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Standard Form Contract

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Lectures by Dr. Tabrez Ahmad …

Lectures by Dr. Tabrez Ahmad

Diffrent theories are analysed to find out the validity of Standard form contract as per the Indian Law


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  • good job sir; it helps
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  • dear Tabrez sir
    really you did a good job.i found it fascinating and quite informative.i am interested in changing dimensions of Indian contract in this era of the consumerism. would you help me.
    vassalam
    ahmad
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  • 1. Standard form contract Dr. Tabrez Ahmad Professor of LawLegal issues arising in India Dr. Tabrez Ahmad, http://corpolexindia.blogspot.com 1
  • 2. Some interesting legal issues arise in these circumstances (1) Generally speaking, what is the legitimacy/validity of a clause in a printed form contract? (2) What are the limits on its enforceability? A leading authority on the law of contracts[Chitty on Contracts, (27th Edn.), para 12.007 ]:states that a problem may arise in proving the terms of the agreement where it is sought to be shown that they are contained in a contract in a printed form i.e. in some ticket, receipt, or other standard form document. Chitty states: "The other party may have signed the document, in which case he is bound by its terms. More often, however, it is simply handed to him at the time of making the contract and the question will then arise whether the printed conditions which it contains have become terms of the contract. The party receiving the document will probably not trouble to read it, and may even be ignorant that it contains any conditions at all. Yet standard form contracts very frequently embody clauses which purport to impose obligations on him or to exclude or restrict the liability of the person supplying the document. Thus, it becomes important to determine whether these clauses should be given contractual effect." Dr. Tabrez Ahmad, http://corpolexindia.blogspot.com 2
  • 3.  Standard form (or printed form) contracts Contracts : A valid contract requires offer and acceptance. It is in the essence of acceptance, that such acceptance must be a valid acceptance, that is to say, an acceptance made, fully conscious of and alive to the terms and conditions of the proposal. Of course, this is not to say that a man who signs an agreement blindfolded will be relieved from his obligations under that agreement, simply because he later chooses to discard the blindfold. However, what Section 2(b) does require is that the acceptor must have a real opportunity to review the proposal and decide on whether to accept it or not. A standard form contract purports to represent the terms of the bargain between the parties thereto. It purports to embody the consensus between the parties. In short, it purports to be an "agreement enforceable by law". Dr. Tabrez Ahmad, http://corpolexindia.blogspot.com 3
  • 4. The practical need for printed form contracts To follow the principles laid down in the Indian Contract Act to the letter, one would require each and every clause in an agreement to be discussed, negotiated and then finalised, once a consensus is arrived at. People enter into contractual relations with one another all the time. It is not practically possible to negotiate the terms and conditions of each and every one of these contracts. Commercial and business sense dictates that people spend only so much time on negotiation as would be warranted having regard to the nature and the value of the contract being entered into Dr. Tabrez Ahmad, http://corpolexindia.blogspot.com 4
  • 5.  Men of commerce have found that certain conditions are implicit in every contract, having regard to the trade usages or customary practices in existence. Yet, in order to avoid needless disputes or litigation, they prefer to have these spelt out in writing. This has given rise to the printed form. Purchasers of insurance, for example, normally agree only on the price, the term, the monetary limits of coverage, and in a very rough sense, the risks to be covered. All the other provisions are left for the insurer to set unilaterally in the form of a policy. Such contracts gain their legitimacy from the fact that the rules underlying them have evolved out of long practice and have gained binding force by virtue of their being valid trade usages and/or customary practices. Dr. Tabrez Ahmad, http://corpolexindia.blogspot.com 5
  • 6.  Purchasers of a cricket ticket agree on even less. All that is discussed, if at all, is the location of the seat in question, and consequently, the price of the ticket. All other provisions are set out on the reverse of the ticket that the viewer obtains after having tendered the price of the ticket, and the ticket issued in pursuance of the conclusion of the agreement between the parties. There are six broad reasons as to why consumers agree to be governed by terms set out in a printed form drawn up by a trader First, the salesman (or other person acting on behalf of the provider of goods and services) who is on the other side of the table, holding out the printed form, is not disposed to bargain over the boilerplate or lacks the authority to do so. That is to say, the provider of goods or services presents the printed form on a take-it-or-leave-it basis. Dr. Tabrez Ahmad, http://corpolexindia.blogspot.com 6
