When a large number of contracts have got to be entered 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. An insurance policy, shares or a railway ticket are few examples of such standardized contracts. The “special terms and condition” become binding as part of the contract only if they are brought to the notice of the acceptor before or at the time of contract. In view of the unequal bargaining power of the two parties, the courts and the legislature have evolved certain rules to protect the interest of the weaker party:
Reasonable notice – e.g. by printing on a ticket, “For conditions see back or obtaining signatures on the document containing terms, or otherwise explaining the terms. Where an adequate notice is not given the offeree is not bound by the terms.
Notice should be contemporaneous with the contract – If a party to the contract want to have exemption from liability he must give a notice about the exemption while the contract is being entered into and not thereafter (Olley v Marlborough Court, Ltd. (1949) 1 K.B. 532).
Terms of contract should be reasonable- If the terms of the contract are unreasonable and opposed to public policy, they will not be enforced.
Fundamental breach of contract- No exemption clause is allowed to permit the non-compliance of the basic contractual obligation i.e. .obligation which is fundamental or core of the contract. Thus, a dry cleaner has to be answerable, even if the contract contains all sorts of exemption clauses, if the cloth is altogether lost.
Strict construction – A strict construction shall be applied to exemption clause, and any ambiguity is to be resolved in favour of the weaker party.
2.1. Which of the following is not an example of standardized form of contract?
a. Insurance policy
b. Shares
c. Railway ticket
d. Sale of goods
Ans. D
Rationale: An insurance policy, shares or a railway ticket are few examples of such standardized contracts. Hence, D is the answer.
2.2. ‘X’ purchased a bus ticket which contained special terms and conditions relating to luggage of the passengers. These terms and conditions were not printed on the ticket and was not brought to his notice while buying the ticket. Whether these special terms and conditions are binding on ‘X’?
a No, because he was not made aware of the special terms and conditions.
b Yes, because he bought the bus ticket.
c. Yes, because the contract is concluded and hence X is bound by special terms and conditions.
d. Both B and C.
Ans. A
Rationale: The “special terms and condition” become binding as part of the contract only if they are brought to the notice of the acceptor before or at the time of contract. Hence, A is the correct answer.
2.3. A dry-cleaner loses the cloths of a client. The client had entered into a standardized form of contract with the dry-cleaner. The contract exempted the dry-cleaner against any kind of liability resulting from loss or damage to the clothes. Whether the dry-cleaner is liable for loss of clothes?
a. No, as he is exempted from any liability resulting from loss or damage to the clothes.
b. Maybe, depends on the terms and conditions tof the contract.
c. Yes, as this amounts to fundamental breach of contract.
d. None of the above.
Ans. C
Rationale: No exemption clause is allowed to permit the non-compliance of the basic contractual obligation i.e. .obligation which is fundamental or core of the contract. Thus, a dry cleaner has to be answerable, even if the contract contains all sorts of exemption clauses, if the cloth is altogether lost.
2.4 X entered into an insurance contract with ABC insurance company. The contract contained an exemption clause which was ambiguous. How should such a clause be interpreted?
a. It should be interpreted in favour of the dominant party.
b. It should be interpreted in favour of the weaker party.
c. Intent of the parties to the contract must be considered.
d. None of the above.
Ans. B
Rationale: A strict construction shall be applied to exemption clause, and any ambiguity is to be resolved in favour of the weaker party.
2.5 Which of the following can be attributed to passage?
a. In view of the unequal bargaining power of the two parties, the courts and the legislature have evolved certain rules to protect the interest of the dominant party.
b. If a party to the contract want to have exemption from liability he must give a notice about the exemption while the contract is being entered into and not thereafter.
c. If the terms of the contract are unreasonable and opposed to public health, they will be enforced.
d. Where an adequate notice is given the offeree is not bound by the terms.
Ans. B
Rationale: If a party to the contract want to have exemption from liability he must give a notice about the exemption while the contract is being entered into and not thereafter.
