This article has been written by Anwesa Mohanty, a student of University Law College, Bhubaneswar, Odisha.
The development in the modern day trade and business has made the companies to enter into contracts with a large number of people. For the convenience of the company, provisions have been made for drafting standard form contracts. This Article discusses the meaning and rules to be followed while making a standard form contract.
Standard form contracts came into existence to solve the complexities involved when one party has to enter in a contract with numerous parties. The standard terms are drafted by one party and the terms are applicable to all the other parties involved.
In standard form contracts one party drafts a contract according to the terms and conditions he wants and the other party is deemed to agree to such terms and conditions if he uses the service of the party who drafts the contract. For example, the Airport Authority prints various terms and conditions in the Time table. Such terms are deemed to be the basis of the contract with all the passengers who travel by the flights.
Any kind of negotiation is not allowed in case of standard form contract. The other party can either enter or not enter into such contract. The party which drafts the contract is in a position of stronger bargaining power and the other party has a weaker bargaining power.
Why should a party opt for standard form of contract?
When a party is to enter into a contract with various persons drafting many contracts is inconvenient. It is convenient to draft a single contract with standard terms for all the other parties.
Extent to which Courts should enforce standard form contracts
The extent to which Courts should enforce standard form contracts is a point of controversy. No doubt, standard form contracts are convenient and promote economic efficiency but at the same time it is inconvenient for the other party. It might cause the other party to accept unjust terms which might also exclude the seller from liability. A standard form contract is mostly accepted by parties as they are rarely read. The terms are mostly written in difficult legal language as a result the buyer does not read all the terms. At times, one part of the terms is in one place and the rest is in another place. So the party does not bother to go and read the other part. There might also be situations in which the buyer has no option other than accepting the terms drafted by the seller. So the extent to which the Courts should enforce standard form contracts is to be decided by the Courts depending on the facts and circumstances of the case.
Rules regarding Standard form Contracts
In these form of contracts, the party who drafts the contract is in a greater bargaining power. It fixes the terms and conditions according to its own convenience without keeping in view the interests of the other party. In order to keep up the interest of the weaker party certain rules were framed. The following are the rules:
There should be a contractual document
There should be certain terms and conditions in the document and the parties are bound by such terms and conditions. In the case of Chapelton V Barry Urban District Council, the Plaintiff hired a chair from the defendant to sit on a beach. He received a ticket from the defendant but did not read. After sitting on the chair, he went through the canvas as a result of which he received personal injuries. He sued the defendant. The defendant pleaded that he was not liable as it was mentioned in the ticket that the council will not be liable if any injury is caused to the people hiring the chair. The Court held that such a ticket was merely a receipt and the defendant will be held liable for the injury of the Plaintiff.
Reasonable notice of the Contractual Terms
The party who has drafted the contract must give reasonable notice to the other binding. When such notice is given the contract becomes binding on both the parties. If reasonable notice has not been given or the method in which notice is given is insufficient, the contract is not a binding on the parties. A reasonable notice can be provided by providing a ticket in which the terms of the contract are mentioned or by obtaining the signature of the party who has not drafted the terms of the contract. In the case of Thornton V Shoe Lane Parking Ltd, the plaintiff parked his car at an automatic Car Parker. He received a ticket according to which the ticket was subject to the conditions displayed in the parking premises. While taking his car out, he received personal injuries due to the negligence of the defendant. The defendant pleaded that he was not liable as this was printed in the ticket. The Court held that it was impracticable for all to read the terms mentioned in the ticket and the terms were also not conveyed to the plaintiff in a proper way. So, the defendant was held liable and had to pay compensation to the Plaintiff.
Notice to be contemporaneous with the Contract
If the contract exempts a party from liability, such notice should be given to the other party before it enters into such contract. Providing of a notice after entering the contract cannot exclude a party from liability. In the Olley V Malborough Court Ltd, a couple hired a room in the defendant’s hotel. There was a notice in the room according to which if any articles of the customer are sold, the hotel shall not be liable for the same. Some articles of the Plaintiff were stolen due to negligence of the defendant. The defendant pleaded exemption from being liable on the basis of the notice. It was held by the Court that the notice was not a part of the contract and the defendant has to pay compensation to the Plaintiff.
Any kind of misrepresentation should not be made regarding a standard form contract. Suppose an oral misrepresentation has been made by either of the parties, the contract shall not be a binding. In the case of Curtis V Chemical Cleaning and Dyeing Co, the Plaintiff delivered her wedding dress to the defendant for cleaning. The Plaintiff was explained by the defendant that they shall not be held liable for any kind of damage to beads. On this basis, the Plaintiff signed a receipt. There was a clause on the receipt that the defendant shall not be responsible for any kind of damage caused to clothes while cleaning. This clause was not conveyed by the defendant. When the Plaintiff received her dress it was stained. She sued the defendant and the Court held that the defendant was liable as they had made misrepresentation.
Terms of the contract must be reasonable
In order to enforce a contract, the terms must be reasonable. If the terms are against public policy or are unreasonable the contract cannot be enforced even if it has been printed in a receipt or have been agreed upon by both the parties. In the case of Central Inland Water Transport Corporation Ltd V Brojo Nath, there was a clause in the employment corporation that the employment of a permanent employee can be terminated by giving him a 3 month notice or 3 month salary. The respondent’s employment was terminated and he was provided salary of 3 months. The Court held that such a clause was against public policy and was void under Section 23 of the Indian Contract Act.
Strict Interpretation of the exemption clause
In order to give protection to the parties with weaker bargaining power the Courts at times stick to strict construction of the Contract. The famous case under this rule is Wallis V Pratt. The facts of the case are, the defendant sold ‘English sainfoin’ seeds to the Plaintiff. No warranty regarding growth of seeds or any other matter was provided by the defendant. The defendant had actually supplied an inferior quality of seeds known as ‘giant sainfon’ seeds. It was quite similar to English sainfoin seeds. The difference could be known only after the seeds were sown and crops were ready. The Court held that the defendant had to pay compensation to the plaintiff.
Fundamental Breach of Contract
A watchful eye must be kept on the fact that enforcing the terms of the contract does not cause fundamental breach of contract. In the case of Alexander V Railway Executive the luggage of the Plaintiff was in the custody of the defendant and the Plaintiff received a ticket. In the ticket it was mentioned that the defendant shall not be liable if any loss of luggage is caused. The Plaintiff’s luggage was delivered to another person who was not even required to produce the ticket. The Court held that it was a fundamental breach of contract.
When there is more than one kind of liability excluding of contractual liability does not negative any other liability. In White V John Warrick and Co Ltd it was held that one might not be liable on the basis of contractual liability but still be liable under the law of torts.
Third party Liability
If 2 parties enter a contract and one of the parties try to exclude his liability by an exemption clause, such a clause would not exempt a stranger to the contract from liability.
These rules have been framed to protect the interests of the weaker party. England has barred exemption from liability by various statutes like The Misrepresentation Act, 1967, Road Traffic Act, 1960, Transport Act, 1962, The Sale of Goods Act, 1979, Unfair Contract Terms Act, 1977 and the Consumer Safety Act, 1978.
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