  • 7.  Second, the consumer would not understand much of the language of the printed form, even if he or she took the time to read it (This would of course apply only to insurance policies and the like, and not to simple printed forms like receipts, parking tickets and cricket tickets ). Third, the businesss competitors usually employ comparable terms. Fourth, the remote risks allocated by the printed form will not likely eventuate. Fifth, the provider of goods or services seeks to establish and maintain a good reputation with the purchasing public and generally will stand behind its product. Sixth, the consumer expects the law to enforce the printed form contract, with the exception of offensive terms. The consumer, engaging in a rough but reasonable cost-benefit analysis of these factors, understands that the costs of reading, interpreting and comparing standard terms outweigh any benefits of doing so and therefore chooses not to read the form carefully or even at all. The consumer also is under some pressure from the businesss agent to sign quickly and may believe that the events described in the boilerplate are too remote to be worth worrying about. Dr. Tabrez Ahmad, http://corpolexindia.blogspot.com 7
  • 8.  Thus, printed forms of contract have arisen as a result of: (a) the convenience in having a printed form; or (b) the fact that one party stands in a position where the terms dictated by it can be imposed upon the other, notwithstanding the will of the other, and since the terms of such bargains are known to the former even prior to the entry into the contract, the former prints it out and keeps it ready, waiting for persons to come forward and enter into such contracts; and (c) the willingness of the customer to allow the provider of goods or services to draw up the terms of the contract upon certain assumptions as to the conduct of the provider, and his or her perceptions as to the likelihood of the contract being enforced to the letter. Dr. Tabrez Ahmad, http://corpolexindia.blogspot.com 8
  • 9. Arguments on the validity of standard form contracts Strict enforcement theory The first and primal argument in favour of the enforcement of standard form contracts is that a standard form contract must be respected and honoured by the parties to it, just as any other contract. To refuse to do so, would be to introduce an element of uncertainty in mercantile relations, which is to be avoided at all costs. One of the earliest decisions requiring strict enforcement of a standard form contract, was that of the Court of Exchequer in 1860, in Lewis v. Great Western Rly (157 ER, p.1427 (Ex.1860) )In this case, the Court of Exchequer rejected a plea of the plaintiff that a printed form in a contract was not binding on him since he could not be expected to have read so lengthy a document which was presented to him in printed form. Dr. Tabrez Ahmad, http://corpolexindia.blogspot.com 9
  • 10.  Speaking for the Court, Baron Bramwell said: (ER p. 1430) "It would be absurd to say that this document, which is partly in writing and partly in print, and which was filled up, signed, and made sensible by the plaintiff, was not binding upon him. A person who signs a paper like this must know that he signs it for some purpose, and when he gives it to the Company must understand that it is to regulate the rights which it explains. I do not say that there may not be cases where a person may sign a paper, and yet be at liberty to say, I did not mean to be bound by this, as if the party signing were blind, and he was not informed of its contents. But where the party does not pretend that he was deceived, he should never be allowed to set up such a defence." Dr. Tabrez Ahmad, http://corpolexindia.blogspot.com 10
  • 11.  Chief Baron Pollock, in a powerful concurring judgment said: (ER pp. 1429-30) "The plaintiff ... ought not to be allowed to say that he signed it but did not mean to be bound by it." This view of the Court of Exchequer has been followed by the courts in the United States of America (Upton v. Tribilcock, 91 US 45 (1875) and Webster Co. v. Trinidad Bean & Elevator Co., 92 F 2d 177 (4th Cir, 1937 ) . Dr. Tabrez Ahmad, http://corpolexindia.blogspot.com 11
  • 12. Weakness of the strict enforcement theory The strict enforcement theory presupposes the existence of a valid contract. However, the absence of a consensus ad idem as to the terms of the printed form casts great doubt on the issue of whether a printed form is a contract at all. Of course, where a party signs a printed form, the case for existence of a valid contract, absent a plea of non est factum, is far stronger. However, we are dealing here, not just with signed agreements, but also with printed forms, tickets, vouchers, invoices, and the like. Clearly, Baron Bramwells dictum could have no application in the case of such unilateral instruments handed across the counter by one person to another. Dr. Tabrez Ahmad, http://corpolexindia.blogspot.com 12
