When the terms of the contract are prepared beforehand by one of the parties and the other party does not have much say in the matter, and he, therefore, enters into the contract with those pre-drafted terms, the question which may, in such case, arise is as to how far such a contract is valid and binding? There is no legal bar on such contract being entered into. If the contract has been properly entered into with free consent of both the parties, there is full understanding of the terms of the contract, and there is no attempt on the part of the one party to take an undue advantage at the cost of the other, there would arise a valid contract.
Due to enormous increase in the volume and complexities of trade and business, a business concern may have to enter into a large number of contracts with its customers or clients. When a large number of contracts have to be entered into by a person, from a practical point of view and for the sake of convenience, a standard form for the numerous contracts may be used. The contracts with standard terms may be drafted by one party and on the same terms contracts may be made with numerous persons. For instance, an insurance company may prepare a draft of insurance policy, which may form the basis of contract with large number of insured persons. The contract in such case is not made by the process of negotiation, as regards its terms and conditions, between the two parties. One of the parties generally prepares draft of the contract, which the other party is enabled or, made to, or sometimes even deemed to, agree to. Such contracts have become quite common in our everyday life.
EXCLUSION OR LIMITATION OF LIABILITY BY ONE PARTY
In standard form contracts generally the terms of the contract are pre-drafted by one of the parties and the other is supposed sign on the dotted line, without having any time or opportunity get the terms changed. One of the parties being in a greater bargaining position generally drafts the terms which suit him most at times tries to exclude or limit his liability, without caring for the interest of the other side, who is in a weaker bargaining position. In view of the unequal bargaining power of the parties, the courts and the legislature have evolved certain rules to protect the interest of the weaker party.
ESSENTIALS OF STANDARD FORM OF CONTRACT
- There should be contractual document:
The parties are bound if the terms are contained in contractual document. In Chapelton vs. Barry Urban District Council, it has been held that if the document is a mere receipt and does not create a contract, the terms contained in such document are not binding. In this case plaintiff hired a chair from the defendants to sit on a beach. He paid the requisite charge took one chair from a pile and also got a ticket from the attendant. Without reading anything written on the ticket he put that into his pocket. As he sat on the chair, he went through the canvas, as consequence of which he received personal injuries. In an action by the plaintiff to claim compensation for personal injuries, the defendants pleaded exemption from liability because of the following clause having been printed on the ticket. “The council will not be liable for any accident or damage arising from hire of chairs.” Was held that this ticket was no more than a mere receipt and defendant could not claim exemption from liability on the basis of anything printed on it
- There should be no misrepresentation:
Even if a person signs a document containing certain terms but there was found to be a different oral misrepresentation about the contents of the document, the document would not be binding one. In Curtis vs. Chemical and Dyeing Co. Mrs. Curtis delivered her white satin wedding dress to the defendants for cleaning. She was asked to sign a ‘Receipt’, and she was orally told by the shop assistant that her signatures were needed because, as printed on the receipt. The defendants did not undertake any responsibility for damage to beads and sequins. In fact there was a clause in the receipt which exempted the defendants from liability from damage to the articles received for cleaning, however caused, but that was not disclosed to the plaintiff as to the extent of the defendants exemption of liability, the defendants could not rely on the clause and they were bound to pay damages.
- There should be reasonable notice of the contractual terms:
In order that the terms of a contract become binding all that is necessary to draw the attention of the other party to those terms should be done by the party who has pre- drafted the terms of the contract. If the attention of a party to the contract has been draw the terms of the contract by a sufficient notice, for example, by printing on a ticket, “for conditions see back”, or obtaining his signatures on the document containing the terms, or otherwise explaining the terms to him, there arises a binding contract as regards such terns. If, on the other hand, reasonably sufficient notice about the terms of the contract has not been given, there is binding contract as regards such terms.
In M/s Prakash Road Lines (P) Ltd v HMT Bearing Ltd.., it has been held that the carrier is bound to deliver the goods consigned at the appointed destination or else he will be liable to pay compensation for the same.
Merely printing on the lorry receipt that the goods are transported at the owner’s risk will not absolve the transporter from his duty unless it is proved that such terms was brought to the notice of the plaintiff.
