MEANING
A standard form contract is a contract between two parties that does not allow for negotiation , In lay-man term means ‘take it or leave it’ kind of contract . 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. Thus, the fundamental right to negotiate is affected by this type of arrangement popularly these type of contract are known as adhesion or a boilerplate kind of contract. Most common type of standard form of contracts are insurance company contract, on purchasing a washing machine, signing up for your e-mail, social networking sites, etc.
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.
DEFINALTION
ACCORDING TO 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 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 : –
1.) REASONABLE NOTICE
A reasonable notice must be given by the person delivering the document to give adequate information about the terms and condition laid down in the contract. This principle was propounded in the CASE OF HENDERSON V. STEVENSON from House of Lords. Case facts were that, a person buy a ship ticket on face of it only boarding place and arriving place was written on it but on its back side there were certain terms and conditions which party didn’t see nor anything was written on face of it to turn over and look at the back of ticket. Simple reason given by court was that a person cannot agree to a term if he had not seen it or is not told of it.
Notice of the terms and condition should be given before or at the time of contract when it is to be signed. As clearly said by Lord Denning it is duty of the party relying on a clause to its benefit to make it clear to other party the terms and condition of contract in the famous case of THORNTON V. SHOE LAN PARKING LTD.
2. ) CONTRACTUAL DOCUMENT
For a standard form of the document, there must be a contractual document signed between the parties in order to make it enforceable in court. The basic problem lies between identifying the document as a contract document or as a receipt. Different between these two is, if the document clearly explains the express and implied a condition in the document then it is a contractual document if not then it is a receipt. The contract must be signed by the person accepting the terms and conditions mentioned in the document.
Misrepresentation, Fraud, Mischief and other elements which makes a contract void should not present in the contract in order to make an agreement enforceable by law.
3. ) UNREASONABLE OR UNFAIR TERMS
Pointing out unreasonable terms in the contract can be one the protective safeguard for the weaker party. Unreasonable terms of contract can be said about those terms in the contract which contradicts the very purpose of the contract or are against the public policy. In LILLY WHITE V. MANNU-SWAMI this principle has been clearly explained in the case. In this case the laundry receipt contained a condition that in case of loss or destruction of cloth only 15% money of the market price of cloth will be returned these clauses were held unreasonable from the court and was held that the clauses were against the public interest.
In an Indian financial case of SEVEN DAY ADVENTISTS VS. M.A UNEERIKUTTY AND ANR. MANU/ SC/3291/ 2006 it says that if any consideration of several clauses mentioned in the contract is unlawful then agreement itself is void and the decision of the court says that this type of cases are against the public policy, if any type of clauses violating public policy that contract is void. This doctrine is not only applicable to harmful cases but to the cases with harmful tendencies.
In the case of contract with the government certain points must be observed in order to prevent exploitation of the other party in the contract. As the decision from the government had been taken in bad faith. Decision is based on irrational or irrelevant consideration. Decision has been taken without following the prescribed procedure in the system. If these things are not followed diligently contract will be termed as irrelevant by the court and party will be protected by certain clauses against exploitation of contracted party.
4.) THEORY OF FUNDAMENTAL BREACH
It’s one of the tools to protect the weaker party from exploitation through this theory. What happens in theory there is a core or fundamental of the contract which is bounding on both parties to follow them and if that is not followed then there will be a breach of contract. In the case of breach of contract the weaker party will not be bound to follow the contract in case of breach of contract by other party. Test of fundamental breach of contract can be done through sec 11 of 1977 unfair contract act which says the contract will be void if it will not satisfy the reasonableness of the contract.
In case of FOOD CORPORATION OF INDIA VS. LAXMI CATTLE FEED INDUSTRIES MANU/SC/8041/2006, Supreme Court held that in case of breach of contract, the plaintiff has to prove all the essentials of breach of contract. If the plaintiff is not able to prove, it will not be considered as breach of contract.
5.) EXEMPTION CLAUSES AND THIRD PARTY
Under this clause we have to take a look at the doctrine of privity of contract which says that the contract is between the two parties who have contracted with each other and no third party is entitled to enjoy the right provided in the contract nor hold any liability.
As the third party does not hold any responsibility for the irregularity in the contract, he is not entitled to any benefit from the contract.
6.) AMBIT AND AUTHORITY OF CONTRACT ACT
Under the Indian contract, there is no such form or condition which is binding on the parties. Parties may agree to contract in a particular mode which is not probihited under the law. Problem that is prevalent in the Indian context is that there is no such specific rule provided in Contract Act, different provision has been mentioned in different kinds of Act which govern activity of contract like specific provision of railways act, public transport control by the government. Different kinds of rules provided by the government to contract in coffee industry, tea plantation which is entered into by workers with the industry.
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 it. 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.