Contract law is a very important area of law as contracts underpin most
things we do. The aim of the research is to investigate influence of standard
forms of contract or conditions of contract on the world and the international
transactions. Unwittingly the drafting of newer forms to mitigate future
disagreement also presents evidence that the stakeholders adhere and subscribe
to the philosophy and theoretical idealisations of contract law, which promises
compliance, thus resulting in predetermined and predictable act or action.
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. It's 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.
A standard form contract is a contract, which does not allow for negotiation,
i.e., take it or leave it. It is often a contract that is entered into between
unequal bargaining partners. It's 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. Sometimes it is referred to an adhesion contract or boilerplate
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.
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.
Standard forms are popular because they are used to facilitate common business
transactions in an efficient cost-effective manner. These contracts are usually
many pages long with details outlining the terms and conditions. Standard
contracts are frequently used in situations where vendors and consumers
routinely participate in legally and technically complex transactions. While
there are many benefits to standard forms, there are issues and risks with them
One of these issues includes the "battle of forms" when both parties use their
own form for the transaction. Furthermore, these contracts are so detailed and
long, consumers often sign the agreement without reading the fine prints.
Also, the terms in standard form contracts often benefit the party with the most
bargaining power. This type of uneven purchasing power exists between businesses
and consumers. When there are inequities in the ability to negotiate, it results
in an agreement that works economically against the consumer. In these cases,
the courts advocate for the consumer. If the contract does not genuinely lookout
for the best interests of all parties, the courts will intervene.
Contract is defined as a bargain which parties intend to be legally binding, or
which they would have meant to be so, had they stopped to think about it.
Contracts are part of everyday life. We enter into a contract when we buy
something at a shop, catch the train, go to the movies or go to work. In a
health setting, there are many contracts, such as consultations with clients,
contracts to rent space, employment contracts and insurance.
For example, clients enter into a contract with a massage therapy clinic when
they book in for a massage. By definition, they are considered to be consumers
and so consumer law also applies to them. To prove a contract exists we must
prove three things: Agreement, Consideration and Intention to enter legal
relations. Standard form contracts are intended to make common agreements
between suppliers and consumers more efficient and less costly.
You can find some of these forms (for example, lease agreements, construction
contracts, and divorce papers) either at your local office supply store or
online. Non-negotiated pre-written agreements are called standard form
contracts. The party with the most bargaining power controls the terms of the
agreement. These terms are usually non-negotiable by the customer or end-user.
The goal is to use standard contracts for anyone conducting similar business
They are critical to high volume distribution of many goods and services.
Standard forms are very common. Some examples include rental property,
employment, utility, and cell phone service agreements. These contracts can
reduce the cost to do business since you don't have the cost involved in
negotiating contract details. Still, consumers are at a disadvantage with these
contracts since there is an inequity in the bargaining power.
This is because these contracts are usually written by corporate lawyers without
the customer or the business being involved. This situation carries a high
potential of giving the vendor an unfair advantage because it highlights the
attractive portions of the contract and hides the "gotchas" in the fine print.
The unfair contract terms law (UCTL) was enacted on March 17, 2015. It gives the
consumer a way to complain to the District Court about seemingly unfair contract
The increasing use of standard form contracts is a subject which concerns
everybody much more than is commonly realized and one to which lawyers have paid
only casual attention. Neither the expression "standard form contract nor any
variant of it has acquired the status of a term of art or, indeed, any
recognized and distinctive meaning: it is, therefore, as well to define what is
meant by the expression in this article.
The words "standard form contract" will be used to include every contract,
whether simple or under seal and whether contained in one or more documents, one
of the parties to which habitually makes contracts of the same type in a
particular form and will allow little, if any, variation from that form.
In all these transactions the bargaining power of the parties is unequal: on the
one side there is the ordinary individual and on the other a monopoly or
powerful organization with desirable goods or services to supply. The choice
between not making a contract or making it on the only terms available is no
choice at all and docile submission to the standard form, meek signature "on the
dotted line," is the general rule.
There is much debate on a theoretical level whether, and to what extent, courts
should enforce standard form contracts. On one hand, they undeniably fulfil an
important role of promoting economic efficiency. Standard form contracting
reduces transaction costs substantially by precluding the need for buyers and
sellers of goods and services to negotiate the many details of sale contract
each time the product is sold.
On the other hand, there is the potential for-inefficient and even unjust, terms
to be accepted by signatories to these contracts. Such terms might be seen as
unjust if they allow the seller to avoid all liability or unilaterally modify
terms or terminate the contract. These terms often come in the form of, but are
not limited to, forum selection clauses and mandatory arbitration clauses, which
can limit or foreclose a party's access to the courts; and also liquidated
damages clauses, which set a limit to the amount that can be recovered or
require a party to pay a specific amount.
They might be inefficient if they place the risk of a negative outcome, such as
defective manufacturing, on the buyer who is not in the best position to take
precautions. Standard Form Contracts are agreements that employ standardized,
non-negotiated provisions, usually in preprinted forms. These are sometimes
referred to as "boilerplate contracts", "contracts of adhesion," or "take it or
leave it" contracts. The terms, often portrayed in fine print, are drafted by or
on behalf of one party to the transaction. The party with superior bargaining
power who routinely engages in such transactions.