- Notice should be contemporaneous with the contract:
If a party to the contract wants to have exemption from the liability, he must give a notice about the exemption while the contract is being entered into and not thereafter. If the contract has already been entered into without exemption clause, subsequent notice about the exemption from liability will be ineffective. In Olley vs. Marlborough Court Ltdthe plaintiff and he husband hired a room in the defendants’ hotel and paid for one week’s boarding and lodging in advance. When they went to occupy the room, they found a notice displayed which stated ‘The proprietors will not hold themselves responsible for articles lost or stolen, unless handed to the managers for safe custody’. Due to the negligence of the hotel staff, their property was stolen from the room. In an action against the defendants to recover compensation for loss they sought to exemption from liability on the basis of notice displayed in the room. It was held that notice in the room did not form part of the contract, and the defendants were therefore liable for the loss.
- The terms of the contract should be reasonable:
It is also necessary that the terms should of the contract themselves should be reasonable. If the terms of the contract are unreasonable and opposed to public policy, they will not be enforced merely because they were printed on the reverse of a bill or a receipt or have been expressly or impliedly agreed upon between the parties.
- Fundamental Breach of Contract:
It is most important to see that enforcing the terms of contract does not result in fundamental breach of contract. In a standard form of contract, it is likely that the party having stronger bargaining power may insert such exemption clause in the contract that his duty to perform the main contractual obligation is thereby negative. But the main obligation under the contract is not allowed to negative by any term of the contract. No exemption clause is allowed to permit the non-compliance of the basic contractual obligation.
- Non- contractual Liability:
In cases where more than one kind of liability arises, exclusion of contractual liability may not negative any other kind of liability. In White vs. John Warrick and Co Ltd., the plaintiff hired a cycle from the defendants under an agreement stipulating that “nothing in this agreement shall render the owners liable for any personal injury”. While the plaintiff was riding cycle its saddle tilted forward, as a consequence of which he was thrown and injured. In an action by the plaintiff the defendant pleaded non- liability on the basis of exemption clause. It was held that the exemption clause excluded only contractual liability of the defendant, whereas they still remained liable for negligence under law of torts.
- Statutory Protection and Position in India:
Unlike England, there is no specific legislation in India concerning the question of exclusion of contractual liability. There is possibility of striking down unconscionable bargains either under sec 16 of ICA on the ground of undue influence, or under section 23 of that Act, as being opposed to public policy. In Central Inland Water Transport Corp Ltd vs. Brojo Nath.., the Supreme Court struck down a clause in a service agreement whereby the services of the permanent employee could be terminated by giving him 3 months’ notice or 3 months’ salary. It was held that such a clause was unreasonable and against public policy and void under section 23 of ICA.
Ordinarily, a contractual obligation arises from contract between the two contracting parties. In some cases, however a person may become bound by a promise not on the basis of contract entered into by him with the other party, but on the basis of the application of law of estoppel against him. When one party has made a promise or given assurance and the other person has acted to his prejudice on the faith of the same, the person making the promise or giving assurance becomes bound thereby, due to the application of the law of estoppel in such case. The doctrine of “Promissory estoppel or equitable estoppel” is well established in the administrative law of the country. The doctrine represents a principle evolved by equity to avoid injustice. The basis of the doctrine is that where any party has by his words or conduct, which is intended to create legal relationship to arise in future, knowing as well as intending that the representation, assurance or the promise would be acted upon by the other party to whom it has been made and has in fact been so acted upon by the party, the promise, assurance or representation should be binding on the party making it and that party should not be permitted to go back upon it.
APPLICATION OF THE DOCTRINE AGAINST GOVERNMENT
In some cases it was pleaded on behalf of the government that doctrine of promissory estoppel is not applicable against government, as the state cannot bind itself to fetter its future executive action. In other words it was pleaded that the law of estoppel is not applicable in view of the “doctrine of executive necessity” however the plea was rejected by the Supreme Court and the government has been held bound to honor the promises made by it. In Union of India vs. AngloAfghan AgenciesJustice Shah observed that “Under our jurisprudence the Government is not exempted from the liability to carry out the representation made by it as to its future conduct and it cannot on some undefined and undisclosed ground of necessity or expediency fail to carry out the promise solemnly made by it, nor claim to be judge of its own obligation to the citizen on an ex parte appraisement of the circumstances in which the obligation has arisen.
The doctrine of promissory estoppel has been applied by the Supreme Court in Union of India vs. Godfrey Philips India Ltd., and Pournami Oil Mills v State of Kerala
ESTOPPEL WHEN THERE IS NO PROMISE
The doctrine of promissory estoppel is applicable when there is some promise made by one party and acted upon by the other party. When there is no such promise the doctrine is not applicable. In Wadhwa vs. State of Punjab it was held that the state had never given any assurance by words or conduct that a legal action would not be brought against the appellant for the recovery of the said amount, and therefore, the principle of promissory estoppel does not apply in the present case.