On the basis of formation of

contracts we can classify

them into;

1. Ordinary Contract

2. Standard contract

3. Govt. Contract
WHAT IS STANDARD CONTRACT ?
WHAT IS STANDARD CONTRACT ?
The law of Contract has in recent times to face a problem which I assuming new and wide dimensions.
The law of Contract has in recent times to face a problem which I
On Account of “Large-scale and widespread” practice of concluding contracts in standardised forms.
assuming new and wide dimensions. On Account of “Large-scale and
widespread” practice of concluding contracts in standardised forms.
Owing to such a voluminous and vast number of daily transactions it is neither possible nor desirable
for the promisor/offeror to enter every time into negotiation process, decide the terms of contract and
Owing to such a voluminous and vast number of daily transactions it is
then finally with the accord or consent of the promisee finalise and execute a contract…
neither possible nor desirable for the promisor/offeror to enter every
time into negotiation process, decide the terms of contract and then
Then what is done under such circumstances ?????
finally with the accord or consent of the promisee finalise and execute
a contract…
STANDARDISATION OF THE CONTRACT
Then what is done under such circumstances ?????

STANDARDISATION OF THE CONTRACT

The terms of the contracts are
standardised and predetermined by only
one party, who is usually in the
dominating position and the promisee is
required to adhere to all those terms and
conditions if he wants to enter in to that
contract….
Problem identification…..

1) Such standardised contracts contain a large

number of terms and conditions in “fine-print”
which restrict and often exclude liability under
the contract….

2) The individual can hardly bargain with massive

organisations and therefore, his only function
is to accept the offer whether he likes its terms
or not. He can not alter those terms or even discuss
them; they are there for him to take or
leave….
Problem identification…..

3) The acceptor therefore does not undertake the

laborious and profitless task of discovering what
the terms are….

Lord Denning MR pointed out in,

Thornton V shoe Lane Parking Ltd (1971) 1 ALL ER
686 CA

“No customer in a thousand ever read the

conditions. If he had stopped to do so, he would
have missed the train or the boat.”
Problem identification…..

4) 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.

5) The courts have found it very difficult to come to the

rescue of the weaker arty particularly where he has signed the
document. In such cases the courts have been constrained to
hold that he will be bound by the document even if he never
acquainted himself with its terms.
Problem identification…..

Rule in L’ Estrange V Graucob Ltd. (1934) All ER Rep 16

Mrs L signed an agreement without reading it under which

she purchased a cigarette vending machine. The agreement
excluded liability for all kinds of defect in the machine. The
machine was totally defective.

The court found it as a fact that the supplier had made no

effort to bring the sweeping exemption term to the notice of
Mrs. L.
Even so the court held; “ Where a document containing
contractual terms is signed, then in the absence of fraud, or
misrepresentation, the party signing it is bound and it is
wholly immaterial whether he has read the document or not.:
Problem identification…..

That is why these contracts are also described as

“Contracts of Adhesion: which means that the individual has
no choice but to accept; he does not negotiate, but merely
adheres….

“Compulsory Contracts”, as they being a kind of imposition….

“Private Legislation”, as they being a kind of code of bye-laws

on the basis of which the individual can enjoy the services
offered….

WELL THEN, WHAT IS A PREVENTIVE CURE FOR THAT???????

PROTECTIVE DEVICES……

Following are some modes of protection which have been

evolved by the courts to protect the individual interest
against the possibility of exploitation, INHERENT IN SUCH
CONTRACTS….

1. Reasonable Notice
2. Notice should be contemporaneous with contract
3. Theory of fundamental breach
4. Strict Construction
5. Liability in Torts
6. Unreasonable terms
7. Exemption Clauses and the third parties
1) 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. Stevenson (1875) 32 LT 709,

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 plaintiff’s luggage was lost in the
shipwreck caused by the fault of the company’s 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 Co.
1) Reasonable Notice….
(1877) 2 CPD 416,
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 plaintiff’s 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.

MELLISH LJ pointed out that if the plaintiff “knew there was writing on
the ticket, but he did not know or believe that the writing contained
conditions, nevertheless, he would be bound, as there was reasonable
notice that the writing contained the conditions.
1) Reasonable Notice….

In Richardson, Spence & Co V Routree, (1894) AC 217,

A folded up ticket was handed over to a passenger and the conditions
printed on it were also obliterated in part by a stamp in red ink, it was
held that no proper notice of the terms had been given.

HOME WORK….

Identify the reasonability of notice in,

Mackillican v Compagnie Des Messageries Maritiemes De

France, ILR (1880) 6 Cal 227 at p. 234 and

Thompson v London, Midland & Scottish Rly co, (1930) 1 KB

41
2) Notice should be contemporaneous with 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 Ltd. (1949) 1 KB

532
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 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, plaintiff’s property was stolen from the room.
2) Notice should be contemporaneous with contract….

Olley v. Marlborough Court Ltd. (1949) 1 KB 532

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.
3) Theory of Fundamental Breach….

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.

Findlay v Couldwell, (1976) 69 DLR (39) 320, Canada

3) Theory of Fundamental Breach….

Findlay v Couldwell, (1976) 69 DLR (39) 320, Canada

A car was sold on “as is” basis and without any warranty or guarantee
whatever. Even so the seller was held liable when five days after the
engine of the car blew up. It was not a ‘car’ which was delivered.
Hence the contract was held to be fundamentally broken….

Home work…

Understand the variance from above observation in,

Peters v Parkway Mercury Sales Ltd, (1975) 10 NBR (2d) 703

3) Theory of Fundamental Breach….

