This article is written by Prasam Jain, from Symbiosis Law School, Noida. This article deals with Protective Devices of Standard form Contract Under Indian Contract Act, 1872.
The liberalization policy initiated in 1991, has made trade and business much easier. More and more people are now involved in this process. As a result, to avoid inconvenience they are required to get involved in a contract. With the increased role of the secondary sector and tertiary sector like the insurance company, Railways, Highway authority, producer of various goods, etc. they have to enter into a large number of contacts with a large number of people.
It becomes very difficult to negotiate with these many people with whom the contract was entered into. When it comes to the drafting of the contract, it becomes quite a tedious task to draft a contract for every individual. Therefore, to avoid this, the organizations keep printed forms of contract. These standardized contracts consist of a large number of terms and conditions in “fine print” which exempt liability under the contract.
Thus, it often becomes a contract where the parties have unequal bargaining powers. It becomes very tough for an individual to bargain with these organizations and the only option left with them is to accept the offer whether they like or dislike. This gives them a great opportunity to use their weakness and exclude their liability. When these abuses reach the Courts, the Court rules based on precedence established in L’Estrange v F Raucob Ltd.
Mrs L contracted with F Raucob Ltd. to buy a cigarette vending machine. She didn’t read the agreement and that agreement excluded all liability for any defects in the machine. The machine turned out to be a defective piece. The Court held that Mrs L was bound to read the contract and the defendant not bringing the exemption clause to the attention of the plaintiff doesn’t matter here as the contract was signed by the plaintiff in the absence of any fraud or misrepresentation.
Therefore, the individuals deserve to be protected against the possibility of exploitation immanent in the contracts. This is where the protective device comes into existence. They are as follows:-
- Reasonable Notice
- The notice should be contemporaneous with contract
- Fundamental Breach of Contract
- Liability in Tort
- Unreasonable terms
- Strict Construction
- Liability towards the third party
The person delivering a document must provide a reasonable notice mentioning requisite terms and conditions laid down in the contract to the acceptor. In any case, if not done, the terms would not be binding on the acceptor.
Let’s discuss a few cases to get a brighter look of this protective device.
The plaintiff, in this case, bought a steamer ticket where on the front side, it was written: “Dublin to Whitehaven.” There were printed certain conditions on the backside of the card which left the company free from any liability concerning the loss, injury or delay to the passenger and his baggage on the steamer. The plaintiff didn’t put any effort to see the back part of the ticket as there was no mentioning of terms and conditions on the face regarding conditions on the backside.
The case was initiated when the plaintiff’s baggage was lost in the shipwreck due to the fault of servants. The House of Lords held that the plaintiff is entitled to recover the compensation in spite of the exemption clause. The Court finally stated that “Where a written document is presented to a party for acceptance, a sufficient notice shall be given of the presence of terms and conditions. Notice will be regarded as enough if it would have conveyed to the minds of people in general that the ticket contains conditions. “
Parker v. South Eastern Railway Company
In this case, the Southern Eastern Railway Station (SER), Parker paid and submitted his bag in the cloakroom. He received a ticket too. At the front side it was printed:” See Back, “and at the backside, there was a notice conveying that SER wouldn’t be held liable for any deposits valuing more than ten euros. The tickets received by Parker had the same message written on it clearly and distinctly on the backside.
The plaintiff bag was lost, and he claimed the full value of the bag, which was more than 10 euros. The Court held that even though the notice was explicitly mentioned on the ticket but a reasonable man can’t believe that notice contained conditions. The plaintiff thought that the ticket was merely a receipt of the money he paid. Therefore, he was awarded the full amount that he claimed.
Thornton v. Shoe Lane Parking Ltd.
In this case, Thornton went to a park in his car. The prices were displayed outside the car park. And a notice verbally expressed cars were parked at their owner’s jeopardy. Thornton parked his vehicle by vending a ticket. It was written in small writing that it was stated to be issued subject to conditions displayed on the premises. There was a pillar opposite to the machine where a notice said that the owners wouldn’t be held liable for any injury occurring on their premises.
Unfortunately, Thornton had an accident, and he claimed damages from Shoe Lane Parking. The Court held that the exclusion clause had not been included in the contract and SLP had not done enough to bring terms and conditions to his attention before the contract formation. Thornton accepted the initial offer when we drove in, but it was too late by then to incorporate further terms when he drove into the park.
The notice should be contemporaneous with contract
According to this doctrine, a party to a contract must give exemption from liability at the time of entering into a contract and not after that if it wants to do so. It also means that notice shall be given before or at the time entering into a contract. If there is no exemption clause mentioned in the contract then a subsequent notice regarding the exemption will come in action.
To understand this doctrine, let’s take a case.
Olley booked a room in the defendant’s hotel and paid in advance the charges for one week. She went to the room and saw a notice stating that the proprietors won’t be responsible for any items misplaced lost or stolen unless they have been given for safekeeping.
Before leaving the hotel, Olley locked her room and submitted her keys at the reception. When she came back, she saw that the key wasn’t there and many items were stolen from the room. Olley filed a suit against them for negligence and claimed damages. The Court ordered. Marlborough Court Ltd. to recover the damages caused to Olley. It was held that the exclusion clause was not included at the time of making the contract as the contract was concluded at reception. The notice claiming the exclusion of liability was not visible at the time the contract was concluded, but when the guest entered the bedroom.
