NATIONAL LAW INSTITUTE UNIVERSITY, BHOPAL

SUBJECT: LAW OF CONTRACT

TOPIC:
UNFAIR TERMS IN CONTRACT AND REMEDIES

Submitted by: Submitted to:

Himanshu Ahirwar Ms. Neha Sharma

(2018 BA.LLB. 88)
ACKNOWLEDGEMENT

The final draft of Project work in Contract Law has been given shape and success by the
effort of a lot of people who has contributed in it completion. We express our humble
thanks to Ms. Neha Sharma (Associate Proff. Contract Law), my subject teacher , without her
teachings and insights this final draft could not have been fructified.

I also extend my heartiest thanks to my seniors for their insights into the concerned
final draft of the project and helping with me with everything I asked them.
RESEARCH METHODOLOGY

Research methodology in this research paper is Doctrinal and based on various Articles,
Research Papers, Books, report of some law commissions, and online materials.

OBJECTIVES

In this research paper , main objective is about to find that in Standard form form of Contract ,
what type of remedies are available to weaker party with comparison to some countries and what
is the thinking of Judicial Bodies about these contract. In India, there is no specific legislation or
law to deal with such type of Contract but Courts in India deal with these matters in some other
way. So in which manner, Courts in India deal with these matters has been found in this paper.
TABLE OF CONTENTS

1. Introduction of unfair terms in Contract

2. Nature of Standard Form of Contract
3. Problems with this type of Contract
4. Remedies available to the weaker parties
5. Position of India with compare to the some other Common Law countries
6. Conclusion
INTRODUCTION AND NATURE OF STANDARD FORM OF CONTRACT

In present society, there are several big Business houses, Mega companies, and corporate such as
Banks, Insurance companies exist. They have a very important place in the daily life of every
individual.

These Corporations and Companies enter into many contracts and agreements with other
Corporations and Companies as well as Individuals. They enter into Contract with Individuals
more or less on the same basis like Banks with financial safety of Individual, Insurance
companies with insurance purpose. This is very difficult for them to enter into a separate contract
with each individual. So for this purpose they have contract withthe same terms, conditions,
clauses which are called Standardized printed form of contract. Thistype of contract has blank
spaces that are filled by another party and when they are filled , formal contract comes into
existence organisation and individual.

The terms, conditions, and clauses of the contract are added by the organisation for their benefit
and individual has no part to decide these terms and conditions. these contracts are called
standard form of contract. Standard form of contract is a form of pre-printed form of contract
that contains set clauses, terms, conditions for everyone.

Standard form of contract is drafted by one party and signed by another party with some
modification or change to meet the specific situation. Standard form of contract, though, has the
advantage of saving time and energy because These types of contract can be used more than one
time or many times with several individuals and at less cost, but they have no place for
negotiation and based upon ‘take it or leave it’ basis. As Kessler puts it 1, “in so far as the
reduction of costs of production and distribution, thus achieved is reflected in reduced prices,
society as a whole ultimately benefits from the use of standard contracts”.

In present time, due to difficult and complex nature, an organisation may have to enter into
contracts with several individuals and for the sake of convenience and for money saving ,
standard form of contract come into the mainstream of daily work of organisations. For example,
banks may issue same terms and conditions for every accountholders for taking advantages of
banking system, insurance, organisation may form a draft for an insurance policy with same

1
Columbia law review 629 (1943) : contract of adhesion – some thoughts about freedom of contract
clauses, conditions, and make contracts with many insurers on the same conditions, Railway may
issue same terms in every ticket and passengers have to follow them if they want to travel on the
train, drycleaners, mobile operators, and others may issue such type of contract for the
consumers and they have to follow such terms and conditions if they want to avail the advantage
of their services.

So clearly these contracts are drafted by one party and other parties have to accept them without
any negotiation on the basis of ‘take it or leave it’. These types of contracts became part of our
daily life because of their importance and for the convenience of the both parties.

PROBLEMS ARISING FROM THESE TYPE OF CONTRACT

The basic theory of the Contract is that an agreement that is concluded between two parties
through discussion and negotiation. But the standard form of contract is the opposite of the ideal
meaning of the contract. These contracts are the instrument of enterprises and companies and
drafted with many terms, clauses by taking expert advice in the interest ofthemselves. These
contracts contain terms, clauses that exclude enterprises from any type of liability.

