Standard form contracts

A standard form contract (sometimes referred to as a

contract of adhesion, compulsory contracts
leonine contract,
take-it-or-leave-it contracts
boilerplate contract)
It is a contract between two parties, where the terms and conditions of the contract are set by
one of the parties, and the other party has little or no ability to negotiate more favorable terms
and is thus placed in a "take it or leave it" position. Lengthy boilerplate terms are often in fine
print and written in complicated legal language which often seems irrelevant. The prospect of
a buyer finding any useful information from reading such terms is correspondingly low. Even
if such information is discovered, the consumer is in no position to bargain as the contract is
presented on a “take it or leave it” basis. Coupled with the often large amount of time needed
to read the terms, the expected payoff from reading the contract is low and few people would
be expected to read it. It a kind of private legislation
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.
L’Estrange v F.Graucob Ltd, 1934 2KB394 All Er Rep 16
Where a document containing contractual terms is signed, then, in the absence of
fraud, or misrepresentation, the party signing it is bound, and it is wholly
immaterial whether he has read the document or not.
Devices for standard form contracts

• Reasonable notice
• Notice must be contemporaneous with contract
• Fundamental Breach
• Strict construction of words
• Liability in torts
• Unreasonable terms
• Exemption clauses and third parties
Reasonable Notice
It is the duty of the person who is delivering a document to give adequate notice to the
offeree of the printed terms and conditions. Where it is not done, the acceptor will not
be bound by the terms. In
Henderson v. Stevenson, 1875, 2 Sc & Div 470: 1875 32 LT 709 (HL)
Parker v. South Eastern Rail Co, 1877 2 CPD 416 (1874-80)A
Macillian v Compagnie Des messageries Maritime de France, 1881
Chapel ton v Barry Urban District Council [1940] 1 KB 532
Contractual documents are different and mere receipts and vouchers
are different
This ticket is no more than a receipt, and is quite different from a
railway ticket which contains upon it the terms upon which a
railway company agrees to carry the passengers. The object of the
ticket was that the person taking it might have evidence that he had
paid the hire and the term printed on it was no part of the contract
Thornton v Shoe Lane Parking Ltd [1970] EWCA Civ 2

The more startling a clause is, the greater notice which must be given of it. Some
clauses would need to be printed in red ink with a red hand pointing out to it before the
notice could be held to be sufficient.
When a particular condition relied on involves a sort of restrictions
which is not usual in that class of contracts, a defendant must show that his intention to
attach an unusual condition of that particular nature was fairly brought to the notice of
that other party. How much is required depends upon the nature of the restrictive
condition.
In addition to this the courts are also under the statutory duty to consider reasonableness
of the clause in the light of the circumstances which were known or which should have
been known at the time of contracting.
NOTICE SHOULD BE CONTEMPORANEOUS WITH THE
CONTRACT
If a party to the contract wants to have exemption from
liability he must give notice about the exemption while
the contract is being entered into and not thereafter. If
the contract has been entered into without any
exemption clause then subsequent notice regarding
the exemption from liability will be in effective.

In Olley v Marlborough Court Ltd [1949] 1 KB

532
FUNDAMENTAL BREACH OF CONTRACT
Another device which has been adopted to protect the interest of the weaker of the parties to the
contract when they have an unequal bargaining position is to see that enforcing the terms of contract
does not result in the fundamental breach of contract. In a standard form of contract it is likely that the
party having a stronger bargaining power may insert such exemption clause in the contract that his duty
to perform the main contractual obligation is thereby negative.
Core of contract
What constitutes fundamental breach? "Every contract contains a 'core' or
fundamental obligation which must be performed. If one party fails to perform this
fundamental obligation, he will be guilty of a breach of the contract whether or not
any exempting clause has been inserted which purports to protect him." This may be
illustrated by

In Alexander v. Railway Executive[1865] 6 B & S 340.

Davies v Collins,

Curtis v Chemical cleaning& Dyeing co, 1951

Statutory definition of fundamental breach

The theory of fundamental breach has now become merged in the provisions of the (English)
Unfair Contract Terms Act, 1977. The Act says that a party who commits breach of his contract
cannot take the advantage of any clause in the contract which either excludes or limits his
liability. Further, if there is any provision in the contract to the effect that "no performance" or
"substantially different performance" will be taken as equivalent to performance, that will be of
no avail. Thus the term "breach" will include no performance or a performance which is
substantially different from that contemplated by the contract.

The effect of the provision is that it is no longer necessary for the courts to resort to
"fundamental breach". The same result can be attained by resorting to the test of
reasonableness under Section 11 of the Unfair Contract Terms Act. This approach was in
evidence in the decision of the House of Lords in
George Mitchell (Chesterhall) Ltd v Finney Lock Seeds [1983] 2 AC 803
Strict construction of words
Exemption clauses are construed strictly, particularly where a clause is so
widely expressed as to be highly unreasonable. Any ambiguity in the mode of
expressing at exemption clause is resolved in favour of the weaker party.
Contra proferentem
Contra proferentem is a rule of construction applying to written documents or
deeds. The rule provides that if the wording of an agreement is ambiguous or
uncertain, but not otherwise, the contract should be construed more strongly
against the person whose words they are rather than the other party.

An illustration of this principle is afforded by

John Lee & Son (Grantham) Ltd v Railway Executive (194
Akerib v Booth,
United India Insurance co ltd v Kiran combers & Spinners, 2007 1 scc 368
Liability in tort
Even where an exemption clause is
exhaustive enough to exclude all kinds of
liability under the contract, it may not
exclude liability in tort. In
White v John Warwick & Co Ltd [1953] 1
WLR 1285
It is; however, open to the parties to exclude
liability even for negligence by express words
or necessary implication. For example in
Rutter v Palmer,1922
now the Unfair Contract Terms Act 1977, expressly provides
that any clause in a contract which excludesliability for
death or personal injury resulting from negligence shal
absolutely be void The expression "negligence" is defined in
the Act to mean the breach of any common law or
contractual duty.
Presently competition act 2003 in India has given much
more protection against all such kind of standard form of
contract. Earlier MRTP Act has given insufficient protection
to the weaker section or other party but now, the
enforcement of new competition law 2003 has improved the
position of weaker section against much more kind of civil &
tortuous liabilities.
UNREASONABLE terms: Another mode of protection is to exclude
unreasonable terms from the contract. A term is unreasonable if it would defeat the
very purpose of the contract or if it is repugnant to the public policy. In
Lily White v Munuswami, AIR 1966 Mad 13
But if a condition is imposed which is in flagrant infringement of the law relating
to negligence, the court will not enforce such a term which is not in accordance
with public policy
Lee john &sons v Railway Executive
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
Haseldine v C.A. Daw & Sons Ltd, 1941 2 Kb 343