This article has been written by Mormik Ghosh, pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution at LawSikho and edited by Shashwat Kaushik. This article explains what standard form contracts are.
It has been published by Rachit Garg.
Table of Contents
The world we live in today is always changing. Rapid change has made our lives a constant journey of learning and adapting to necessities. The digitalisation of today’s economy has shown us great effects, which are highly attributed to the fast growth of this country. Therefore, the governments are in a race to modernise and digitalise possibly every sector of the country to boost the economy further, which is bringing about a very rapid change in our lives. However, such rapid changes are proving to be a challenge for the lawmakers of this country to prepare legal systems in order to have the digital revolution in a way that does no harm to the public. One of the massively used systems of law in this evolution by various companies in this technological age on a daily basis has been the standard form of contract. It has brought serious challenges to the functioning of such legal systems and whether they are being used to exploit the weaker section by the big technological firms, as these legal provisions and systems were created before the beginning of the age of the internet.
What is standard form contracting
At the time of signing a contract between two parties, if only one party sets the terms and the other does not have the power to alter the terms, such contracts are called standard form contracts.
Standard form contracts are legal agreements that bind the user to do or abstain from doing something in which only one party has all the bargaining strength and therefore is taken to provide benefit mainly to a single party. These types of agreements thus deprive us of our fundamental right to bargain.
The standard form contracts are standardised contracts that include highly extensive ranges of phrases and situations that have been beautifully crafted in order to exclude the legal responsibility underneath such complicated writings. The standard form of contract also provides the implementing party with a huge and unique opportunity to make massive gains by exploiting the individual weaknesses of common citizens who do not have such knowledge of the law. Such contracts can even exempt all legal responsibilities of the party beneath such clauses, and therefore the battle against abuse of this type of contract falls upon the judges.
Legality of standard form contracting in India
The standard form of contract in India is governed by the rules of the Indian Contract Act of 1872. There is no differentiation in India between a general contract and a standard form contract. Due to the massive industrialisation, modernisation and digitalisation of the country, standard form contracts have been used on a very large scale in the Indian economy. However, due to the absence of proper and specified laws relating to them, these types of contracts have not been adequately able to protect the rights of the weaker sections.
Role of courts in standard form contracts
The courts, to a great extent, help to provide remedies to the weaker parties relating to the performance of the contract. However, the courts can also levy unjust clauses or phrases levied upon the signatory of the contracts, which would definitely be unfair as standard form contracts may allow the vendor to avoid all legal responsibility, unilaterally alter the clauses of the contract, or even terminate the settlement depending upon the terms of the contract.
The terms of these types of contracts generally come with a mandatory arbitration clause, which would definitely limit or foreclose a party’s entry into court. Even sometimes there are liquidated damages clauses, which therefore also put restrictions on the amount that could have been recovered or require a party to pay a particular quantity.
Why people accept standard form of contracts
The very first reason for a person’s acceptance of standard form contracts is because of their own negligence in reading between the contract clauses thoroughly. Even if they read the contract clauses thoroughly, they often deemed all of those clauses not worthy of investing so much time in order to understand the real meaning of the clauses.
Certain contracts are also created in such a way that the full terms and conditions of the contract are framed in such a way that they are only visible if the user accepts the primary terms and conditions.
Also, standard forms of contracts are generally those kinds of contacts where the client, the user or the concerned party mainly focuses on the price aspect as mentioned in the contract rather than giving the entire contract the same amount of detail.
The parties discuss the terms and conditions of the contract orally at the beginning, and therefore the service provider or the party who formulates the standard form contract forces the other party to sign the contract in a hurry without giving him enough time to go through the formulated contract and check whether the terms and conditions are the same as those discussed orally earlier. This generally happens when the signatory is compelled or pressured to sign the contract in a time bound manner.
Last but not least, most of these contracts are basically on a take or leave basis, as there are no grounds for negotiating such contracts, and therefore people are forced to accept them in order to gain services. Examples include contracts with service oriented giants such as Facebook, Instagram and many more.
Ways to limit the exploitation of standard form contracts
The most common way a party can be saved from the exploitation of a standard form contract would be by giving reasonable notice by the party who is giving this document, and therefore adequate information shall be provided about the terms and conditions that have been mentioned in the contract. A very famous case was Henderson vs. Stevenson (1873), where it was stated that a person was buying a ship ticket. That ticket had only the details of the boarding place and the arrival place written on it. However, the ticket had certain terms and conditions written on the back of it that the party could not or did not see, and nothing was mentioned whether the party should check the back end of the ticket for reading and agreeing to the terms and conditions associated with it. Therefore, the Scottish Court of Session awarded the judgment in favour of the plaintiff, as the simple reason that was stated for the judgment was that a person can never agree to the terms and conditions that he has neither heard nor seen in his entire life. The notice of all such terms and conditions should always be produced before or at the time of the initiation of the contract. It was therefore clearly stated by the judge that a party who would benefit from such terms and conditions should always clarify those before the other party.
The second point would be that the standard form document must be contractual in nature and not a receipt. If it is not of a contractual nature, then it shall not be considered a contract and therefore would not be enforceable. The main difference between a contractual document and a receipt is that a contractual document would always express and specify the terms and conditions mentioned in the documents. If terms and conditions are not expressed and implicated, then it shall be considered a receipt.
The third point would definitely be pointing out the unreasonable terms mentioned in the contract, which would not protect or safeguard the interests of the weaker party. An unreasonable clause or term can be defined as one that contradicts the very purpose of the contract or is against public policy in general. The case of Seven Day Adventists vs. M.A. Uneerikutty and Anr. was a financial case in which it was mentioned that if any consideration of the several clauses that had been highlighted in the contract was found to be unlawful, then the contract itself would be unlawful, and the agreement would therefore be considered void. The Court, in its judgement, clearly stated that these types of cases are against public policy.
The theory of fundamental breach also provides some sort of protection to the weaker party, as according to it, there would always be some fundamental clauses that would always be binding on both parties, and therefore if the stronger party does not follow them, then the weaker party, according to the law, is also not liable to honor such a contract.
Therefore, we can understand that there are a lot of loopholes in the standard form of contract. The Indian contract act does not have any specific act to deal with such kinds of contracts, and therefore the weaker can be easily exploited as there are no specific grounds on which it can be prevented.
Since these kinds of contracts are made and entered into in large numbers on a daily basis, the legal system in India needs to adopt fast and make a separate law regulating such contracts, or else weaker parties will continue to be exploited. However, the law should be designed in such a way that it should not complicate the working of these contracts, as they are mass distributed contracts and therefore cannot be lengthy and overly complex. The provisions should only provide a certain ground for protection for the weaker consumer without disrupting the economic angle that these quick contracts bring.
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