Fundamental Breach of Contract
The doctrine of a fundamental breach of the contract states that when a person fails to perform the duty or delivers something else altogether that contract is then considered to not have been performed and puts an end to the contract in most cases. This doctrine is popularly used as a technique to control unfair exemption clauses. This doctrine has struck down several cases wherein a clause in the Contract limits or excludes the liability. For example- suppliers of goods and services. For a better understanding, let’s take a case illustration.
The plaintiff deposited his baggage at the parcel office of a railway station and received a ticket after paying the ordinary charges. The ticket contained terms and conditions one of which exempted the Railway Executive from any liability arising from misdelivery or loss of any goods valuing more than five pounds unless a special charge was rewarded. The defendants permitted the friend of the defendant to take the luggage with him.
The plaintiff filed a suit against the defendants claiming reliance on exemption clause. The Court held that it was the duty of the executive to take care of the deposited goods and by permitting an unauthorized person to take the luggage away amounted to a fundamental breach of contract. Therefore, the exemption clause won’t protect them from liability.
Liability in Tort
Though an exemption clause is more than enough to exclude all kinds of liability but it may not exclude the liability of tort.
The doctrine can be understood with the help of a case.
Tom white rented a cycle from John Warrick & Co. Ltd. The defendants agreed to maintain it in working order. There was a clause in the agreement which stated: “nothing in this agreement shall render the owners liable for any personal injuries”. While Tom was driving the cycle the saddle got tilted and he fell and got injured. The Court, in this case, held that John Warrick & Co. Ltd. can be exempted from their liability in the contract but can’t be exempted from liability in negligence.
Parties can also freely exclude liability for negligence by express words. In the case of Rutter v Palmer, the car was given to Palmer for sale under a contract which stated that while the cars are on a trial, the customer would drive at its own risk. There was an accident which took place while the car was on trial run. But the defendants were not held liable as they had already by express words shifted their liability to the customers.
This is another protective device that aims to eliminate unreasonable terms from the contract. A term is considered as unreasonable if it opposes public policy or if it defeats the very purpose of the contract.
A case illustration would help us know more about this doctrine.
Lilly White gave a new saree and a blouse to the defendant for dry cleaning. There was a condition mentioned in the laundry receipt that in case of loss of an article the customer would be qualified to claim only fifteen per cent of the market value. Unfortunately, the plaintiff’s saree vanished away. The plaintiff filed a suit against the defendants and the Court held that the terms are unenforceable as it opposes the public policy and violates the basic principles of contract.
Lord Denning justified the unenforceability in Lee(John) & Sons Ltd v Railway Executive by stating that “there is always the vigilance of the common law, which while allowing freedom of contract, watches to see that it is not abused.”
While expressing exemption clauses, there should not be any ambiguity. If found any ambiguity, it will be resolved in favour of the weaker party i.e. the one who has wanted that clause to be added to the contract. Let’s look at a case illustration to understand this doctrine.
In five years, the plaintiff got its car repaired three to four times by Rambler Motors. Hollier signed a form that stated that the garage was free from any liability for damage caused in the premises due to fire, no less than two times. This time when he went to the garage for repairs, he had an oral agreement which consisted of what repairs were to be conducted. Hollier didn’t sign the form on this occasion. Consequently, his car got damaged by fire and he sued the defendants for negligence.
The Court held that three to four times in five years doesn’t mean that the exclusion clause had been imported into the oral agreement. And even if the clause was imported, the language was not so plain that it may free the defendants from liability.
Liability towards the third party
The third-party has no rights or obligations and can’t suffer from any liability since it is not a party to a contract. This doctrine should also apply to standard form contracts. For example: In the case where the goods are supplied or services are rendered wherein the third party is injured by the utilization of them, the supplier is held liable in spite that he bought his exemption from the third party.
Let’s have a look at a case illustration now.
Morris gave her fur garment to a furrier for cleaning. The furrier was not able to do the job and so he gave his garment to the defendant by taking the consent of the plaintiff. The garment was stolen by the defendant’s servant. As a result, the plaintiff sued the defendants. The case went to the Court and it was decided that the defendants are liable as exemption of any liability based on a mere agreement between parties doesn’t grant the third party exemption from liability.
The Standard Form Contracts are standardized contracts that contain an astronomically immense number of terms and conditions in fine print, which restrict and often omit liability under the contract. This gives a great opportunity to big organizations to exploit the impotence of the individual by imposing upon terms which often look akin to a kind of privacy legislation and even exempting the company from all liability under the contract. The battle against abuse has fallen to the Courts. The Courts have found it very arduous to come to the rescue of the more impotent party.
Due to this, the Courts have applied certain rules to bulwark the interest of the customer, as the case may be upon whom standard form contracts or exemption clauses are imposed like plausible notice should be given, notice should be contemporaneous with contract, theory of fundamental breach, contra proferentem interpretation of the contract, liability in tort, liability of the third parties, etc.
These modes, along with other Acts, avail the Courts in dealing with the quandary of Standard form Contract.