Law of Contracts

PROJECT REPORT
On

STANDARD FORM
OF CONTRACTS.

(Under the guidance of)

Ms. Amita Verma

(Submitted by)
Pravesh
BALLB (1ST YEAR)
ROLL NO. - 73/17
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Acknowledgement
I am using this opportunity to express my gratitude to everyone who supported me throughout
the course of this project. I am thankful for their aspiring guidance, invaluably constructive
criticism and friendly advice during the project work. I am sincerely grateful to them for sharing
their truthful and illuminating views on a number of issues related to the project.

I express my warm thanks to Amita Verma Ma’am for their support and guidance.

Thankyou!

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 Law of Contracts

Table of Contents
Cases...........................................................................................................................................................3
Difference between Standard Form Contracts And Normal Contracts.........................................................4
Introduction to Standard Form of Contracts................................................................................................5
Exclusion or Limitation of Liability by One Party......................................................................................6
1. There should be contractual document............................................................................................6
2. Reasonable notice of terms and conditions:.....................................................................................7
3. No fraud or misrepresentation:........................................................................................................7
4. Terms and conditions should be reasonable.....................................................................................8
5. Notice should be contemporaneous with the contract......................................................................8
6. Fundamental Breach of Contract.....................................................................................................8
7. Non- contractual Liability................................................................................................................9
8. Liability towards third party............................................................................................................9
9. Statutory Protection.......................................................................................................................10
Conclusion.................................................................................................................................................11
Bibliography..............................................................................................................................................12
Websites................................................................................................................................................12
Books.....................................................................................................................................................12

Cases

Alexander v. Railway Executive...................................................................................................................9

Central Inland Water Transport Corp. Ltd v. Brojo Nath..........................................................................10
Chapelton v. Barry Urban District Council.................................................................................................6
Curtis v. Chemical Cleaning and Dyeing co................................................................................................7
Lily White v Mumuswami............................................................................................................................8
Morris V. C.W. Martin & Sons.....................................................................................................................9

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 Law of Contracts

Olley v. Marlborough Court Ltd..................................................................................................................8

Parker v. South Eastern Railway Company.................................................................................................7
White v. John Warrick and Co. Ltd..............................................................................................................9

Difference between Standard Form Contracts And

Normal Contracts
A standard form contract (sometimes referred to as a contract of adhesion, a leonine contract, a
take-it-or-leave-it contract, or a boilerplate contract) 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,
the terms and conditions are decided before hand in these, whereas in case of Normal the terms
and conditions of the contract between the parties are decided mutually.

Standard Form of contracts are open to everyone whereas normal contracts are made to specific
individuals or parties.

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 Law of Contracts

Introduction to Standard Form of Contracts

Due to enormous increase in the volume and complexities of trade and business, a business
concern may have to enter into large number of contract with customer and clients. When a large
number of contracts have to be entered into by a person, from practical point of view and sake of
convenience, a standard form of contract with standard terms may be drafted by one party and on
the same terms may be made with numerous persons. For instance, an insurance company may
prepare a draft of insurance policy, which may form the basis of contract with large number of
insured persons. Similarly, the railway authorities may print number various terms and
conditions in the time table, which may form basis of contract with thousands of passengers
travelling by rail every day. The contract in such case is not made by process of negotiation, as
regards its terms and conditions, between two parties. One of the parties generally prepares draft
of the contract, while the other party is enabled or made to, or sometimes even deemed to, agree
to. Such contracts have become quite common in everyday life.

So we can define Standard form of contract as 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. Standard form of contract can be
understood as contract made in the standardized form. It is also called the ‘contract of adhesion’
because it is a contract (often a signed form) so imbalanced in favor of one party over the other
that there is a strong implication it was not freely bargained. As the terms and conditions that are
printed often contain conditions the clause restricting the liability or excluding the liability of the
party that has prepared it.

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Exclusion or Limitation of Liability by One Party

In standard form contracts, generally the terms of the contract are pre-drafted by one of the
parties and the other is supposed to sign on the dotted line, without having any time or
opportunity to get the terms changed. One of the parties being in a greater bargaining position
generally drafts the terms which suit him most, and at times tries to exclude or limit his liability,
without caring for the interest if the other side, who is in a weaker bargaining position.

