.
“Law Master’s Publication”
“Standard Form Contract”
Prof. Santosh D. Bhosale 113
The court held that the notice in the room did not form part of the contract, and the
defendants were liable for the loss. Because no such notice existed at the time of entering
into the contract, the notice should be contemporaneous with the contract.
3)
Fundamental Breach of the Contract-
In a Standard Form Contract, the party having a stronger bargaining power may
likely insert such an exemption clause in the contract that his duty to perform the main
contractual obligation is thereby negatived. It is called as the doctrine of ‘fundamental
breach of a contract’. However, the contract's main object is not allowed non-compliant.
Facts:- the plaintiff deposited his luggage in the defendant’s cloakroom and, in
return, received a ticket. A term printed on the ticket exempted the defendant from
liability for loss or mis-delivery of the luggage. Plaintiff’s luggage was delivered to an
unauthorised person without the production of the ticket.
The court held that the defendant's non-delivery of the luggage to the plaintiff amounted
to a fundamental breach of a contract for which the plaintiff was liable.
4)
Strict Construction of Exemption Clause-
Exemption clauses are construed strictly, particularly where a clause is widely
expressed as highly unreasonable. Any ambiguity in the mode of expressing an exemption
is resolved in favour of the weaker party.
4
(1951) 2 K.B. 882.
In Davies v. Collins [(1945) 1 All E.R 247].
Facts- An Army Officer delivered his uniform to the cleaners for cleaning and some repairs. The cleaners
gave the same to the sub-contractors for doing the job and it was lost. The cleaners denied responsibility
because of the exemption clause, which read, ‘Whilst every care is exercised in cleaning and drying
garments, all orders are accepted at owner’s risk entirely and we are unable to hold ourselves responsible
for damage, shrinkage, colour or defects developed on necessary handling. The proprietor’s liability is
limited to ten times the cost of cleaning it.”
Court held- that the cleaners were liable as there was a fundamental breach of contract on their part in
so far as they did not exercise reasonable care by getting the job done from the servants under their
control, and instead passed the uniform to the sub-contractors.
5
(1949) 2 All ER 581.
“Law Master’s Publication”
“Standard Form Contract”
Prof. Santosh D. Bhosale 114
Facts:- 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 had set up a clause in the tenancy agreement, which exempted
them from loss of or damage to property howsoever caused (whether by act or neglect of
the company or their servants or agents or not).
The Court held that the company was held liable. The court was of the opinion that
the words “but for the tenancy hereby created” were confined to liabilities arising from the
relationship between landlord and tenant.
5)
Liability in Tort-
Even where an exemption clause is exhaustive enough to exclude all kinds of
liability under the contract, it may not exclude liability in tort.
Facts:- The plaintiff hired a cycle from the defendants under an agreement-
stipulating that “nothing in this agreement shall render the owners liable for any personal
injury”. While the plaintiff was riding the cycle, its saddle tilted forward, as a consequence
of which he was thrown and injured. In action by the plaintiff, the defendant pleaded non-
liability on the basis of the exemption clause.
The court held that the exemption clause excluded only the defendant's contractual
liability, whereas they still remained liable for negligence under the law of torts.
6)
The Terms of the Contract should be Reasonable-
One of the essentials of the Standard Form Contract is that the terms therein should
be reasonable. If the terms are not reasonable and are against public policy, they can not
be enforced.
Facts:- One of the clauses in a contract of employment provided that the employer
(Corporation) could terminate the service of a permanent employee by giving him ‘3
months’ notice or ‘3 months' salary’. In accordance with the above clause, the services of
the respondent, Brojo Nath and another were terminated instantly by giving them the
notice, accompanied by a cheque for 3 months’ salary.
6
(1953) 1 WLR 1285.
7
AIR 1986 SC 1571.
“Law Master’s Publication”
“Standard Form Contract”
Prof. Santosh D. Bhosale 115
The Supreme Court Held:- that such a clause in the service agreement between
persons having gross inequality of bargaining power was wholly unreasonable and against
7)
Liability towards third Parties-
It is an important principle of contract law that a contract is only between the parties
to it, and no third party can enjoy any rights or suffer any liability under it. This principle
also applies to the Standard Form Contract..
8)
There should not be Misrepresentation-
Even though a person signs a document containing certain terms, if there is found
to be a different oral misrepresentation about the contents of the document, the document
8
In Lilly White v. Muniswami (AIR 1966 Mad. 13).
Facts- An action was brought by a customer of a firm of launderers and dry cleaners, M/s Lilly White,
to whom the customer had given a new sari costing Rs. 220 for cleaning but the same was lost. The
plaintiff claimed full price of the sari, i.e., Rs. 220 but the defendant offered to pay only 50% of the
price on the ground that there was a printed term on the back of the receipt given to the customer
stipulating that in case of loss of a garment, the customer would be entitled to only 50% of the market
price or value of the same.
Court held- that such a term of the contract was unreasonable and against public policy. If such a
condition is enforced, any laundry owner will try to miss appropriate new clothes.
9
In Curtis v. Chemical Cleaning and Dyeing Coparcenary (1951) 1K.B 805.
Facts- Mrs. Curtis delivered her white satin wedding dress to the defendants for cleaning. She was asked
to sign a Receipt, and she was orally told by the shop assistant that her signatures were needed because,
as printed on the receipt, the defendants did not undertake any responsibility for damage to beads and
sequins. In fact, there was a clause in the receipt which exempted the defendants from liability for
damage to the articles received for cleaning, however caused, but that was not disclosed to the plaintiff.
‘When the dress was delivered back it was badly stained’.
Court Held- that as there was misrepresentation as to the contractual terms which misled the plaintiff as
to the extent of the defendant’s exemption of liability, the defendants could not rely on the clause and
they were bound to pay damages.
“Law Master’s Publication”
“Standard Form Contract”
Prof. Santosh D. Bhosale 116
9)
Statutory Protection-
Various statutes have been passed in England to limit liability under standard-form
contracts and avoid taking undue advantage of one party over the other. For example, the
Misrepresentation Act of 1967, the Road Traffic Act of 1960, the Transport Act of 1962,
and The Consumer Safety Act of 1978.
Unlike England, India does not have specific legislation concerning contractual
liability exclusion. However, the courts strike down unconscionable bargains either under
S. 16 of the Indian Contract Act (i.e., a contract affected by undue influence) or under S.
23 of the same Act (i.e., a contract opposed to public policy).
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