The law of contract has in recent time to face a problem, which is assuming new

dimensions. The problem has arisen out of the modern large scale and
widespread practice of concluding contracts in standardized form. People upon
whom such exemption clauses or standard form contracts are imposed hardly
have any choice or alternative but to adhere. This gives a unique opportunity to
the giant company to exploit the weakness of the individual by imposing upon
him terms, which may go to the extent of exempting the company from all
liability under contract. They are known by different names in different places. In
France it is called contracts d' adhesion. In U.S. they are called 'Adhesion
contract' or contracts of adhesion. In U.K. it is called standard form contract. In
India too, it is called standard form contract or contracts in standard form.
Lord Diplock in Schroeder Music Publishing Co. Ltd. V. Macaulay1 defined
standard form contract and observed as under,
"Standard forms of contracts are of two kinds. The first, of very ancient origin,
are those which set out the terms on which mercantile transactions of common
occurrence Eire to be carried out. Examples are bills of lading, charter parties,
and policies of insurance, contracts of sale in the commodity markets. The
standard clauses in these contracts have been settled over the years by
negotiation by representatives of the commercial interests involved and have
been widely adopted because experience has shown that they facilitate the
conduct of trade. Contracts of these kinds affect not only the actual parties to
them but also others who may have a commercial interest in the transactions to
which they relate, as buyers or sellers, charterers, or ship owners, insurers or
bankers. If fairness or reasonableness were relevant to their enforceability the
fact that they are widely used by parties whose bargaining power is fairly
matched would raise a strong presumption that their terms are fair and
reasonable. The same presumption, however, does not apply to the other kind of
standard form of contract. This is of comparatively modem origin. It is the result
of the concentration of particular kinds of business in relatively few hands. The
ticket cases in the 19th century provide what are probably the first examples.
The terms of this kind of standard form of contract have not been the subject of
negotiation between the parties to it, or approved by any organization
representing the interests of the weaker party. They have been dictated by the
party whose bargaining power, either exercised alone or in conjunction with
others providing similar goods or services, enables him to say, ' If you want these
goods or services at all, these are the only terms on which they are obtainable.
Take, it or leave it."
1 [1974] 1 All ER 171

It is necessary and proper that their interests should be protected. The courts
have therefore devised some rules to protect the interest of such persons.

A valid contract requires offer and acceptance. It is in the essence of acceptance,

that such acceptance must be a valid acceptance, that is to say, an acceptance
made, fully conscious of and alive to the terms and conditions of the proposal. Of
course, this is not to say that a man who signs an agreement blindfolded will be
relieved from his obligations under that agreement, simply because he later
chooses to discard the blindfold. However, what Section 2(b) 1 does require is
that the acceptor must have a real opportunity to review the proposal and decide
on whether to accept it or not.
In Cheshire's Law of Contract, 12th Edition 'Use of standard form contracts' is dealt with at page 21
in following terms:
The process of mass production and distribution, which has largely supplemented if it has not
supplanted individual effort, has introduced the mass contract -- uniform documents which
must be accepted by all who deal with large-scale organizations. Such documents are not in
themselves novelties; the classical lawyer of the mid-Victorian years found himself struggling
to adjust his simple conceptions of contract to the demands of such powerful bodies as the
railway companies. But in the present century many corporations, public and private, have
found it useful to adopt, as the basis of their transactions, a series of standard forms with
which their customers can do little but comply.

A standard form contract is a contract between two parties that does not allow
for negotiation, i.e. take it or leave it. Sometimes it is referred to an adhesion
contract or boilerplate contract. It is often a contract that is entered into between
unequal bargaining partners. Its 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 advantage.

