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STANDARD FORM CONTRACT[1]

Table of Contents

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

Standard form contract
Judicial approach to statndard form contract

SYNOPSIS

I. Nature of Standard Form Contract-

II. Protection of Individual-

There should be a reasonable notice of the contractual terms
Notice should be contemporaneous with contract
Fundamental breach of the contract
Strict construction of exemption clause
Liability in tort
The terms of the contract should be reasonable
Liability towards third parties
There should not be misrepresentation
Statutory protection

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.

In L’ Estrange V/s Graucob Ltd[2]

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.

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) There should be a Reasonable Notice of the Contractual Terms.[3]–

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.

In Henderson V/s Stevenson[4]

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.[5].

2) Notice should be Contemporaneous with the Contract[6]–

The notice stated above should be given before or at the time of the contract and not subsequent.

In Olley V/s Marlborough Court Ltd[7]

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.

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[8]–

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.

In Alexander V/s Railway Executive[9]

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[10]–

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.

In Lee (John) & Sons Ltd V/s Railway Executive[11]

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[12]–

Even where an exemption clause is exhaustive enough to exclude all kinds of liability under the contract, it may not exclude liability in tort.

White V/s John Warrick and Co. Ltd[13]

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.

In Central Inland Water Transport Corporation Ltd.V/s Brojo Nath[14]

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.

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 public policy and was therefore void under Section 23 of the Contract Act[15].

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.[16].

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 would not be binding.[17].

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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[1] साचेबध्द करार /साच्यातील करार [मानक प्रपत्र करार]

[2] (1934) All ER 16.

[3] करारा अटीची माहिती दिली पाहेजे [संविदात्मक शर्तों की उचित सूचना]

[4] (1875) 32 LT 709.

[5] In Parker v South Eastern Rail Co. (1877) 2 CPD 416.

Facts– The plaintiff deposited his bag at the cloakroom at a railway station and received a ticket. On the face 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”. 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 for the money paid by him.

Court Held– that if the plaintiff “knew that there was writing on the ticket, but he did not know or believe that the writing contained conditions, nevertheless he would be bound”, for there was reasonable notice that the writing contained conditions.

However, In Thornton v. Shoe Lane Parking Ltd.[(1971) 1 All E.R. 686].

Facts- In this case the plaintiff parked his car at an automatic car park. When he approached for parking, a ticket came out of a machine, then a barrier rose automatically and he could get in to park his car. It was printed on the ticket that it was being issued subject to the conditions displayed in the parking premises. One of the conditions displayed on the premises exempted the defendants from liability for injury to their customers. When the plaintiff came back to take his car, he was injured due to negligence on the part of the defendants. In an action by the plaintiff the defendants pleaded exemption from liability on the basis of the printed terms on the ticket.

Held– that it was not practicable for each of the persons parking his car to go and read the conditions subject to which the ticket had been issued and as such the terms were not sufficiently conveyed to the plaintiff to entitle the defendants to be exempted from the liability, they were, therefore, liable to pay compensation.

Lord Denning pointed out that “No customer in a thousand ever read the conditions. If he had stopped to do so, he would have missed the train or boat”.

In M/s Prakash Road Lines (P) Ltd. v. H.M.T. Bearing Ltd., (AIR 1999 AP 106)

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 term was brought to the notice of the plaintiff. Mere printing on the lorry receipt cannot be deemed to be the term of the contract.

[6] करारातील अटीची माहिती कराराच्या वेळी दिलेली असली पाहेजे [नोटिस करारके साथ समसामयिक होना चाहिए]

[7] (1949)1 K.B. 532.

[8] कराराच्या मुख्य उद्देश्याचा भंग [आधारभूत करार के शर्त का उल्लंघन]

[9] (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.

[10] जबबदारी टाळणाऱ्या अटींचा मर्यादित करून अर्थ लावणे]जबाबदारी टाळणा-या आटीचा मय्रादित करून अर्थ लावणे [छूट खंड का सख्त निर्माण।]

[11] (1949) 2 All ER 581.

[12] अपकृत्याबद्दलच्या कायद्यप्रमाणे जबाबदारी [अपकृत्य में दायित्व]

[13] (1953) 1 WLR 1285.

[14] AIR 1986 SC 1571.

[15] 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.

[16] In Haseldine v CA. Daw & Son Ltd [(1941) 2 KB 343].

Facts-A contractor agrees to maintain and repair a lift in certain premises under contract with the owner, which exempts him from liability, that exemption would not avail the contractor against a person who is injured owing to bad repairs. If this were not so, the life and security of millions of people would be in the hands of the two parties to a contract. They would then make law not only for themselves, but also legislate for countless others.

Held– the defendants were held liable for the tort of negligence. Court further observed “where goods are supplied or services rendered under a contract which exempts the supplier from liability and a third party is injured by the use of them, the supplier is liable to him notwithstanding that he has purchased his exemption from the other party to the contract”.

[17] 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.