The main terms are printed in large terms and exceptional clauses and terms are printed in short
print. Lord Reid’s language in Suisse Atlantiquel2, “the consumer has no time to read (standard
form clauses), and if he read them, he would probably not understand them, and if he
understands them and object any of them, he would generally be told he could take it or leave it.”
Clauses of these contracts are also drafted in legal or very professional language so it become
difficult for individual to understand them and also these terms and clauses are lengthy and
tedious. So individual finds no advantage in reading these clauses because it is a waste of time
and energy at the time of entering into a contract and also he/she has no other choice. And also it
is very common that salesperson ask individual to enter into a contract by signing the contract
without reading the terms. And the individual/consumer is often under pressure to conclude the

2
Suisse AtlantiqueSocieted’Armament SA v NV RotterdamscheKolenCentrale [1967] 1 AC.
contract quickly without reading terms and clauses like in a case of an individual is at the front of
the queue or has been given some extra concessions.

In these contracts, a single will is predominant and there is no room for negotiation between both
the parties because the basis of these contracts is ‘take it or leave it.’ Individual can’t bargain for
better terms and conditions for his/her interest because in market similar enterprises produce a
contract with similar clauses and terms so individual has to accept it or leave it. In these contracts
individual have no freedom of contract because he/she can’t negotiate with enterprise and has to
accept any terms and conditions introduced by the enterprise. This gives way to the exploitation
of the weaker party by imposing harsh terms that exclude enterprise from all liability.

These contracts are also known as a contract that is entered between the parties of unequal
bargaining power. Because in these contracts, terms and clauses are drafted by one party and
another party only has to sign on the contract without any negotiation. Generally the party which
has greater bargaining power draft the contract for interest of itself and tries to exclude its
liability without trying to care about the rights of another party with weak bargaining power.

“These contracts are also have an unconscionable nature which means the absence of any
meaningful option or choice in the part of one party who has weaker bargaining power , together
with terms and clauses that are so oppressive and unfair that no reasonable or honest person will
make them or accept them.”3

Here some cases are also given in which Indian Judiciary tackled with disputes arising from
these contracts and result were not satisfactory and not in interest of the weaker party.

In Indian Airlines Corporation v JothajiManiram4, the dispute was about Commercial liability
under Sec.151 and 152 of Indian Contract Act, 1872. Respondent was a merchant and consigned
certain items to the Petitioners for delivery. Consignment note had clause that for any loss arising
from the carriage, petitioners was not liable and extent of liability limited to 300 rupees. Item of
respondent was misplaced and he claimed compensation. And the Court held that any clause that
limited liability of the Petitioner or carrier is valid and enforceable.

3
HimaniDutta, ‘Standard Form of Contract: Effect of Unequal Bargaining Power’( 22 November ,
2009)<http://www.legalservicesindia.com/article/article/standard-form-of-contracts-effect-of-unequal-bargaining-
power-1737-1.html> accessed 25 February 2017.
4
Indian Airlines Corporation v JothajiManiramManu/Tn/190/1959.
In the case of RukmanandAjitsaria v Airways (India) Ltd. and anr.5, the holding of Court was,
“liability of carrier was governed by terms of contract between parties as contained in bill of
lading and carriers were, therefore, exempted from liability, even if loss was due to negligence
on their part or on part of their servants - There was some suggestion that original bill of lading
had not been produced but appeared to be original document under which goods were consigned
and Appellant was bound by terms of document - On terms contained in that document, it must
be held, as it had been rightly held by Lower Courts that Respondent was not liable for loss.”

In Indian Airlines Corporation v Sm. Madhuri Choudhary and Ors.6High Court held, “it was
clear from exemption clause that Airlines Corporation exempted from any liability to consignee
or to their legal representatives, in case of damage or loss from any cause, including negligence
or default of pilots in course of the journey or prior thereof - However, it was pointed out that
present exemption clause in respect of both Contract Act and tort was good and valid and it was
legally excluded all liability for negligence. Therefore, it found that exemption clause was good,
valid and legal and there was no negligence of the Defendant Corporation or of the pilot.

POSITION OF INDIA WITH COMPARISON TO SOME COMMON LAW SYSTEM

COUNTRIES LIKE U.K.AND U.S.A.