OVER VIEW
it would be difficult for large-scale organizations to draw up a separate contract
with every individual. They therefore keep a printed form of contract. Such
standardized form of contracts contain large number of terms and conditions in
fine print which restrict and often exclude the liability, and therefore his only
function is to accept the offer whether he likes its terms or not.
An example of an adhesion contract is a standardized contract form that offers
goods or services to consumers on essentially a "take it or leave it" basis without
giving consumers realistic opportunities to negotiate terms that would benefit
their interests. When this occurs, the consumer cannot obtain the desired
product or service unless he or she acquiesces to the form contract.
Lets take another example, that, when an individual is given a contract by the
salesperson of a multinational corporation. The consumer is in no position to

negotiate the standard terms of such contracts and the company's

representative often does not have the autonomy to do so. While adhesion
contracts, in and of them, is not illegal per se, there exists a very real possibility
for unconscionability.

ISSUES WHICH ARE GENERALLY INVOLVED WITH STANDARD

FORM OF CONTRACTS RELATE TO:
- CONSENT
In the case of commercial contracts courts have repeatedly held that contracts
even if entered into the standard format, are meant to be performed and not to
be avoided. Unless it is shown that consent is obtained by fraud, mistake or
duress a consent given by party to a contract cannot be vitiated. As defined
under Section 13 of the Contract Act, 1872 two or more persons are
said to consent, when they agree upon the same thing in the same
sense. Consent, according to Section 14, is free, when it is not caused by
coercion, undue influence, fraud, misrepresentation or mistake. Thus where the
parties with equal bargaining powers have fairly consented to the terms of the
contract without any fraud, duress or mistake courts have refused to interfere.

- UNFAIR TERMS OF THE CONTRACT

Courts have looked into the terms of the contract in relation to the bargaining
powers of the parties and have interfered in cases where the bargaining power of
the parties was not equal. In Life Insurance Corporation of India v.
Consumer Education and Research Centre and others the Hon'ble
Supreme Court has held that "if a contract or a clause in a contract is found
unreasonable or unfair or irrational one must look to the relative bargaining
power of the contracting parties. In dotted line contracts there would be no
occasion for a weaker party to bargain or to assume to have equal bargaining
power. He has either to accept or leave the services or goods in terms of the
dotted line contract. His option would be either to accept the unreasonable or
unfair terms or forego the service forever. With a view to have the services of the
goods, the party enters into a contract with unreasonable or unfair terms
contained therein and he would be left with no option but to sign the contract".
In Central Inland Transport Corporation Limited v. Brojo Nath, Hon'ble
Apex Court while giving some illustrations of unreasonable and unfair clauses in
contracts, based on unconscionable bargaining of the decision and explaining
the scope of expression "public policy", in that the type of contracts to which the
principle formulated by us above applies, are not contracts which are tainted
with illegality, but are contracts which contain terms, which are so unfair and
unreasonable that they shock the conscience of the court. It is apt to reproduce
the relevant extract of Para 90 as under:" This principle is that the courts will not enforce and will when called upon to do
so, strike down an unfair and unreasonable contract, or an unfair and
unreasonable clause in a contract, entered into between parties who are not
equal in bargaining power. It is difficult to give an exhaustive list of all bargains
of this type. No court can visualize the different situations which can arise in the