In view of the unequal bargaining power of the two parties, the courts and the legislature have
evolved certain rules to protect the interest of the weaker party. The same are being discussed
here under.

1. There should be contractual document : The parties are bound if the terms are
contained in contractual document. The case in which the question arose as to the nature of
the document was the case of Chapelton v. Barry Urban District Council1, it has been held
that if the document is a mere receipt and does not create a contract, the terms contained in
such a document are not binding. In this case, the plaintiff had wished to hire a deck chair on
a beach. He went to a pile of deck chairs belonging to the defendant. The notice went on to
say that the public was requested to obtain tickets for their chairs from the chair attendants
which were to be retained for inspection. The plaintiff obtained two chairs and paid for them
and received two tickets. The tickets on the front side said “Barry Urban District Council.
Cold Knap. Chair Ticket 2d. Not transferable.” On the other side, it said, “Available for three
hours. Time expires where indicated by cut-off and should be retained and shown on request.
The council will not be liable for any accident or damage arising from the hire of the chair.”
The plaintiff sat down on a chair which gave way. Due to this, the plaintiff was injured. The
court held that the ticket was a mere voucher or receipt for the money paid for the hire of the

1 (1940) 1 K.B. 532.

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chair and the defendant could not claim exemption from liability on the basis of anything
printed on it.
If the document can be reasonably assumed to be one which can contain contractual terms,
then the issue that arises is of adequacy of notice.
2. Reasonable notice of terms and conditions: it has been made clear by the court that the terms
and conditions including the exemption clause will be binding only if the other party has
notice thereof at the time of contract. A person who signs a document is normally bound by
them, even though he had not read them and even though he is ignorant of their precise legal
effect. If reasonable sufficient notice has not been given, there is no binding contract.
The test of adequacy of notice was first formulated in the case of Parker v. South Eastern
Railway Company2, in this case plaintiff deposited a bag in a cloakroom managed by
defendants at a railway station. In return he got a ticket, on the face of which it was stated:
“see back”. One of the condition printed at the back stated that the liability of the defendant
for any package was limited to $ 10. Plaintiff’s bag valued at $24 and 10 shillings was lost,
for which he brought the action against the defendants. The plaintiff, in his action to recover
the whole loss amounting to $ 24-10 sh. Contended that the term limiting defendant’s
liability to $ 10 should not be binding on him because he had actually not read the terms. It
was held that defendant had made reasonably sufficient efforts to draw attention of the
plaintiff to the terms and therefore, the terms are binding and the liability of defendants was
to pay $ 10.

3. No fraud or misrepresentation: Even if a person signs a document containing certain terms

but there is found to be a different oral misrepresentation about the contents of the document,
the document would not be a binding one. In Curtis v. Chemical Cleaning and Dyeing co.3
Mrs. Curtis delivered her white satin wedding dress to the defendant for cleaning. She was
asked to sign. A ‘Receipt’, as she was orally told by the shop assistance that her signature
were needed because, as responsibility to beads and sequins. In fact, there was a clause in the
receipt which exempted the defendant liability for damage to the articles received for
cleaning, however caused, but does not disclosed to the plaintiff. When the dress was
delivered back it was badly stained. It was held by the court of appeal that there was

2 (1877) 2 C.P.D. 416.

3 (1951) 1 K.B. 805.

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misrepresentation as to the contractual terms which misled the plaintiff as to the extent of the
defendant’s exemption of liability, the defendant could not rely on the clause and they were
bound to pay damages.
4. Terms and conditions should be reasonable: The terms and conditions including the
exemption clause or limiting clause must be reasonable. If the terms and conditions are
against the public policy they are treated unreasonable. In Lily White v Mumuswami,4 a
customer gave a saree costing Rs. 220 for cleaning to the firm of dry cleaner but it was lost.
The plaintiff claimed the full price of saree but the firm offered only 50% of the price relying
on the terms printed on the back of the receipt given to the customer. The court held that the
terms were unreasonable and against public policy therefore, unenforceable, because if such
terms are enforced, it would amount to encourage dishonesty. The dry cleaner will be able to
keep the new clothes by paying off 50% of the cloth.