In Alexander v. Railway Executive, (1951) 2 KB 882

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 mis delivery 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.
4) Strict Construction…

Exemption clauses are construed strictly particularly where a clause is so widely expressed
as to be highly unreasonable. Any ambiguity in the mode of expressing an exemption
clause is resolved in favour of the weaker party.

Lee (John) & Sons (Grantham) Ltd. V Railway Executive; (1949) 2 All ER
581
Goods stored in a railway warehouse let to a tenant were damaged by
fire and the tenant brought an action against the railway executive
alleging that the accident was due to their negligence because a spark
ejected from their railway engine had caused the fire. The defendants
set up a clause in the tenancy agreement which exempted them for
loss of or damage to property however caused, whether by act or
neglect of the company or their servants or agents or not) which “but
for the tenancy hereby created world not have arisen”.
4) Strict Construction…

Lee (John) & Sons (Grantham) Ltd. V Railway Executive; (1949) 2 All
ER 581

Continued….

The Company was nevertheless held liable. The Court was of opinion
that the words “but for the tenancy hereby created” were confined to
liabilities which arose by reason of the relationship of landlord and
tenant.
4) Strict Construction…

Akerib v Booth (1961) 1 ALL ER 380

By a written agreement the defendants let to the plaintiffs a few

rooms on the second and third floors of their premises for office and
store purposes. They retained in their possession a water closet on
the fourth floor. The agreement provided that the plaintiffs would
exclusively employ the defendants in making up and packing all the
goods brought by them for business on the premises and that the
defendants would not in any circumstances be responsible for
damage caused by water, insects, vermin or fungi to any goods.
Owing to the negligence of the defendants or their servants water
escaped from the closet and caused damage to the plaintiff’s goods.
4) Strict Construction…

Akerib v Booth (1961) 1 ALL ER 380

It was held that the exception clause must be limited to the purpose
of the contract. The purpose was to exempt the defendants from
liability to goods that came to their possession for packing or making
up, etc. The exemption clause must be confined to this and was not
to apply to any other goods and accordingly the defendants were
held liable.
5) Liability in Tort

Even where an exemption clause is exhaustive enough to

exclude all kinds of liability under the contract, it may not
exclude liability in tort.

White v/s John Warwick & Co Ltd. (1953) 1 WLR 1285

The plaintiff hired a cycle from the defendants. The defendants agreed
to maintain the cycle in working order and a clause in the agreement
provided; “nothing in this agreement shall render the owners liable for
any personal injuries….”. While the plaintiff was riding the cycle the
saddle tilted forward and he was thrown and injured.

It was held that although the clause exempted the defendants from
their liability in contract, it did not exempt them from liability in
negligence.
5) Liability in Tort

Ruther v Palmer, (1922) 2 KB 87

(Exclusion of liability even for negligence by express words
or necessary implication)

A car was given to the defendants for sale under a contract which
provided that while on the car would be driven at the customer’s
risk. An accident took place while the car was on a trial run. The
defendants were held not liable, for they had by express words
shifted the risk to the customers.
5) Liability in Tort

Liability for Negligence:

The results of such cases should now be different. The

(English) Unfair Contract Terms Act, 1977 expressly provides
that any clause in a contract which excludes or restricts
liability for death or personal injury resulting from
negligence shall be absolutely void.

The expression “Negligence” is defined in the Act to mean

the breach of any common law or contractual duty.
6) 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 public policy.

Lilly White v Mannuswami, AIR (1966) Mad 13 at pp. 13-

14

A laundry receipt contained a condition that the customer would

be entitled to claim only fifteen per cent of the market price or
value of the article in case of loss. The Plaintiff’s new sari was
lost….
6) Unreasonable terms…

Lilly White v Mannuswami, AIR (1966) Mad 13 at pp. 13-14

Rationale given by the Court…

Certainly the conditions printed on the reverse of a bill may govern or

modify any simple contract….subject to the obligation on the part of
the businessman to perform the process properly and to return the
article safe and intact. But, if a condition is imposed which is in flagrant
infringement of the law relating to negligence…the court will not
enforce such a term which is not in the interest of public, and which is
not in accordance with public policy.
And there is certainly justification for the observation that this
abstraction of clothes, which may be committed by an employee of the
firm, intent on private gain, though the firm itself may be blameless
with regard to the actual loss.
6) Unreasonable terms…

Statutory definition of the Reasonableness…

The principle of excluding unreasonable clauses has now found statutory

recognition in the (English) Unfair Contract Terms Act, 1977. the Act
provides that in respect of any loss caused by the breach of contract,
any restricting or excluding clause shall be void unless it satisfies the
requirement of reasonableness.

A terms will regarded as reasonable if it is “a fair and reasonable one to

be included having regard to the circumstances which were, or ought
reasonably to have been known to or in the contemplation of the parties
when the contract was made”.
6) Unreasonable terms…

Central Inland Water Transport Corpn. V B. N.

Ganguly, (1986) 3 SCC 156.

A term in a contract of employment being offered by a

Government corporation providing for the removal of a
permanent employee without inquiry has been regarded by
the Supreme Court to be unreasonable.
 7) Exemption Clauses and Third Parties…

One of the basic principles of the law of contract is that 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 it.

Haseldine v C.A. Daw & Son Ltd. (1941) 2 KB 343, at p. 379

A contractor agrees to maintain and repair a lift in certain premises

under contract with the owner which exempts him from liability. One
of the visitors to owner’s flat is injured owing to bad repairs. The
defendant insisted on the exemption clause…..
 7) Exemption Clauses and Third
Parties…

In the previous case the defendants were held liable for the tort of
negligence. GODDARD LJ reminded the contractor “that the duty to
the third party does not arise out of contract, but independently of
it”.

If this were not so, the life and security of millions of people would
be in the hands of the two parties to a contract. They would then
make law not only for themselves, but also legislate for countless
others.