affairs of men. One can only attempt to give some illustrations. For instance, the
above principle will apply where the inequality of bargaining power is the result
of the great disparity in the economic strength of the contracting parties. It will
apply where the inequality is the result of circumstances, whether of the creation
of the parties or not. It will apply to situations in which the weaker party is in a
position in which he can obtain goods or services or means of livelihood only
upon the terms imposed by the stronger party or go without them. It will also
apply where a man has no choice, or rather no meaningful choice, but to give his
assent to a contract or to sign on the dotted line in a prescribed or standard from
or to accept a set of rules as part of the contract, however unfair, unreasonable
and unconscionable a cause in that contract or form or rules may be. This
principle, however, will not apply where the bargaining power of the contracting
parties is equal or almost equal. This principle may not apply where both parties
are businessmen and the contract is a commercial transaction. In today's
complex world of giant corporations with their vast infra-structural organizations
and with the State through its instrumentalities and agencies entering into
almost every branch of industry and commerce, there can be myriad situations
which result in unfair and unreasonable bargains between parties possessing
wholly disproportionate and unequal bargaining power. These cases can neither
be enumerated nor fully illustrated. The court must judge each case on its own
facts and circumstances."
Thus courts will not enforce and will, strike down an unfair and unreasonable
contact or an unfair and unreasonable clause in a contract, entered into between
parties who are not equal in bargaining power. This principle, however, will not
apply where the bargaining power of the contracting parties is equal or almost
equal or where both parties are businessmen and the contract is a commercial
transaction.
Further cases where the terms of the contract are unreasonable as to the nature
of the contract courts have struck them out following the principles as laid down
under Contract Act or under common law. In M Siddalingappa v. T Nataraj ,
where applicability of the clause printed on the back of the laundry receipt which
read as:
"All articles for cleaning and dyeing are accepted on conditions that the company
shall incur no liability in respect of any damage which may occur and for delay or
in the event of loss for which the company may accept the liability which shall in
no case exceed eight times the cleaning charges." was in question Court held
that petitioner is, undoubtedly, a bailee in respect of the sarees given to him and
there is a minimum duty of care imposed upon all bailees under Section 151 of
the Contract Act which they cannot contract themselves out of it is not subject to
any contract to the contrary between the parties. Under that section, in all cases
of bailment, the bailee is bound to take as much care of the goods bailed to him
as a man of ordinary prudence would in similar circumstances take of his own
goods of the same bulk, quality and value as the goods bailed. Once that
minimum duty is imposed upon the bailee by the law, a breach of that duty
undoubtedly clothes the party affected with the right to recover damages
commensurate with the consequences".

- UNCONSCIONABLE NATURE OF THE CONTRACT

Basic test of "unconscionability" of contract is whether under circumstances

existing at time of making of contract and in light of general commercial
background and commercial needs of particular trade or case, clauses involved
are so one-sided as to oppress or unfairly surprise party.
Precursors of Unconscionability: Courts of equity did not share the reluctance of
common law courts to police bargains for substantive unfairness. Though mere
"inadequacy of consideration" alone was not a ground for withholding equitable
relief, a contract that was "inequitable" or "unconscionable" one that was so
unfair as to "shock the conscience of the court" would not be enforced in equity.
In Ferro Alloys Corpn. Ltd. v. A.P. State Electricity Board and
another, Supreme Court of India refused to interfere in adhesion contract on the
ground that it was not unconscionable so as to "shock the conscience of the
court"

- INEQUALITY OF BARGAINING POWERS

Courts have strictly ruled against those standard contracts which exploit the
position of an employee vis a vis the employer. They have repeatedly held that in
case of employment contract between the employer and employee, there is a
universal tendency on the part of the employer to insert those terms, which are
favorable to him in a printed and standard form, leaving no real meaningful
choice to the employee except to give assent to all such terms. In such a
situation the parties cannot said to be in even position possessing equal
bargaining power. Where the parties are put on unequal terms the standard form
of contract cannot be said to be the subject-matter of negotiation between the
parties and the same is said to have been dictated by the party whose higher
bargaining power enable him to do so.
In Superintendence Company of India (P) Ltd v. Sh. Krishan Murgai,
Hon'ble Supreme Court held that
"It is well settled that employees covenants should be carefully scrutinized
because there is inequality of bargaining power between the parties; indeed no
bargaining power may occur because the employee is presented with a standard
form of contract to accepts or reject. At the time of the agreement, the employee
may have given little thought to the restriction because of his eagerness for a
job; such contracts "tempt improvident persons, for the sake of present gain, to
deprive themselves of the power to make future acquisitions, and expose them
to imposition and oppression."
Such a protection is also given against the action of the state where the Courts
have ruled that that the action of the State in contractual field also must be fair
and reasonable. The requirement of Article 14 of the Constitution should extend
even in the sphere of contractual matters for regulating the conduct of the State
activity. Applicability of Article 14 to all executive actions of the State being
settled, the State cannot cast of its personality and exercise unbridled power
unfettered by the requirements of Article 14 in the sphere of contractual matters
and claim to be governed therein only by private law principles applicable to
private individuals whose rights flow only from the terms of the contract without
anything more. It is not as if the requirements of Article 14 and contractual
obligations are alien concepts, which cannot co-exist. Therefore, total exclusion

of Article 14 non-arbitrariness which is basic to rule of law - from State actions in

contractual field is not justified. This is more so when the modern trend is also to
examine the unreasonableness of a term in such contacts where the bargaining
power is unequal so that these are not negotiated contracts but standard form of
contracts between unequals. Bringing the State activity in contractual matters
also within the purview of judicial review is inevitable .

