Standard Form of Contracts

Features of Standard Form Contracts:

1. Fine print and no negotiation by parties

2. Often exclude liability for any default
3. No bargain, no discussion nor it is possible to do so
4. Business class misused the opportunity to exploit
5. Proliferation of dispute
6. Difficulty of courts to remedy the exploited
 In the Contract of Adhesion, the individual has no choice “but to accept”; he
doesn’t negotiate, but merely adheres. Therefore individual deserves to be
protected against the possibility of exploitation inherent in such contracts.
 A standard form contract is a contract, which does not allow for negotiation, i.e.
take it or leave it
 Rule in L. Estrange v. Graucob Ltd

Mrs. L signed an agreement without reading it under which she purchased a

cigarette vending machine. Agreement excluded all kinds of defects. Machine was
totally defective.
HELD: “It is true that the defendant practically made no efforts to bring the
defects to the knowledge of the plaintiff . but where a document containing
contractual term of signed unless there is some fraud or misrepresentation, the
party signing it is bound and it is wholly immaterial whether he read them or not”
Analysis: Weaker party was exploited by the business community. Individuals
deserve some protection against possibility of exploitation inherent in such
contracts. Hence courts have evolved some protective devices .
Rules :

 There should be a contractual document .

 Reasonable notice to contractual terms
 Notice should be contemporeous with contract
 Strict interpretation of exemption clause
 No misrepresentation
 Fundamental breach of contract
 Liability in Torts
 Statutory Protection
 Liability towards third parties:
1.There should be a contractual document .
Thornton v. Shoe Lane Parking Ltd
FACTS: Pt. parked his car in automatic car park – a notice at entrance “Cars parked at
the owner’s risk” - pt. slipped money into a machine which brought forth a ticket, gate
barrier opened and pt. parked his car – he looked at the ticket for parking time and
notice some words but didn't pay attention to them – the words excluded co liability
for any damage to the car or customer – while taking the car back pt. was injured -
claimed compensation – dt’s sought the defense of exemption clause.
HELD: Co. was liable for his injury
REASONS: “Exemption clause was so wide and so destructive of rights that the
courts should not hold any man bound by it unless it is drawn to his attention in the
most explicit way”
Lord Denning “In order to give sufficient notice, it should be printed in red ink with a
red hand pointing to it, or something equally startling”
Analysis:

 A document is said to be contractual if it embodies a contract i.e., person to whom

it is delivered should know that it is supposed to contain conditions. But where the
paper is not supposed to express the conditions of the contract it will be regarded
as a mere voucher, etc., and extra care shall be taken to communicate its terms
than mere warning on the face of it.
2. Reasonable notice to contractual terms
Parker v. South Eastern Railway Co.
FACTS: Plaintiff deposited a bag at railway station and received a ticket – on the
face words “see back”, on the back, “the co. will not be responsible for any
package exceeding the value of $10.” – a notice to the same effect was also hung
up in the cloak room – plaintiff 's bag lost – claimed full value of the bag which was
more than $10 – co relied on the exemption clause.
Plaintiff contended – although he knew there was some writing on the ticket, he
did not see what it was as he thought that the ticket was a mere receipt for the
money paid by him.
HELD: Plaintiff knew that there was something written on the ticket but he did
not know or believe on that writing which contained conditions. Nevertheless,
he would be bound because there was reasonable notice that the writing
contained conditions .
It is the duty of the person delivering the document to give adequate notice to the
offeree of the printed terms and conditions. Otherwise acceptor is not bound by these
terms.
Henderson v. Stevenson
FACTS: Plaintiff bought a steamer ticket. Which contained on the face, words “Dublin
to White heaven” on the back, certain terms, one of which excluded liability of the Co.
for loss, injury or delay to the passenger or his luggage. Plaintiff had not seen back of
the ticket not there was any indication on the face about the conditions on the back.
Plaintiff luggage was lost by the ship wreck caused by the fault of Co’s servants.