  • 13.  The strict enforcement theory is not a satisfactory means of resolving the issue as it requires for its applicability, a valid contract. The Madras High Court has held that printed forms are not directly enforceable in view of the absence of consensus as to the terms thereof (Lily White v. R. Munuswami, AIR 1966 Mad 13 ). There are many other examples of courts refusing to apply this strict enforcement theory. The Court of Appeals in England refused to enforce a clause in a printed form displayed in a hotel room, exempting the hotel from any liability for loss (Olley v. Marlborough Court, (1949) 1 All ER 127 ) . Dr. Tabrez Ahmad, http://corpolexindia.blogspot.com 13
  • 14. The "democratic contract" argument Some American writers (See Karl N. Llewelyn, Prausnitz, "The Standardization of Commercial Contracts in English and Continental Law", 52 HARV. L. REV. 700, 704 (1939 ) have argued that standard form contracts are invalid as they are not made democratically. They argue that since so much law is made by standard form it is important that it be made democratically i.e. in accordance with the desires of the immediate parties to the contract. Indeed, in the usual case, the consumer never even reads the form, or reads it only after he has become bound by its terms. Even the fastidious few who take the time to read the standard form may be helpless to vary it. The form may be part of an offer which the consumer has no reasonable alternative but to accept. Dr. Tabrez Ahmad, http://corpolexindia.blogspot.com 14
  • 15.  The commercial relations between parties are governed by contract, which in the traditional sense, must be considered as being democratic because a traditional contract embodies the agreement of both parties, unless a contract is coerced, therefore, the "government" it creates is by its nature "government by and with the consent of the governed". But the overwhelming proportion of standard forms are not democratic because they are not, under any reasonable test, the agreement of the consumer or business recipient to whom they are delivered. It is in this sense that an argument is made that printed form contracts violate the principle of democracy, which is argued as being applicable to contracts between parties. Dr. Tabrez Ahmad, http://corpolexindia.blogspot.com 15
  • 16. Weakness of democratic contract theory This doctrine too is not free from criticism. Firstly, the applicability of the principle of democracy to contracts between parties is questionable. Secondly, this theory invests with the courts a virtual power of judicial review over contractual terms. Rakoff criticises the carte blanche given to courts under this theory, with the words, "A theory of judicial review requires not only an explanation why a court should be empowered to intervene, but also a justification for limiting the court to merely reviewing the matter rather than deciding it de novo." If this democratic contract principle were to be applied as an extension of the law requiring consensus ad idem, then, truly, we are no further from where we began, and this theory gives us no new direction. Dr. Tabrez Ahmad, http://corpolexindia.blogspot.com 16
  • 17. The unconscionability doctrine The argument on standard form contracts which has possibly received the greatest amount of judicial attention is the unconscionability doctrine. Courts in various common law jurisdictions have held that contractual terms unilaterally thrust by one party upon the other can, in certain circumstances, be held to be unconscionable, and therefore, unenforceable. Of course, each jurisdiction has evolved its own tests for determining the unconscionability or otherwise, of a given set of facts. Dr. Tabrez Ahmad, http://corpolexindia.blogspot.com 17
  • 18. Unconscionability in different jurisdictions India Under our legal system, Section 23 of the Contract Act deals with the issue of when contracts may be struck down. The third clause of Section 23 deals with agreements which are immoral or opposed to public policy. The Supreme Court in Central Inland Water Transport Corpn. Ltd. v. Brojo Nath Ganguly (1986) 3 SCC 156 ) held that an unfair or an unreasonable contract entered into between parties of unequal bargaining power, was void as unconscionable, under Section 23 of the Act. Thus Indian courts have, since then, shown a marked willingness to interfere with printed form contracts where there is evidence of unequal bargaining power. It has been held that the courts would relieve the weaker party to a contract from unconscionable, oppressive, unfair, unjust and unconstitutional obligations in a standard form contract ( Delhi Transport Corpn. v. DTC Mazdoor Congress, 1991 Supp (1) SCC 600 ). Dr. Tabrez Ahmad, http://corpolexindia.blogspot.com 18