DEVICES OF PROTECTION

In the Contract of Adhesion, the individual has no choice but to accept; he

doesnt negotiate, but merely adheres. Therefore individual deserves to be
protected against the possibility of exploitation inherent in such contracts. Some
of the modes of protection which has been developed by the courts are as
follows;

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. Stevenson3, the plaintiff bought a steamer ticket on the face of
which was these words only: Dublin to Whitehaven; on the back were printed
certain conditions one of which excluded the liability of the company for loss,
injury or delay to the passenger or his luggage. The plaintiff did not see the back
of the ticket, nor was there any indication on the face about the conditions on
the back. The plaintiffs luggage was lost in the shipwreck caused by the fault of
the companys servants. This was laid down by the House of Lords that the
plaintiff is entitled to recover the loss which he suffered from the company in
spite of the exemption clauses.
In Parker v. South Eastern Rail Company, the plaintiff deposited his bag at the
cloakroom at a railway station and received a ticket. On the face of the ticket it
was printed: See back; and on the back there was a notice the company will
not be responsible for any package exceeding the value of 10. A notice to the
same effect was also hung up in the cloakroom. The plaintiffs bag was lost and
he claimed the full value of his bag which was more than 10. The company
relied upon the exemption clause. The plaintiff contended that 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 of the money he paid.
In M/s Prakash Road Lines (P) Ltd v. HMT Bearing Ltd5, it has been held that the
carrier is bound to deliver the goods consigned at the appointed destination or
else he will be liable to pay compensation for the same. Merely printing on the
lorry receipt that the goods are transported at the owners risk will not absolve
the transporter from his duty unless it is proved that such terms were brought to
the notice of the plaintiff. Mere printing on the lorry receipt cannot be deemed to
be the term of contract unless the plaintiffs knowledge and the consent about
the same.

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., plaintiff and her husband hired a room in the
defendants hotel for one weeks boarding and lodging in advance. When they
went to occupy the room they found a notice displayed there stating 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, plaintiffs 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.

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 THE CONTRACT
Every contract contains a core of fundamental obligation which must be
performed. If one party fails to perform the duty he will be guilty of breach of
contract wheather or not any exempting clause has been inserted which purports
to protect him.
In Alexander v. Railway Executive, the plaintiff deposited his luggage in
defendants 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.
Plaintiffs 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.
In Shivraj Vasant Bhagwat v. Shevanta D Indulkar, overloading an insured
vehicle was a mere irregularity and not a fundamental breach so as to enable the
insurer to get rid of his liability.

RULE OF CONSTRUCTION
Rule of Construction is a rule used for interpreting legal instruments, especially
contracts and statutes. Very few states have codified the rules of construction.
Most states treat the rules as mere customs not having the force of law.
Contra proferentem and ejusdem generic are two examples of rules of
construction. According to Contra proferentem rule, if a clause in a contract
appears to be ambiguous, it should be interpreted against the interests of the