HELD: Plaintiff was entitled to recover his loss from the Co.inspite of
exemption clause.
3.Notice should be contemporeous with contract
Olley v. Marlborough Court Ltd. (1949)

 Olley was a guest in the defendant hotel. On arrival, Olley paid for a week’s board
in advance and then went to the room. In the room, a notice was displayed stating
the proprietors would not be responsible for any items lost or stolen, unless handed
to them for safe keeping. Olley left the room and deposited her key on the board in
reception before leaving the hotel. The key was taken and several items were
stolen from her room. Olley sought damages in negligence.
 Olley was successful in her claim and recovered the cost of the stolen items in
their entirety. The exclusion clause had not been successfully incorporated into the
contract because the contract was concluded at reception, and the notice
purporting to exclude liability was not visible until after the contract was formed,
when the guest entered the bedroom.
4.Strict Construction:
Where the clause is widely expressed exempting the liability as to be highly unreasonable, any
ambiguity in the mode of expressing it is resolved in favour of the weaker party
Hollier v. Rambler Motors AMC Ltd.
FACTS: Pt. sent his car to garage for repairs – dt. carried out the services to the car 3-4 times in
the last 5 yrs. – on each occasion pt. signed an invoice which excluded liability for damage
caused by fire – this occasion he did not sign any document but this time the car was destroyed
by fire due to negligence of the dt. Pt sued the dt for loss- dt. argued course of dealing in the past
established a perfect contract which excluded liability for loss due to fire.
HELD: dts. were liable.
REASONS: 3-4 dealings over last 5 yrs was not sufficient to create such course of dealing
between the parties as to amount to notice of terms.The term if accepted to be noticed, might have
excluded liability for loss due to fire but not liability for loss due to fire by negligence.
5.No misrepresentation
Curtis v. Chemical Cleaning And Dyeing Company

FACTS: Plaintiff delivered a white satin wedding dress to the defendants for
cleaning. On being asked to sign the receipt while signing on her enquiry she was
told she shall take the responsibility for sequins and beads – she then signed the
receipt without reading the conditions – receipt in fact contained condition “co. is
not liable for any damage howsoever caused “ - when the dress was returned there
was a stain on it. On sued by the plaintiff , defendant claimed defense of
exemption clause .
HELD: Co. was liable
Lord Denning: “By the failure to draw the attention to the width of the exemption
clause the assistant created the false impression that the exemption only related to
beads and sequins and that it did not extend to the material of which the dress was
made. This was sufficient to disentitle them from relying on exemption clause.
6. Theory of fundamental breach:

 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.

Alexander v. Railway Executive

The plaintiff deposited his luggage in defendant’s cloak-room and in return received a
ticket. A term printed on the ticket exempted the defendant from liability for loss or
mis delivery of luggage. Plaintiff’s luggage was delivered to an unauthorized person
without the production of the ticket. It was held that non-delivery of luggage to the
plaintiff amounted to fundamental breach of contract for which the defendant was
liable.
7 Liability in Tort

Even where an exemption clause is exhaustive enough to exclude all kinds of

liability under a contract, he may be held liable under torts for compensation.
White v. John Warwick & Co. Ltd.
FACTS: Plaintiff hired a bi-cycle from the defendant , who agreed to maintain it in
working order – clause, “nothing in this agreement shall render the owners liable for
any personal injuries” - while the plaintiff was riding the cycle the saddle tilted
forward and he was thrown and injured. Plaintiff claimed compensation –
Defendant relied on exemption clause
HELD: Although the clause exempted defendant from liability in contract, he was
not exempt for tortious liability for negligence .
8.Statutory protection

A term is deemed unreasonable if it would defeat the very purpose of the contract
or if it is against public policy. Such unreasonable term is excluded from contract.
Lilliy White v. Mannuswamy
FACTS: A laundry receipt contained a condition that “the customer would be
entitled to claim only 15% of the market price or value of the article in case of
loss” - plaintiff’s saree was lost– claimed value – 15% was offered – sued for full
value – relied on clause limiting liability
HELD: term was unreasonable and against public policy hence liable to pay
the full value of the saree
Lord Denning: “there is always the vigilance of the common law, which while
allowing freedom of contract, watches to see that it is not abused”
9.Liability towards third parties:

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.

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.
Analysis:

 There is no specific legislation in India concerning the question of exclusion of

contractual liability. There is a possibility of striking down unconscionable
bargains either on the basis of :
 U/S 16 of ICA
 U/S 23 of ICA
In Central Inland Water Transport Corp. Ltd v. Brojo Nath
The Supreme Court struck down a clause in service agreement whereby the service
of a permanent employee could be terminated by giving him a 3 months’ notice or 3
months’ salary. It was held that such clause was unreasonable and against public
policy and void under section 23 of Indian Contract Act .