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CONTRACT OF ADHESION

What is contract
of adhesion??
Is the term
adhesion having
any meaning???

The contract in which one party has
extensive bargaining power and he/she
uses it to his or her advantage.

Insurance Contract : A standardized contract form, where
the service is provided to the consumer in a Take it or
leave it basis.


What are
necessary
ingredients of a
contract of
adhesion ??? Are
they really tough
to discern???
Features
1. One party having stronger bargaining
power in business.

2. Other party weaker; may be
consumer in need of a good or
service.

3. The state prior to adherence to
contract doesnt generally involve
negotiation or modification of term
and conditions.
According to Law Commission:
The law commission in its 103th report
observed that, this type of contract is a
pretended contract, but have only the
name as contract.

What else could
we say if we
dont like calling
it adhesion
contracts???
Is there any other
name???

Other Names:
Boilerplate Contracts: Which can be
used again and again and change is not
considered necessary.






Compulsory Contract: As there is
absolute imposition of the terms if you
want to use the service.
Adhesion: This term purports that you
have to adhere to the unilateral will of
the other party. And, Hence the name.

Is there a zilch
of social and
economic benefit
to the society in
general and
parties in
particular ???
Economic and Social Benefits:
1. Competitive market is upheld where a
consumer has options to choose among
the service providers to suit their
demand and which imposed limited risk.
Example : LIC VS Bajaj Allianz.
2. Reduces transaction cost. Else, the
bargaining and negotiation process may
exhaust a lot of money and time for
both seller and buyer.
3. The cost of attorney for drafting
contract and related legal expenditures
are also eliminated.
Do you think this
type of
contracts where
no negotiation is
there is illegal ??
Legality
In a blanket statement we can not say that
adhesion contracts are illegal. However,
there is a caveat. Court can have a say
under some conditions.
In order to understand those conditions
lets know the possible problems in a
adhesion contract.
Troubles Inherent:
1. Rarely read and incomprehensible
Lengthy
Written in legal jargons- Acts and
Sections are used at time difficult to a
common man.
Needs a lot of time.
2. May not be a complete contact
A part of contact is what you may sign
and the rest is attached later.
3 . May be part of social commitment.

Troubles with the consequence

Probability of unfair terms: Companies
may work out an unfair terms to their
advantage by disadvantaging other party
at the same time.

Restrictive freedom in the performance:
Debarred from certain jurisdictions of
your choice.
Unilaterally terminable contracts may
be another instance.

Since there cannot be a presumption of
free assent in a true sense, therefore
conditions have been laid down when it
would be unenforceable.
Is there any
mortal
consequence if
I accept the
contract ???
Which are the
touchstone
upon which the
reasonable test
is made???
Basis for bringing equity
Fundamental Breach: In case, the innocent
party is deprived of the substantial benefit
of the contract or hits the root of the
contract, then it comes under this.
Case:
Skandia Insurance Co. Ltd. v. Kokilaben
Chandravadan: [1987] 2 SCC 654
Facts: Driver left the truck with running
engine - meanwhile a cleaner started
driving and lost control causing an accident
- driver the insurance company were held
liable Insurance company claimed
exemption.
SC Ratio: The clause of exemption is to be
read with the main purpose .
Hence, Insurance company were made to
pay. No exemption was granted.
Another Similar Case
B.V. Nagaraju v. M/s. Oriental Insurance
Co. Ltd., Divisional officer, Hassan.
Facts: A vehicle in operation maximum
number allowed 6 Vehicle was 9 while
having accident - Insurance company
contested on the exemption clause.
Issue: whether the alleged breach of
carrying humans in a goods vehicle, more
than the number permitted in terms of the
insurance policy, is so fundamental a breach
so as to afford ground to the insurer to
avoid liability altogether?
Held: In addition to the fundamental
breach, the accident was due to negligence.
Hence this situation will not exempt the
insurer to pay the due amount.
Can adequacy of
notice become a
ground for non-
obligation of
contract???
Adequacy of Notice
The test of adequacy says that there
should be an attempt by one party to
make the other party known about a
necessary provision in way which is
reasonably sufficient to that making.
Case: Parker v. South Eastern Railway
Company: [1877] 2 CPD 416.
Facts: Mr. Parker left a bag in the
cloakroom - Paying two pence he received
a ticket - failed to read the clause of
exclusion of liability Lost His bag and
sued the company.
Issue: whether the company had done
whatever was reasonably sufficient to
give the plaintiff notice of the condition?
Held: Company liable; by the above test.
Is timing an
imperative
factor while
deciding the
enforceability?
? ?
Really???
Timing Test
The crux of this test is that if the timing at
which the terms are brought to notice of
the innocent party is after the contract
then, it is unjust and bad in law.
Case:
Facts: Chapelton v. Barry Urban District
Council 15 and Olley v. Marlborough
Court Ltd: [1940] 1 KB 532 .
Facts: Chair was hired- ticket was
obtained from attendants - on the ticket
was written- council will not be liable for
any accident or damage arising from the
hire of the chair - by the canvas tearing he
was injured.
Held: If the ticket was to form an integral
part of contract then, it must have been
given on or about time of the contract.
Can the
unconscionabilit
yof a condition
be brought to
the rescue of the
contracting
party??
Unconscionable Agreement
Test: Unfair and Unreasonable clause in a
contract entered between parties under
economic duress or by unequal bargaining
capacity may become unenforceable.
Case: Central Inland Water v. Brojo Nath
Ganguly: AIR 1986 SC 1571.
Facts: After years of service in the
corporation, plaintiff was kicked out of the
company. The company has a term for this
in the rules of the corporation. This rule
was challenged.
Issue: Whether an unconscionable term
can be held to be void/ voidable under
Indian Contract Act (ICA)?
Held: The term was held unconscionable
and opposed to public policy for it affected
the rights of the employees. Hence void.
Is there any
statutory support
for this?
Statutory Support
Indian Law:
No specific law is there to protect
innocent parties in an unfair contract.
Indian Contact Act: Sec. 16(3) Undue
Influence.
Sec. 23 : Lawful & Unlawful consideration.
U.K. Law
Unfair Contract Terms Act 1977
The Unfair Terms in Consumer
contracts Regulations Act, 1999
US Law
Uniform Contract Code (1952)
Contract Law Restatement,1981
Sec. 211 (3) .

Can we
conclude that
there is a
room for
improvement
???
Conclusion
It has recommended to add Sec. 67A to
ICA 1872. The languages include.

(1) Where the court on the terms of the contract or
on the evidence adduced by the parties, comes to
the conclusion that the contract or any part of it is
unconscionable, it may refuse to enforce the
contract or the part that it holds to be
unconscionable.
(2) Without prejudice to the generality of the
provision of this section, a contract or part of it is
deemed to be unconscionable, if it exempts any
party thereto form:
(a) the liability for willful breach of the
contract, or
(b) the consequences of negligence.