Position in England: In England, there are some principles, rules, and legislation exists to deal
with problems arising from this contract. In the case of John Lee & Sons v Railway Executive 7,
Lord Denning propounded four corners rule theory, according to this if exclusion clause of the
contract is under this theory then the party is not liable for the loss of another party. The
component of this theory are that (a) there should be reasonable notice of conditions to another
party, (b) that notice should be contemporaneous to the contract, (c) there should be no
fundamental breach of contract, (d) contract would be strictly constructed against the enterprise
and in the interest of the weaker party, (e) the terms of the contract should not be unreasonable.8

5
RukmanandAjitsaria v Airways (India) Ltd. and anr MANU/GH/0077/1957.
6
Indian Airlines Corporation v Sm. MadhuriChoudhari MANU/WB/0056/1965.
7
John Lee & Sons v Railway Executive(1949) 65 T.L.R. 604 .
8
John Lee & Sons v Railway Executive(1949) 65 T.L.R. 604 .
In the case of Karsales v Wallis 9, the doctrine of fundamental breach was also propounded by
Denning LJ and according to him, “ it is now settled that exclusion clause, no matter how widely
they are expressed, only avail the party when the is carrying out his contract in its essential
respects. He is not allowed to use them as a cover for misconduct or to turn his blind eyes from
his obligations. They do not avail him if he is guilty of breach which goes to the root of the
contract. It is necessary to look at the contract apart from exempting clauses and see what are the
terms, express or implied, which impose an obligation on the party. If he is guilty of breach of
those terms, he can’t rely on those exempting clauses.”

But parliament thought that these attempts were not enough to meet the demands and in 1977
passed a bill named Unfair Contract Terms Act, 197710. This act gave a meaning to the term of
‘negligence’ and this meaning applied to both tort and contract cases. The meaning of
‘negligence’ is (a)breach of any obligations, arise from any expressed or implied terms of the
contract, to take any reasonable care or exercise reasonable skills in the performance of the
contract, (b) breach of any common law duty of taking reasonable care or perform any
reasonable skill, (c) breach of common duty of care imposed by Occupiars’ Liability Act, 1957.
This act also provides that any clause in the contract that provides exclusion of liability for death,
personal injury or any injury that does not satisfy the requirement of reasonableness, shall be
void.

Position of U.S.A.: The position of U.S.A. in respect of this issue is given under the Uniform
Commercial Code and Resentment of Law of Contract.

In the Sec.575 of Resentment of Law of Contract 11, it is given that (1) a bargain for exemption
from the liability of the consequence of wilful breach of duty is illegal, and from the liability of
the consequence of negligence is illegal if: (a) the parties are employer and employee and the
bargain relates to negligent injury of the employee in the course of employment, (b) one of the
parties is charged with a duty of public service, and the bargain relates to the negligence in the
performance of any part of its duty to the public, for which it has received or been promised
compensation,

9
Karsales v Wallis MANU/UKWA/0004/1956.
10
The Unfair Contract Terms Act, 1977.
11
Sec.575, Resentment, Contracts.
(2) A bargain by a common carrier or other person charged with the duty of public service
limiting to the reasonable agreed valuation of the amount of damages recoverable for the injury
to the property of non-wilful breach of duty is lawful.

Under the Sec.2.302 of the Uniform Commercial Code of U.S.A. , it is provided that, (1) if the
court as a matter of law finds the contract or any clause to have been unconscionable at the time
it was made, it may refuse to enforce the contract or that particular clause, (2) when it is claimed
or appears to the court that the contract or any clause, therefore may be unconscionable, the party
shall be afforded a reasonable opportunity to present evidences as to its commercial setting,
purpose and effect, to aid the court in making the determination.12

Position of India : In India, there is no specific law or legislation like England or U.S.A. to
counter the ill-effect of this contract. Indian courts decide the matter on the basis of some
Sections of Indian Contract Act, 187213 and these Sections are following:

 Sec.16(3): this section provides that if the contract is agreed by the parties on the ground
of undue-influence, the court can make it void. In the standard form of contract between
employer and employee, strong and weak parties, court use this section to decide the
matter.
 Sec.23: if the court finds the contract or any clause of the contract immoral or against
the public policy, it can hold the contract/clause, void.
 Sec.151: this section imposes certain liability upon the bailee for loss or the damages to
the goods delivered to him.

Also 103rd Law Commission also recommended the inclusion of the new provision, that is the
combination of the U.K. Unfair Terms and U.S.A. Commercial Code, into the Indian Contract
Act,1872. The recommended Section is following-

“Chapter IV-A

Sec.67A: (1) where the court,on the terms of the contract or on the evidence adduced by the
parties, comes to the conclusion that the contract or any part of it is unconscionable, it may

12
Sec.2.302 of the Uniform Commercial Code of U.S.A.
13
Indian Contract Act, 1872.
refuse to enforce the contract, or the parts that it holds unconscionable. (2) without prejudice to
the generality of the provisions of this section, a contract or part of it is deemed to be
unconscionable if it exempts any party thereto from- (a) the liability for the wilful breach of the
contract or (b) the consequences of the negligence.”14