  • 19.  The Supreme Court has also held that standard form contracts drawn up even by the Government must be fair, and that these contracts are open to judicial review on grounds of unreasonableness or unfairness (LIC of India v. C.E.R.C., (1995) 5 SCC 482 ). The Supreme Court has upheld a plea that a printed form contract was void on grounds of coercion, where the parties had unequal bargaining power ( Chairman and MD, NTPC Ltd. v. Reshmi Constructions, Builders and Contractors, (2004) 2 SCC 663 ) A printed form in a dry-cleaning contract, exempting the dry-cleaner from any liability in the event of loss or damage to the clothes concerned has been held to be contrary to public policy and therefore void (Lily White v. R. Munuswami, AIR 1966 Mad 13, ). This view of the Madras High Court has been followed by the Bombay High Court ( R.S. Deboo v. Dr. M.V. Hindlekar, AIR 1995 Bom 68 ). The National Consumer Disputes Redressal Commission after referring to copious case-law, refused to enforce an onerous clause in a printed form contract and accordingly relieved a consumer from the terms found thereon(Tata Chemicals v. Skypak Couriers, OP No. 66 of 1992 dated 14-12-2001 ). Dr. Tabrez Ahmad, http://corpolexindia.blogspot.com 19
  • 20. United Kingdom The law in the United Kingdom is set out in the Unfair Contract Terms Act, 1977 which confers on the courts the power to strike down a term in a contract which represents an unconscientious use of the power arising out of the circumstances and conditions of the contracting parties [Hart v. O Connor, (1985) 2 All ER 880 (PC) ]. However, the courts in that country have also held that a contract will not be struck down as unconscionable unless one of the parties to it has imposed the objectionable term in a morally reprehensible manner, by taking advantage of the weakness or necessity of the other(Alec Lobb (Garages) Ltd. v. Total Oil (GB) Ltd., (1985) 1 All ER 303 (CA) ). Dr. Tabrez Ahmad, http://corpolexindia.blogspot.com 20
  • 21. United States of America The law on unconscionability is to be found in Section 2-302 of the Uniform Commercial Code (hereinafter, "the UCC") Under this section, if the court, as a matter of law, finds the contract to have been unconscionable at the time it was made, the court may refuse to enforce the contract if there is absence of meaningful choice on the part of one of the parties, coupled with contract terms which are unreasonably favourable to the other party.The American courts have examined transactions to ascertain whether businesses have taken undue advantage of the rational and social factors that hamper consumers from identifying the meaning of terms contained in the boilerplate (Maxwell v. Fidelity Financial Services Inc., 907 P 2d 51 (Ariz, 1995) ). Dr. Tabrez Ahmad, http://corpolexindia.blogspot.com 21
  • 22. The unconscionability doctrine This doctrine therefore would step in and strike out any contracts which the court found to be unconscionable, as understood by the judicial decisions of that country. The doctrine gives the courts a very powerful tool with which to look into contracts and adjudge their validity on the basis of the ability of parties to consent on the terms thereof. Dr. Tabrez Ahmad, http://corpolexindia.blogspot.com 22
  • 23. Weakness of the unconscionability doctrine However, in India at least, the strength of this doctrine is its very drawback. Founded as it is, in the bedrock of the Indian Contract Act, its flexibility to adapt to circumstances not envisaged in Section 23 of the Act, is very limited. The Supreme Court in Central Inland Water Transport Corpn. case14, has held that an answer to an unconscionable contract can be found only in Section 23 of the Act and accordingly refused to apply this doctrine where the parties were not in unequal bargaining positions. This view of the Supreme Court has been refined in a later decision wherein it has been laid down that standard form contracts which are settled over the years and widely adopted by parties whose bargaining power is fairly matched are presumed to be fair and reasonable (Bihar SEB v. Green Rubber Industries, (1990) 1 SCC 731 ). Dr. Tabrez Ahmad, http://corpolexindia.blogspot.com 23
  • 24.  Judged by the Central Inland Water Transport Corpn. standard, most consumer contracts would escape the applicability of this doctrine. However, the modification provided by Green Rubber case provides a more sound footing for the unconscionability doctrine, making standard form contracts binding where they have additionally derived legitimacy through the force of trade usages. However, a study of the authorities would reveal that it is Central Inland Water Transport Corpn. case which has been repeatedly followed by successive Benches of the Supreme Court and not Green Rubber case. Dr. Tabrez Ahmad, http://corpolexindia.blogspot.com 24
  • 25. The notice theory The "notice theory" is a principle evolved by common law jurisdictions as an exception to the strict enforcement theory. This principle states that a clause in a printed form is not binding unless the attention of the other party is drawn thereto, and such clause is brought to his or her notice. The English courts have held to be unenforceable a clause in a printed parking ticket, on the ground that its terms were not brought to the notice of the customer in question (Thornton v. Shoe Lane Parking Ltd., (1971) 1 All ER 686 ). It has been held that the proper manner of proving notice is by a written document signed by the party to be bound. Another way is by handing him, before or at the time of the contract, a written notice specifying certain terms and making it clear to him that the contract is in those terms. Dr. Tabrez Ahmad, http://corpolexindia.blogspot.com 25