person who insisted that the clause be included. Likewise ejusdem generis rule
states that where a law lists specific classes of persons or things and then refers
to them in general, the general statements only apply to the same kind of
persons or things specifically listed.
HARBUTTS PLASTICINE LTD -V- WAYNE TANK AND PUMP CO LTD
The plaintiffs factory in an old mill, burned down because Wayne Tank had
installed a pipeline made of unsuitable and dangerous plastic material and
wrapped in heating tape attached to a useless thermostat. It had been switched
on and the plant left unattended. A new factory had to be built. What were the
damages to be paid?
Held: The plaintiffs had no choice if they were to continue their business of
making plasticine. They were not allowed to rebuild the old mill, so they had to
put up a new factory. The defendants said that damages should be limited to the
difference in the value of the old mill before and after the fire and that the
plaintiffs should not be allowed the cost of replacing it with a new building. This
argument was rejected.
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 M Siddalingappa v. T Nataraj, where a
condition that only eight per cent of the cost of garment would be payable in
case of loss was held to be unreasonable. In RS Deebo v. MV Hindlekar, laundry
receipt contained printed condition restricting liability for loss or damage to
times laundry charges or half the value of the garment, whichever was less. The
condition was held to be unreasonable.
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 it12. 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 defendants 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.

The effect of exemption clauses in attempting to

exclude contractual liability
The exemption clauses are provided to exclude or limit the liabilities of the
parties within a contract. Therefore, exemption clauses are classified into two
main forms: Exclusion clause and limitation clause. Sometimes, exemption
clauses become very effective to allocate the risk between the parties. The
parties who use the exclusion clauses in the contracts often gain the strong
positions.
Under common law, an exemption clause can be incorporated into the term of
contract by the following ways:

* Notice by display
* Notice in document
* Notice by signature
* Notice by course of dealings
For example: If the owner of hotel displays a notice board which states that he
will not liable to pay for loss or damage of personal belongings of the customers.
In that circumstance, he does not have to pay for that.
So, if an exemption clause is clearly incorporated by either the four above ways,
a party who mentioned that can rely on it. But under the Unfair Contract Term
Act 1977 (UCTA 1977), (apply to business' liabilities), even an exclusion clause is
clearly incorporated in the contract, it is invalid for causing death or personal
injury (section 2.1). But relating with loss or damage to property, it can be
considered, subjected to reasonableness test (section 2.2).

ENGLISH & INDIAN VIEW

In England, Unfair Contract Terms Act, 1977 severely limits the rights of the
contracting parties to exclude or limit their liability through exemption clauses in
their agreements. Liability for death or personal injury cannot be excluded or
restricted through a term in the contract or notice. Moreover the manufacturer or
the distributer cannot exclude their liability arising out of defective goods or for
their negligence, as regards goods supplied for private use or consumption.
Unlike England, 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, 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.

TORTIOUS ACT

In civil law, a tort is an act that brings harm to someone one that infringes on
the rights of others. The adjective tortious therefore describes something
related to a tort. Tortious interference occurs when you intentionally harm
someone's business.

Tortious liability
Law of tort is a part of English common law. A tort is an act that injures someone
in some way, and for which the injured person may sue the wrongdoer for
damages. A negligent or intentional civil wrong is not arising out of a contract or
statute. These include "intentional torts" such as battery or defamation, and torts
for negligence.
When there is a duty of care and a breach of that duty care causes a damage
that makes the tort of negligence.
The definition of tortious liability is as:
Tortious liability arises from the breach of a duty primarily fixed by law; this duty
is towards persons generally and its breach is redressible by an action for
unliquidated damages.
W. V. H. Rogers, Winfield & Jolowicz on Tort (16th edn, Sweet and
Maxwell, 2002)
According to the definition of a contract as discussion above, contract requires
agreement between two or more parties, but in tort, it is not necessary of
agreement between two or more parties.
The main difference between tortious liability and contractual liability is the
nature of duty. The duties in the torts are fixed by the law where the duties in the
contracts are fixed by the contractual parties. Therefore, there is more structured
and stricter in tortious liability than in contractual liability.
Even where an exemption clause is exhaustive enough to exclude all kinds of
liability under the contract, it may not exclude the liability of tort. In White v.
John Warwick & Co Ltd, plaintiff hired a cycle from the defendant. The
defendant agreed to maintain the cycle in working condition and a clause in the
agreement provided: nothing in this agreement shall render the owners liable
for any personal injuries while plaintiff was riding the cycle saddle titled
forward and he was thrown and injured.
It was held that although the clause exempted the defendants from their liability
of contract, it did not exempt from liability in negligence.