|
Introduction
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.
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) does require is that the acceptor must have a real
opportunity to review the proposal and decide on whether to accept
it or not.
Lord Denning MR pointed out in
Thornton v. Shoe Lane Parking Ltd.
-
He cannot alter those terms or even discuss them; they are
therefore him to take or leave. He therefore does not undertake
the laborious and profitless task of discovering what the terms
are.
The battle against the abuse has fallen to the courts. The courts
have found it very difficult to come to the rescue of the weaker
party particularly where he has signed the document. In such cases
courts have been constrained to hold that he will be bound by the
document even if he never acquainted himself with its terms.
The first and primal argument in favour of the enforcement of
standard form contracts is that a standard form contract must be
respected and honored by the parties to it, just as any other
contract. To refuse to do so, would be to introduce an element of
uncertainty in mercantile relations, which is to be avoided at all
costs. One of the earliest decisions requiring strict enforcement
of a standard form contract was that of the Court of Exchequer in
1860, in
Lewis v. Great Western Rly.
In this case, the Court of Exchequer rejected a plea of the
plaintiff that a printed form in a contract was not binding on him
since he could not be expected to have read so lengthy a document,
which was presented to him in printed form. Speaking for the
Court, Baron Bramwell said:
A person who signs a paper like this must know that he signs it
for some purpose, and when he gives it to the Company must
understand that it is to regulate the rights which it explains. I
do not say that there may not be cases where a person may sign a
paper, and yet be at liberty to say, 'I did not mean to be bound
by this', as if the party signing were blind, and he was not
informed of its contents. But where the party does not pretend
that he was deceived, he should never be allowed to set up such a
defence."
The strict enforcement theory is not a satisfactory means of
resolving the issue, as it requires for its applicability, a valid
contract. The Madras High Court has held that printed forms are
not directly enforceable in view of the absence of consensus as to
the terms thereof. There are many other examples of courts
refusing to apply this strict enforcement theory.
Under our legal system, Section 23 of the Contract Act deals with
the issue of when contracts may be struck down. The third clause
of Section 23 deals with agreements, which are immoral or opposed
to public policy. The Supreme Court in
Central Inland Water Transport Corpn. Ltd. v. Brojo Nath Ganguly
held that an unfair or an unreasonable contract entered into
between parties of unequal bargaining power was void as
unconscionable, under Section 23 of the Act.
Thus Indian courts have, since then, shown a marked willingness to
interfere with printed form contracts where there is evidence of
unequal bargaining power. It has been held that the courts would
relieve the weaker party to a contract from unconscionable,
oppressive, unfair, unjust and unconstitutional obligations in a
standard form contract. The Supreme Court has also held that
standard form contracts drawn up even by the Government must be
fair, and that these contracts are open to judicial review on
grounds of unreasonableness or unfairness. The Supreme Court has
upheld a plea that a printed form contract was void on grounds of
coercion, where the parties had unequal bargaining power. A
printed form in a dry-cleaning contract, exempting the dry-cleaner
from any liability in the event of loss or damage to the clothes
concerned has been held to be contrary to public policy and
therefore void. The Bombay High Court has followed this view of
the Madras High Court.
The National Consumer Disputes Redressal Commission after
referring to copious case- law, refused to enforce an onerous
clause in a printed form contract and accordingly relieved a
consumer from the terms found thereon.
The doctrine of unconscionability doctrine steps in and strikes
out any contracts, which the court found to be unconscionable, as
understood by the judicial decisions of that country. The doctrine
gives the courts a very powerful tool with which to look into
contracts and adjudge their validity on the basis of the ability
of parties to consent on the terms thereof.
However, in India at least, the strength of this doctrine is its
very drawback. Founded as it is, in the bedrock of the Indian
Contract Act, its flexibility to adapt to circumstances not
envisaged in Section 23 of the Act is very limited. The Supreme
Court in
Central Inland Water Transport Corpn. case,
has held that an answer to an unconscionable contract can be found
only in Section 23 of the Act and accordingly refused to apply
this doctrine where the parties were not in unequal bargaining
positions. This view of the Supreme Court has been refined in a
later decision wherein it has been laid down that standard form
contracts which are settled over the years and widely adopted by
parties whose bargaining power is fairly matched are presumed to
be fair and reasonable.
Judged by the Central Inland Water Transport Corpn. standard, most
consumer contracts would escape the applicability of this
doctrine. However, the modification provided by
Green Rubber case
provides a more sound footing for the unconscionability doctrine,
making standard form contracts binding where they have
additionally derived legitimacy through the force of trade usages.
However, a study of the authorities would reveal that it is
Central Inland Water Transport Corpn. case
which has been repeatedly followed by successive Benches of the
Supreme Court and not
Green Rubber case.
The Notice Theory: The "notice
theory"
is a principle evolved by common law jurisdictions as an exception
to the strict enforcement theory. This principle states that a
clause in a printed form is not binding unless the attention of
the other party is drawn thereto, and such clause is brought to
his or her notice.
In one case, the Calcutta High Court held to be binding, the
conditions of carriage applicable to an air ticket, which were
printed in small font, on the inside of the air ticket. The High
Court was of the view that sufficient steps were taken by the
airline company to bring these conditions of carriage to the
notice of the customers Similarly, the Madras High Court held to
be binding, certain conditions limiting the liability of a
carrier, which were printed on the consignment note. The High
Court was of the view that these were the conditions that the
customer could reasonably expect to be bound by in the course of
such transactions.
The question as to what constitutes sufficient notice of a
particular clause varies from case to case. In cases of mass
issuance of a printed form, such as in the case of a ticket, the
consumer may notice the clause but still feel unable to negotiate
the clause. Thus, there are cases where a party is either aware
of, or is deemed to be aware (by constructive notice) of a clause,
and yet, the contract would still not truly represent the terms of
the understanding between the parties. The notice theory fails to
address this problem.
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, notice should be
given, notice should be contemporaneous with contract, theory of
fundamental breach, contra proferentem interpretation of the
contract, liability in tort, exemption clauses and third parties
etc.
These modes, along with other Acts help the courts in dealing with
the problem of Standard Form Contract.
|
More
Articles:
The
author can be reached at: vidhan159@legalserviceindia.com /