5. 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
ineffective. In Olley v. Marlborough Court Ltd5., plaintiff and her husband hired a room in
the defendant’s hotel for one week’s boarding and lodging in advance. When they went to
occupy the room, they found a notice displayed there which stated “The proprietors will not
hold themselves responsible for articles lost or stolen, unless handed to the management for
safe custody.” Due to the negligence on the part of the hotel staff, plaintiff’s property was
stolen from the room. In an action against the defendant to recover the compensation for the
loss, they sought exemption from liability on the basis of the notice displayed in the room. It
was held that notice in the room was not forming the part of contract and therefore the
defendants were liable to pay compensation.

6. 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

4 A.I.R. 1966 Mad. 13.

5 (1949) 1K.B. 532.

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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. In Alexander v. Railway Executive6, 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 misdelivery 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. Non- contractual Liability: In cases where more than one kind of liability arises, exclusion
of contractual liability may not negative any other kind of liability. In White v. John Warrick
and Co. Ltd.7 the plaintiff hired a cycle from the defendants under an agreement stipulating
that” nothing in this agreement shall render the owner liable for any personal injury”. While
the plaintiff was riding cycle its paddle tilted forward, as a consequence of which he was
thrown and injured. In an action by the plaintiff the defendant pleaded non- liability on the
basis of the exemption clause. It was held that exemption clause excluded only contractual
liability of the defendant, whereas they still remained liable for negligence under law of torts.

8. Liability towards third party: If A and B enter into contract under which B tries to exclude
his liability by an exemption clause, such a clause would not exempt any other person, say C,
from liability because of rule, that C is stranger to the contract and he cannot take advantage
of A and B. Thus, if a carrier, by an exemption clause, excluded his liability, that does not
mean that his servants will be able to avoid their liability, if they are negligent. In Morris V.
C.W. Martin & Sons8, 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.

6 (1951) 2 K.B. 882.

7 (1953) 1 W.L.R. 1285 : (1953) 2 All E.R. 1021.
8 (1966) 1 Q.B. 716; (1965) All E.R. 725.

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9. Statutory Protection: So that one party cannot take undue advantage of the unequal
bargaining power of the other, exclusion of liability in many situations has been barred by
various statutes in England. Some instances of such statutory provisions are The
Misrepresentation Act, 1967, Road Traffic Act, 1960, Transport Act, 1962, The Sale of Goods
Act, 1979, The Unfair Contract Terms Act, 1977 and The Consumer Safety Act, 1978.
Unlike England the Position in India is that, 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 under section 16 of the Indian Contract Act on the
ground of undue influence or under section 23 of that Act, as being opposed to public policy.
In Central Inland Water Transport Corp. Ltd v. Brojo Nath 9, 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.
The Law Commission of India in its 103rd report (May, 1984), on Unfair Terms in Contract,
has recommended the insertion of a new chapter IV- A consisting of section 67-A of Indian
Contract Act. According to this recommendation where the court on the terms of contract or
evidence adduced by the parties, comes to the conclusion that contract or any part that it
holds to be unconscionable. A contract according to this provision is considered to be
unconscionable if it exempts any party there to from either the liability for willful breach of
contract, or consequence of negligence.

9 A.I.R. 1986 S.C. 1571.

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Conclusion
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, there should be no
misrepresentation, the terms of the contract should be reasonable, theory of fundamental breach
of Contract, Non-contractual liability, and liability towards third parties etc.

These modes, along with other Acts help the courts in dealing with the problem of Standard
Form Contract.

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Bibliography
Websites
a. www.legalserviceindia.com

b. https://www.lawctopus.com

c. http://legal-dictionary.thefreedictionary.com

d. www.investopedia.com

Books
a. R. K. Bangia, Indian Contract Act, Allahabad Law Agency, Faridabad, 2010.
b. Avtar Singh, Law of Contract, sixth ed., Eastern Book Company, Lucknow, 2016.

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