  • 26.  Lord Denning has held (Olley v. Marlborough Court, (1949) 1 All ER 127) that a prominent public notice which is plain for him to see when he makes the contract would, no doubt, have the same effect, but nothing short of one of these three ways will suffice. The more onerous or unusual the clause the more stringent is the requirement of notice imposed by the courts. Lord Denning in his inimitable style in one such case (J. Spurling Ltd. v. Bradshaw, (1956) 2 All ER 121 at p. 125 ) remarked: "Some clauses which I have seen would need to be printed in red ink on the face of the document with a red hand pointing to it before the notice could be held to be sufficient." Thus, a mere printed receipt or ticket handed over across the counter will not suffice, as notice (Chapelton v. Barry Urban District Council, (1940) 1 All ER 356 (CA) ). Dr. Tabrez Ahmad, http://corpolexindia.blogspot.com 26
  • 27.  In the case, (Mukul Dutta Gupta v. Indian Airlines Corpn., AIR 1962 Cal 311 ) the Calcutta High Court held to be binding, the conditions of carriage applicable to an air ticket, which were printed in small font, on the inside of the air ticket. The High Court was of the view that sufficient steps were taken by the airline company to bring these conditions of carriage to the notice of the customers. Similarly,in the (Indian Airlines Corpn. v. Jothaji Maniram, AIR 1959 Mad 285 ).Madras High Court held to be binding, certain conditions limiting the liability of a carrier, which were printed on the consignment note. The High Court was of the view that these were the conditions that the customer could reasonably expect to be bound by in the course of such transactions. Dr. Tabrez Ahmad, http://corpolexindia.blogspot.com 27
  • 28. Weakness of the notice theory The difficulty with the notice theory is its subjectivity. The question as to what constitutes sufficient notice of a particular clause varies from case to case. In cases of mass issuance of a printed form, such as in the case of a ticket, the consumer may notice the clause but still feel unable to negotiate the clause. Thus, there are cases where a party is either aware of, or is deemed to be aware (by constructive notice) of a clause, and yet, the contract would still not truly represent the terms of the understanding between the parties. The notice theory fails to address this problem. Dr. Tabrez Ahmad, http://corpolexindia.blogspot.com 28
  • 29. A new theory As seen above, standard form contracts are entered into by people all the time and in every sphere of activity. An irrational distrust of all standard form contracts would be as dangerous as a facile acceptance and enforcement of these contracts. If people have the inclination and the time to negotiate the terms of every contract they entered into, there would definitely be more certainty in commercial interaction. However, a great deal of time would be lost in endless haggling over terms. Dr. Tabrez Ahmad, http://corpolexindia.blogspot.com 29
  • 30.  People have over time, chosen to entrust their power to negotiate the terms of an agreement with the person with whom they intend to enter into commercial relations. The provider of services or the purveyor of goods who has to interact with numerous people is normally delegated with this power by the masses who deal with him. They have neither the time nor the wherewithal to sit down and negotiate the terms upon which he will provide his services or goods to them. Furthermore, people innately believe that a person with whom a great many people are dealing can be trusted to deal with them fairly too. We have seen four theories of enforceability of standard form contracts, as well as their respective weaknesses. Dr. Tabrez Ahmad, http://corpolexindia.blogspot.com 30
  • 31.  The kind of selective invalidation of contracts which takes place by virtue of the application of the various doctrines we have seen above, causes, problems of its own. As we have seen, the courts have resorted to various formal, technical devices to achieve their ends. Although the results in the particular case may have been desirable, the technical devices used to achieve them were stretched, misconstrued, and often abused. The limited attack on unconscionable clauses through these devices also encouraged drafters of such printed form contract to try again with what they perceived as "clearer" language. This "clearer" language is always longer, more technical, and harder for the non-drafting party to understand. A vicious cycle thus results. Dr. Tabrez Ahmad, http://corpolexindia.blogspot.com 31
