What is Standard Form of Contract?
Meaning of Standard Form of Contract: – Standard form of contract is generally the terms and conditions of the contract that are pre-drafted by one of the party and the other party is supposed to sign it, without having any time or opportunity to get the terms changed.
Standard form of contract is a type of contract where there is no scope of negotiations. It is often a contract that is entered into between unequal bargaining partners. Where only one party prepares the contract and the other has no scope of negotiation with respect to the terms and conditions of the contract.
Standard form of contract, due to an increase in the volume and complexities of the trade and business, a business concern may have to enter into a large number of contracts with clients and customers. The contracts with standard terms may be drafted by one party and on the same terms, contracts may be made with numerous persons.
Example 1: – An insurance company may prepare a draft of insurance policy, which may form the basis of a contract with a large number of insured persons.
Example 2: – The railway authorities may print various terms and conditions in the Time Table, which may be deemed to be the basis of the contract with thousands of passengers who may be travelling by rail every day.
In Black’s Law Dictionary, the standard form contract is defined as under: –
“A standard-form contract prepared by one party, to be signed by the party in a weaker position, usually a consumer, who has little choice about the terms. Also termed contract of adhesion, adhesory contract; adhesionary contract; take it or leave it contract; leonire contract.”
What is the nature of Standard Form of Contract?
Nature of Standard Form of Contract: – A standard form contract is a contract, which does not allow for negotiation, i.e. take it or leave it. It is often a contract that is entered into between unequal bargaining partners. It’s a type of contract, a legally binding agreement between two parties to do a certain thing, in which one side has all the bargaining power and uses it to write the contract primarily to his or her advantage. Sometimes it is referred to an adhesion contract or boilerplate contract.
An example of an adhesion contract is a standardized contract form that offers goods or services to consumers on essentially a “take it or leave it” basis without giving consumers realistic opportunities to negotiate terms that would benefit their interests. When this occurs, the consumer cannot obtain the desired product or service unless he or she acquiesces to the form contract.
Let’s take another example, that, when an individual is given a contract by the salesperson of a multinational corporation. The consumer is in no position to negotiate the standard terms of such contracts and the company’s representative often does not have the autonomy to do so. While adhesion contracts, in and of them, is not illegal per se, there exists a very real possibility for unconscionability.
What are the limitations of liability by one party?
Due to the unequal bargaining power of the two parties, the courts and legislature have evolved certain rules to protect the interest of the weaker party are as follows: –
- There should be a Contractual Document: – For a standard form of a document, a contractual document must be signed between the parties to apply it to the court. The basic problem lies in identifying whether the document is a contract document or a receipt. Difference between these two, if the document expresses clearly and a condition is contained in the document then it is a contractual document, if not, it is a receipt. The contract must be signed by the person accepting the terms and conditions described in the document.
- There should be No Misrepresentation: – Misrepresentation, fraud, mischief and other elements that make the contract void must not be present in the contract to make the contract enforceable by law.
- There should be Reasonable Notice of the Contractual Terms: – A proper notice must be given by the person giving the document to give sufficient information about the terms and condition given in the contract. The terms and conditions must be given at or before the time of the contract when it is to be signed.
- Notice should be Contemporaneous with the Contract: – The notice of such exclusion clauses must be made before or prior the making of the contract, so as to give the party an opportunity not to enter into the contract or re-negotiate terms.
- Terms of the Contract should be Reasonable: – The terms and conditions of the contract should be reasonable and should not be made against the existing laws. They should be made in accordance with the laws.
- The Strict Interpretation of the Exemption Clause: – The court makes the strict construction of the contract to give protection to the weaker party in cases where the parties to the contract do not have bargaining equality or one party is likely to have an undue advantage at the cost of the other.
- Theory of Fundamental Breach: – Another device which has been appointed to protect the interest of the weaker parties to the contract when they have an unequal bargaining position is to see that enforcing the terms of the contract does not result in the fundamental breach of contract.
LIABILITY TOWARDS THIRD PARTY
On the basis of the principles of law of contract, a contract is a contract only between the parties to it and no third party can either enjoy any rights or suffer any liability under it12. In Morris v. CW Martin & Sons, the plaintiff gave her fur garment to a furrier for cleaning. Since the furrier himself could not do the job, he gave this garment to the defendant for cleaning, with the consent of the plaintiff. The defendant’s servant stole the garment, for which the plaintiff bought an action against them. The defendant sought exemption from the liability on the basis of agreement between the plaintiff and furrier. The defendants were not allowed exemption and they were held liable.
Why people accept standard form of contract?
- It works on take it or leave it concept, hence there is no room for negotiation and saved all the time for both the parties and speed up the process to enter into the contract.
- It’s the most cost effective option. There is no need to address each individual and draft a contract separately.
- After a while, people gets familiar with the format as the terms are same everytime when a contract is made. This brings consistency and builds faith among customers and reduces the scope of deviation.
The Standard Form Contracts are standardized contracts that contain a large number of terms and conditions in fine print, which restrict and often exclude liability under the contract. This gives a unique opportunity to the giant company to exploit the weakness of the individual by imposing upon him terms which often look like a kind of private legislation and which may go to the extent of exempting the company from all liability under the contract. The battle against abuse has fallen to the courts. The courts have found it very difficult to come to the rescue of the weaker party.
The courts have evolved and applied certain rules to protect the interest of the consumer, customer or passenger, as the case may be upon whom standard form contracts or exemption clauses are imposed, like reasonable notice should be given, notice should be given, notice should be contemporaneous with contract, theory of fundamental breach, contra proferentem interpretation of the contract, liability in tort, exemption clauses and third parties etc.
Case laws under Standard Form of Contract
- Olley vs. Marlborough
Facts of the Case: – In this case plaintiff and her husband booked a room in a hotel. When they checked in the hotel room they found a slip at the back of the door which states that “hotel will not be responsible for any lost or stolen articles. Due to the negligence of the hotel staff, plaintiff’s property got stolen and they demand compensation from the hotel.
Judgement of the Case: – In this case, the court held that there should be a reasonable notice which should be given before or at the time of the signing of contract. So, the notice in the room was not forming the part of the contract and the hotel was held liable to pay the compensation to the plaintiff.
Facts of the Case: – In this case plaintiff deposited his bag in the clock room at a railway station and in return of the same he received a ticket. In the front side of the ticket it was written “see back” and at the back side is was printed that “the company will only responsible for the loss of 10 dollar and not more than that. The plaintiff’s bag got lost and he claimed for the compensation of bag which was more than 10 dollars.
Judgement of the Case: – In this case, the court held that the company will not be held liable because the company take reasonable notice earlier and plaintiff consented that he already knew that there was something written at the back of the ticket but he did not see what it was because he thought that ticket was a mere receipt of money he paid.