With few exceptions, the terms are not negotiable by the consumer. Standard
form, business-to-consumer contracts fulfill an important efficiency role in the
mass distribution of goods and services. These contracts have the potential to
reduce transaction costs by eliminating the need to negotiate the many details
of a contract for each instance a product is sold or a service is used. However,
these contracts also have the ability to trick or abuse consumers because of the
unequal bargaining power between the parties.
For example, where a standard form contract is entered into between an ordinary
consumer and the salesperson of a multinational corporation, the consumer
typically is in no position to negotiate the standard terms; indeed, the
company's representative often does not have the authority to alter the terms,
even if either side to the transaction were capable of understanding.These
contracts are typically drafted by corporate lawyers far away from the
underlying consumer and vendor transaction.
The danger of accepting unfair or unconscionable terms is greatest where these
artful drafters of such contract's present consumers with attractive terms on
the visible or "shopped" terms of most interest to consumers, such as price and
quality, but then slip one-sided terms benefiting bestseller into the less
visible, fine print clauses least likely to be read or understood by consumers.
In many cases, the consumer may not even see these contracts until the
transaction has occurred. In some cases, the seller knows and takes advantage of
the knowledge that consumers will not read or make decisions on these unfair
Advantages of standard form contracts include:
There is no need to produce (and incur the legal costs of producing) ad-hoc
contracts for every project.
Reasons why terms and conditions are accepted include:
- There is a degree of certainty regarding the interpretation of the clauses of the contract (particularly those standard forms that have been in existence for some time and have been tested in the courts).
- The parties know (with reasonable certainty) the consequences of various possible courses of action. Another important benefit of using standard forms is that they can help to reduce the potential for disputes in a number of ways.
- The fact that standard forms of contract have been in wide use for a number of years means that there is an existing body of case law in relation to the main sets of standard forms which can assist in resolving disputes to the interpretation of particular clauses.
- The standard forms are likely to avoid many disputes which may arise on a project because of the fact that the established standard forms have been revised over time.
- Insurers are generally more relaxed when asked to provide insurance for projects which are to be carried out under a standard form and this can result in lower premiums.
- Standard form contracts are rarely read 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.
- Access to the full terms may be difficult or impossible before
acceptance Often the document being signed is not the full contract; the
purchaser is told that the rest of the terms are in another location. This
reduces the likelihood of the terms being read and in some situations, such
as software license agreements, can only be read after they have been
notionally accepted by purchasing the good and opening the box. These
contracts are typically not enforced, since common law dictates that all
terms of a contract must be disclosed before the contract is executed.
- Boilerplate terms are not salient the most important terms to purchasers
of a good are generally the price and the quality, which are generally
understood before the contract of adhesion is signed. Terms relating to
events which have very small probabilities of occurring or which refer to
particular statutes or legal rules do not seem important to the purchaser.
This further lowers the chance of such terms being read and also means they
are likely to be ignored even if they are read.
- There may be social pressure to sign Standard form contracts are signed
at a point when the main details of the transaction have either been
negotiated or explained. Social pressure to conclude the bargain at that
point may come from a number of sources. The salesperson may imply that the
purchaser is being unreasonable if they read or question the terms, saying
that they are "just something the lawyers want us to do" or that they are
wasting their time reading them. If the purchaser is at the front of a queue
(for example at an airport car rental desk) there is additional pressure to
Finally, if there has been negotiation over price or particular details, then
concessions given by the salesperson may be seen as a gift which socially
obliges the purchaser to respond by being co-operative and concluding the
transaction. Standard form contracts may exploit unequal power relations If the
good which is being sold using a contract of adhesion is one which is essential
or very important for the purchaser to buy (such as a rental property or a
needed medical item) then the purchaser might feel they have no choice but to
accept the terms.
This problem may be mitigated if there are many suppliers of the good who can
potentially offer different terms. Some contend that in a competitive market,
consumers have the ability to shop around for the supplier who offers them the
most favorable terms and are consequently able to avoid injustice
However, in the case of credit cards (and other oligopolies), for example, the
consumer while having the ability to shop around may still have access to only
form contracts with like terms and no opportunity for negotiation. Also, as
noted, many people do not read or understand the terms so there might be very
little incentive for a firm to offer favorable conditions as they would gain
only a small amount of business from doing so.
Even if this is the case, it is argued by some that only a small percentage of
buyers need to actively read standard form contracts for it to be worthwhile for
firms to offer better terms if that group is able to influence a larger number
of people by affecting the firm's reputation.
Another factor which might mitigate the effects of competition on the content of
contracts of adhesion is that, in practice, standard form contracts are usually
drafted by lawyers instructed to construct them so as to minimize the firm's
liability, not necessarily to implement managers' competitive decisions.
Sometimes the contracts are written by an industry body and distributed to firms
in that industry, increasing homogeneity of the contracts and reducing
consumer's ability to shop around.