  • 32.  Each time a trader draws up a contract so as to best protect his interests a court finds the contract to be unfair or unjust, and invalidates it on the basis of one or the other of the doctrines we have seen above. The trader then goes back and draws up another contract with the intention of making it "watertight". Many traders follow suit. Yet again, there is a ruling of a court having the effect of depriving the trader of the immunity or protection which he desires. Fresh printed form contracts are thus drawn up, each new form being more incomprehensible to the layman, but more technically impervious to interference from the courts. If the form eventually succeeded in becoming technically impervious to interference, it would probably be totally incomprehensible as well, especially to any layman. Dr. Tabrez Ahmad, http://corpolexindia.blogspot.com 32
  • 33.  In effect, with the best of intentions, the court had completely thwarted the consumers expectations. This would be avoided if the law somehow requires fair drafting. We must recognise that printed form contracts are here to stay. We must also recognise that they will always be drawn up by traders. However, rather than rewarding the trader who drafts the most "watertight" printed form by exonerating him or her from liability, a system of adjudging validity is required which would not depend upon the wording of the clause alone. The assumption that ordinary contract law must form the framework for standard form contracts seems to derive from the proposition that all the terms of a transaction must be developed in the same way. Ordinary rules of contract law cannot be applied to standard form contracts (Todd D. Rakoff, "Contracts of Adhesion, An Essay in Reconstruction", 96 HARV. L. REV. 1173 ). Dr. Tabrez Ahmad, http://corpolexindia.blogspot.com 33
  • 34.  Now, consider a system of legal interpretation based on the principles of trust. If a customer is viewed as having entrusted to the trader, his role in the drawing up of a contract, the burden rests on the trader to show that the contract which has been drawn up is indeed fair, just and reasonable. A consumer who buys a ticket may therefore rest content in the knowledge that he will not be thrust into unfair contractual relations. In each case wherein the validity of such a printed form is called into question, the burden of proof will rest upon the trader or service provider to show that the contract he or she drew up, is not in breach of that trust reposed. Dr. Tabrez Ahmad, http://corpolexindia.blogspot.com 34
  • 35.  This theory has recently been propounded in a limited form in the United States of America, and one author there has argued that if the terms of a printed form are not reasonable and just, there has been a breach of trust and that there has been no meeting of the minds that can properly be regarded as a contract. It is understood by both parties to a standard form contract that its terms will not be read or discussed. The party who drafted and proposed the form asks and receives trust that the instrument contains no traps for the unwary, that a reasonable and well-advised person would have submitted to its terms. If the terms are not reasonable and just, there has been a breach of trust and no meeting of the minds that can properly be regarded as a contract. Dr. Tabrez Ahmad, http://corpolexindia.blogspot.com 35
  • 36.  The issue can be approached from the perspective of the provider of goods and services as well. There are certain clauses which would be within the scope of his trust, to insert into the contract. These would include clauses which have been used for long in that particular trade. Such clauses would be perfectly acceptable, since a customer could reasonably expect that such clauses, having been used by many others over the years, would be used in his or her case as well. The customer, for his or her part, is also expected to consent to certain terms, such as clauses in a contract of carriage, prohibiting the dispatch of narcotics and explosives. The insertion of these clauses in a printed form contract too, would not be illegal or invalid. Dr. Tabrez Ahmad, http://corpolexindia.blogspot.com 36
  • 37.  Thus, in my view, the enforceability of a standard form contract can be adjudged from the point of view of entrustment by one of the parties to the agreement, of his powers to negotiate and finalise the terms of that agreement, to the other party to that agreement. The consequence of this delegation is that the recipient of the authority is expected to use it in good faith. So far, so good. The difficulty arises when, in the exercise of that authority, the party drawing up the standard form contract puts in clauses which he or she believe are just and reasonable. The other person then takes further steps pursuant to the agreement, not realising that the clauses put in would probably not be considered reasonable, by him or her. Dr. Tabrez Ahmad, http://corpolexindia.blogspot.com 37
  • 38.  When one seeks to apply this "entrusted consent theory", one may be faced with arguments from the defendants that they never intended to agree to certain terms. For instance, let us assume that our cricket tickets were to contain a printed term, "No sharp objects or combustible objects allowed", in addition to the no refund clause. Would a ticket buyer be permitted, under this "delegated consent theory", that he is normally of the habit of bursting fireworks at a cricket match, and that he would never have agreed for this? If this plea were to be accepted, it would certainly constitute a serious objection to the theory. Dr. Tabrez Ahmad, http://corpolexindia.blogspot.com 38
