A standard form for multiple contracts may be used when a person needs to engage in many contracts. It is both practical and convenient. One party may create the standard terms contract, and several parties may enter into agreements on those terms.
An insurance policy, shares or a train ticket are a few instances of these standardised contracts. Only if they are made known to the acceptor before or at the time of the contract do the “specific terms and conditions” become legally binding as a part of it.
Rules to Protect the Interest of the Weaker Section
The courts and the legislature have developed specific regulations to protect the interests of the weaker party due to the unequal bargaining power of the two parties, which are as follows:
The contract’s terms have been brought to the contracting party’s attention. For example, by writing “For conditions, see back” on a ticket, getting signatures on the document containing the terms, or outlining the requirements. The terms do not bind the offeree in the absence of sufficient notice.
Notice Should Be Contemporaneous With the Contract
If a party to the agreement wants to be exempted from obligation, it must notify the other party when the agreement is being made, not later.
Contract Terms Should Be Reasonable
The contract’s provisions shall not be implemented to the extent they are arbitrary or contrary to public policy.
Fundamental Breach of Contract
The essential contractual obligation, also known as the obligation that is the “heart” of the contract, cannot be exempted by a provision. Therefore, a dry cleaner must answer if the cloth is lost, even if the contract contains various exemption terms.
Examples of exemption terms that might be included in a contract:
- Force Majeure Clause: This clause typically exempts a party from performing its obligations under the contract if circumstances beyond its control prevent it from doing so, such as natural disasters, war, or government action.
- Limitation of Liability Clause: This clause limits the liability of one or both parties in the event of a breach of contract. For example, a contract might limit the amount of damages that can be recovered by the non-breaching party, or it might specify that certain types of damages (such as consequential damages) are not recoverable.
The exemption clause shall be strictly interpreted, and any uncertainty shall be resolved in favour of the less powerful party.
The right of the contracting parties to exclude or restrict their obligation through exemption clauses in the agreement is severely constrained by the English Unfair Contract Terms Act, 1977.
Indian Airlines vs Madhuri Chowdhury (AIR 1965 Cal 252)
It illustrates the lack of such an Act in India and the insufficiency of the Indian Contract Act of 1872 in protecting the weaker party against exemption clauses.
Pani Ram vs Union of India (2021)
Courts will not enforce unfair and irrational contracts or clauses in contracts put into by parties without equal bargaining power, and they will nullify such contracts upon request.
In standard form contracts, the terms are typically pre-drafted by one party, and the other is expected to sign on the dotted line without having a chance to ask for the terms to be amended.
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