But till now, the Government did not accept these recommendations. So in the form of net
result, we can say that these sections of the Indian Contract Act,1872 are not enough to meet the
demands of the present situation. In many cases, courts in India ruled against these sections

AVAILABLE REMEDIES

There are some remedies available to the aggrieved party in the standard form of contract. Some
of them are following:

1) That there should be a contractual document : if the terms and clauses are included in
contractual document not mere in a receipt or simple document, then the both the parties
are bound to the terms and the conditions of the contract. In Chapleton v Barry Urban
District Council15 , it was held that if the document that contains clauses are not a
contractual document, but only some receipt, the clauses are not binding on the parties.
2) In Curtis v Chemical Cleaning and Dyeing Company16, it was held that There should also
not be any misrepresentation regarding to the terms or clauses of the contract otherwise
that contractual document is not binding on the any of the parties.
3) That there should be a reasonable notice of the contractual terms to the other party:
If one party want the terms and conditions be bound to another party, there should be
reasonable notice to the other party otherwise those terms or conditions are not binding
over another party. Like in the tickets, it is printed, “see back for the terms and

14
103rd Law Commission Report, 1984.
15
Chapleton v Barry Urban District Council [1940] 1 KB 532.
16
Curtis v Chemical Cleaning and Dyeing Company [1951] 1 K.B. 805.
 conditions”, or explaining the clauses/ terms to the other party, it is called a reasonable
notice of the terms and conditions. 17
4) That the notice should be contemporaneous to the present contract:
In the Olley v Markborough Court Ltd18., it was held, that the reasonable notice should be
given to the other party at the time of entering into the contract, then terms/clauses are
binding to the parties. But if the notice is given after entering into the contract, then it is
not binding to any of the parties.
5) That the terms of the contract should be reasonable:
In the Central Inland Water Transport Corporation v BrojoNath19, it was held that if the
terms or clauses are not reasonable or against the public policy, then if they have been
communicated to the other party at the entering into the contract or not, they are not
binding upon the parties.
6) That there should be no Fundamental breach of the contract:
In the Alexander v Railway Executive 20, it was held that there should be no fundamental
breach of contract. If the defendant is liable for the breach of the basic obligation that
goes to the root of the contract, he can’t avail the advantage of the exemption clause.
7) In the case of Morris v C.W.Martin and Sons Ltd21., it was held that if two parties enter
into the contract and one party tries to exclude his liability by exemption clause, then
such clause will not apply upon third party because he is the stranger of the contract and
can’t avail the advantage of the terms of the contract.

17
M/S Prakash Road Lines (p) Ltd. v H.M.T. Bearing Ltd MANU/AP/0672/1998.
18
Olley v Markborough Court Ltd (1949) 1 All ER 127.
19
Central Inland Water Transport Corporation v BrojoNathMANU/SC/0439/1986.
20
Alexander v Railway Executive (1951) 2 KB 882.
21
Morris v C.W.Martin and Sons Ltd MANU/UKWA/0037/1965.
CONCLUSION

The Standard form of contract came into existence for the convenience of the parties to the
contract. By using these contract enterprises can save their money and time both. But with the
time, these contracts became the tools for the exploitation of the weaker party by the enterprises.
Because of the ignorance of the individual, the enterprises exploit them by excluding themselves
from any liability.

At the present time, the importance of the Standard form of contract can’t be underestimated. But
these contracts are also becoming the problem for the judiciary to deal and to save the weaker
party from any type of the exploitation. If we compare India with other common law countries,
there are no specific rules or legislation in India to deal with such problems.Indian judiciary deal
with these problems on the basis of the concept of the undue influence, and public policy. But
despite of the fact that there are no specific regulations, Courts have shown marked willingness
to solve the dispute arising from such contracts as shown in the cases that are cited in the paper.

Also, as explained in the paper that terms or clauses are very complicated, professional, technical
and in legal terms and because of this normal individual can’t understand them. It should be
required for the enterprises that terms and clauses should be in simple language so the individual
can understand them.

But to deal with dispute related to these contracts effectively, we should have an effective
legislation. And in the recommendation of the 103rd Law Commission is capable to meet this
situation.
BIBLIOGRAPHY

 https://coporatelaws.wordpress.com/2010/05/13/unfair-terms-in-contract-and-legal-
remedy-available-in-india/
 http://www.legalservicesindia.com/article/article/standard-form-of-contracts-effect-of-
unequal-bargaining-power-1737-1.html
 http://www.mondaq.com/india/article.asp?articleid=272948
 http://lawcommissionofindia.nic.in/101-169/Report103.pdf
 http://www.manupatrafast.in/pers/Personalized.aspx