Common Law Status
As a general rule, the common law treats standard form contracts like any other
contract. Signature or some other objective manifestation of intent to be
legally bound will bind the signor to the contract whether or not they read or
understood the terms. The reality of standard form contracting, however, means
that many common law jurisdictions have developed special rules with respect to
them. In general, in the event of an ambiguity, the courts will interpret
standard form contracts
contra proferentem against the party that drafted the contract, as that party
(randomly that party) had the ability to draft the contract to remove ambiguity.
The following are some potential solutions or partial solutions to begin to
address some of the problems with the use of fine print standard form contracts.
Contracts should be transparent and accessible. This means, at bare minimum,
that standard form contracts must be disclosed prior to the consumer
transaction; if a consumer will not read it, perhaps a third party, such as the
press or a consumer advocacy organization, will read it for its fairness and be
able to compare it to other sellers 'contracts in the industry.
Disclosures should be clear and simple, not pages upon pages of illegible and
incomprehensible fine print, they must be easy to read and understand,
businesses should endeavor to do this themselves, and if they don't, legislators
and regulators at the state or federal level should require it. The public and
private sectors should test these disclosures in real life situations to make
sure consumers can understand the terms in a timely manner before the point of
sale; Consumers need to pay attention to the contents of contracts, to prevent
against fraud and deception, and to demand accessible, fair contracts.
Regulators responsible for regulating industries in which standard form
business-to-consumer contracts are used must require copies of the contracts
used in the industries they regulate to be submitted to the government agencies
and be easily obtainable from government databases, if not from the industries
themselves. Regulators must do more to remove unfair and deceptive practices in
business-to-consumer standard form contracts. More disclosure alone of bad
practices is not a sufficient answer to the problem, though better disclosure
may be a step interdenominational harmful provisions and practices.
Certain provisions should be banned from contracts or not enforced by the
courts, including the seller's unilateral modification of terms, forced
arbitration and waiver of the right to a jury trial; a fair contract symbol
could be used to distinguish contracts devoid of these provisions at a glance,
such as other symbols of good form, societal benefit or fair practices. The
private and public sectors need to teach consumers how to understand the
importance of fair contract terms, and to pursue empirical research about the
effect of terms and disclosures.
The media needs to report about businesses that are doing the right thing by
consumers by making their contracts accessible and fair. Civil law systems tend
to treat the issue with sovereigntist approaches such as in the EU and UK with
the Unfair Terms in Consumer Contracts Directive of 1993 and then 1999, which
were superseded by the Consumer Rights Act of 2015. These directives include a
list of non-exhaustive terms courts will likely consider unfair in cases of
A few of these terms address some of the procedural issues, such as one that
states that terms must be in "plain intelligible language" and that drafters
must "provide copies of standard contracts" as well as "information about their
use" as well as not allowing a contract to be amended or modified unilaterally
without sufficient reason. Most specifically, under this directive, terms in
contracts cannot be "irrevocably binding [to] the consumer" if they "had no real
opportunity of becoming acquainted [with them] before the conclusion of the
contract". These directives are worthwhile, but still ambiguous in a digital
setting where these contracts are ubiquitous.
In the US more recently, similar standards were enacted, such as the 2017 Bureau
of Consumer Financial Protection's regulation that prohibits the use of
mandatory arbitration in financial service contracts - as they tend to prevent
class action lawsuits for consumers. These efforts might be viewed as attempts
to solve some of the issues that are uniquely present for SFCs in a digital
environment and for procedural unconscionability - awareness, agreement, and
understanding that all contribute to a 'meeting of the minds' amongst
There is surprisingly little scrutiny of standardized contracts, either under
antitrust law or contract law. Antitrust defers to efficiency justifications for
standardization with little effort to determine whether individual terms are
desirable. And contract law appears not to have attributed any significance to
standardization, even though it exacerbates at least the procedural concerns
that are part of unconscionability analysis.
It is even possible, though there is no particular evidence of this, that each
body of law gives less scrutiny to standardized contracts because they are
subject to control by the other. Of course, it is also possible that very few
standardized contracts present problems, either of fairness or competitiveness.
But questions about the contracts discussed in this Article suggest that there
are more such problems than have been recognized.
Many standardized contracts are created under circumstances that put control of
the process in the hands of parties on one side of the contract. Although that
need not result in an unbalanced contract, a significant amount of commentary
points to imbalance in these contracts and suggests that there is reason for
greater scrutiny. How that scrutiny should balance competition and contract
concerns is not entirely clear, but this Article has provided some suggestions.
Each body of law should retain its traditional focus, which in antitrust law is
primarily horizontal competition and in contract law is vertical consent and
agreement between the parties. But contract law could look to antitrust law
approaches and market conditions to help determine whether true consent to a
standardized contract is present. And antitrust law could look to contract law's
assessment of the fairness of terms to help draw conclusions regarding both the
manner in which standardization occurred and possible anti-competitive
agreements. In these ways, the relevance of both bodies of law can aid, rather
than hinder, the review of standardized contracts.
Written By: Sruthi Rajendran
, BBA LLB (Hons), Reva University,