Introduction

In present modern times, the law of contract has to face problems having new concepts of modern practice of concluding contracts in standardised forms. For example insurance companies or railway carriage administration where they have to make several contracts every day. So it becomes practically impossible to such large organisations to make contracts separetaly with every individual. Therefore they have printed forms of contract, where such printed contracts have large number of terms and conditions which normally excludes or restrict  the liability under the contract. In standard form of contract, individual can hardly bargain with the large organisations. Individual has no choice and he has no alternative other than to accept the contract whether he likes its terms or not.

Standard Form of Contract

Standard form contract is a pre-written contract where the terms and conditions are non-negotiable and are usually drafted by one party and offered to the other party for signature. There is no specific provision on standard form of contracts in ‘The Indian Contract Act, 1872. But section 23 of the Act is somewhat related to standard form of contract which considers that if in any agreement, if any term and condition which the Court regard it as immoral or if it is against public policy, then it will be illegal making such agreements void.

Normally, standard for of contracts are aceepted by the individuals with reason that, they don’t have time to read and understand the terms and conditions and even if they read, may be because of lack of legal knowledge they ignore it. These contracts are in printed forms and common in particular industry so they are common for all and it’s convinient to accept, also it reduces the cost and timing of drafting the contract. These weaknesses of individual gives the companies to exploit individuals by such a terms and conditions which will exempt or restrict companies from liabilities under contract. The courts have found it difficult to come to the rescue of the weaker party mainly where they have signed the document. In such cases, the courts have no option other than to hold that the party signing will be bound by the document even if he has not read and acquainted himself with its terms. This has come to be known as the rule in L’Estrange v. Graucob Ltd.

L’Estrange v. Graucob Ltd : 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 that, the supplier had not made any effort to bring the exemption term to the notice of Mrs L. Evenso the court held that “Where a document containing contractual terms is signed, then in the absense of fraud or misrepresentation, the party signing it is bound, and it is wholly immaterial whether he has read the document or not.  So in order to protect the individual against the possibility of exploitation in such contracts, the following modes of protection have been evolved by the courts.

L’Estrange Rule

1. Reasonable Notice of Terms : It is a duty of every person giving offer to the offeree by way of delivering a document of printed terms and conditions to give adequate notice of terms and condition. If this not done then the terms and conditions will not be binding on acceptor. This was laid down by House of Lords in Henerson v. Stevenson. In this case a steamer ticket carried a printed term on the back excluding liability for damage to luggage put in cloak room without any warning on the face. The House of Lords observed that the plaintiff could not be said to have accepted a term which he has not seen and he knew nothing about it.
2. Notice should be contemporaneous with contract : Notice of the terms should be given before or at the time of contract. If notice is given afterwards, it will be considered as modification of the term and will not bind the offeree. In Olley v. Marlborough Court Ltd, a man and his wife hired a room at a hotel and paid advance of one week. When they went to occupy room, there was a notice on one of the walls stating “The proprietors will not be responsible for goods lost or stolen, except when handed to the manager for safe custody”. The property was stolen due to negligence of office staff. The hotel was held liable as notice was not a part of the agreement.
3. Theory of Fundamental Breach : It is a method of controlling the unreasonable consequences. Even if adequate notice of the terms and conditions is given in a document, the party imposing the conditions may not be able to rely on them if he has committed a breach of the contract which can be described as ‘fundamental’.
4. Strict Construction : Exemptions clauses are to be construed strictly means if exemption clause are so widely expressed as to be highly unreasonable, any ambiguity should be resolved in favour of weaker party.  A contract has to be interpreted according to its purpose.
5. Liability in Torts : Even if the exemption clause is enough to exclude all kinds of liability under the contract, it may not exclude liability in ‘Tort’. In White v. John Warwick & Co. Ltd, the plaintiff hired a cycle from defendants. The defendants agreed to maintain cycle in working condition and exemption clause provided that, no liability for personal injury . 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 does not exempt them from liability in negligence.
6. Unreasonable Terms : One more way of protection is to exclude unreasonable terms from the contract. A term can be considered as unreasonable if it defeat the purpose of contract or is against public policy.
7. Exemption Clause and Third parties : Principle of ‘privity of contract’ will be applicable in case of standard form of contracts also. No third party can either enjoy any rights or suffer any liability from a contract between two parties. But if the third party is getting injured because of a contract between two parties, the party because of whom the injury is caused would be held liable for the tort of negligence.