  • 39.  Happily, this is not the case. If we are to evolve a rule for the adjudication of the validity of standard form contracts, then, we must evolve one which is applicable and adjudged on the basis of objective standards and not on subjective ones. Similarly, the tests to determine which clauses this delegated consent theory would be applicable to, would also have to be objective tests, dependent upon a delegation by a reasonable man. A man who drops his ballot in a ballot box or who makes a bid at an auction will not ordinarily be heard to say later that he thought the ballot box was a waste basket or that he was only clearing his throat. Dr. Tabrez Ahmad, http://corpolexindia.blogspot.com 39
  • 40.  Likewise, the issue as to in respect of which clauses, the party in question may have lawfully delegated his power of consent must be interpreted not according to the subjective intent of one of the participants, but as a reasonable person in the context in which the parties were positioned would interpret them. Would a reasonable man have consented (or delegated his power to consent) to a clause prohibiting the bursting of fireworks in a cricket stadium? The answer clearly is yes. This theory satisfies Central Inland Water Transport test since the extent of entrustment would naturally increase with the inequality in the bargaining power. This theory also satisfies Green Rubber test for this reason. Dr. Tabrez Ahmad, http://corpolexindia.blogspot.com 40
  • 41.  In interpreting the provisions of the Indian Trusts Act pertaining to quasi-trusts, the Honble Supreme Court (In Pierce Leslie and Co. Ltd. v. Violet Ouchterlong Wapshare, AIR 1969 SC 843 ) has stated, (p. 846, para 3) if there is no fraud, no concealment, no advantage taken, by the trustee of the information acquired by him in the character of trustee, he cannot be liable. The onus is thus upon him to establish affirmatively that the transaction was righteous and that he did not gain any pecuniary advantage by availing himself of his fiduciary character. While it may not be possible to assert that a seller of goods stands in a fiduciary position to his buyer, it would certainly be possible to content that a person entrusted with the obligation of drafting a contract intended to embody the consensus of another as well as his own, does occupy a position of trust. Dr. Tabrez Ahmad, http://corpolexindia.blogspot.com 41
  • 42.  One objection which can be taken to this theory is that it will result in courts judicially reviewing all printed form contracts, and casting an onerous burden upon merchants, bankers and other persons who draw up printed form contracts in the course of their business. This will not be the case. Firstly, the Supreme Court decision in Green Rubber case clarifies that printed forms which have been settled over the years would be deemed to be within the expectations of both parties thereto. Secondly, any printed clauses which are merely recognitive of existing trade usages and customs would also be valid, inasmuch as they do not purport to create any new rights of one party, or destroy any rights of the other. Dr. Tabrez Ahmad, http://corpolexindia.blogspot.com 42
  • 43.  Thirdly, clauses which are not unfair, arbitrary, or "unconscionable" as adjudged on the basis of existing tests, would automatically not be in breach of the trust reposed by one party in the other. Fourthly, courts will apply the principles applicable under the Indian Trusts Act to quasi-trusts, and will not annul or rescind a transaction at the instance of a party who has derived a substantial benefit thereunder, or who has been a party to the breach of trust. Fifthly and lastly, where a clause is unconscionable, this theory will enable the courts to seek out and destroy those clauses, without insisting on the requirement of proving unequal bargaining power. Dr. Tabrez Ahmad, http://corpolexindia.blogspot.com 43
  • 44.  So all the standard form contracts be tested on the basis that the person drafting the contract has been entrusted the responsibility of doing so, by the other party thereto. Where the drafting is done in vindication of the trust in good faith (by drafting in a manner consistent with the aspirations and intent of the parties), or recognitive of pre- existing trade usages, then, the trust will be held to have been validly discharged. In deciding the extent of the entrustment, one relevant factor will be whether the contract is signed or not, and another will be whether the parties have derived benefit thereunder or not. Finally, where the draftsman is found to have breached the trust reposed in him, by drafting a clause which was not in consonance with the aspirations and intent of the parties, the courts will refuse to enforce such clause. Dr. Tabrez Ahmad, http://corpolexindia.blogspot.com 44
  • 45. Thanks we will continue…… Dr. Tabrez Ahmad,http://corpolexindia.blogspot.com 45

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