What are Standard Contracts – A Detailed Analysis

Saumya Garg, a 3rd-Year BBA LL.B student of UPES, Dehradun has written this article explaining “What are Standard Contracts – A Detailed Analysis”

INTRODUCTION

A standard contract is a legally binding agreement commonly used in business and consumer transactions. Standard agreement offered for acceptance or rejection by another party; pre-prepared and standardized. In circumstances when the parties are not on equal negotiating terms, such as between a huge firm and a customer, standard contracts are frequently employed. Modern commercial transactions frequently include the use of standard-form contracts. They are pre-written contracts that use pre-printed forms and standardized, non-negotiable clauses.

The terms “boilerplate contracts,” “contracts of adhesion,” and “take it or leave it” contracts have all been used to describe these agreements. The parties to the transaction, the party with the strongest negotiating position who frequently engages in such transactions, writes the terms, which are frequently presented in the fine print. The terms are not modifiable by the consumer, with very few exceptions.

Common agreements between suppliers and customers are meant to be more cost-effective and efficient through the use of standard-form contracts. They can, however, potentially unfairly favor suppliers or vendors and take advantage of the parties’ uneven bargaining positions. As a result, the weaker party may not be transparent or grasp the contract’s provisions[1].

LEGAL STATUS OF STANDARD FORM OF CONTRACT IN INDIA

The Indian Contract Act, of 1872 is largely responsible for determining the legal standing of standard-form contracts in India. The Act contains various provisions that are pertinent to the formulation and enforcement of standard-form contracts and specifies a contract as an agreement that is enforceable by law.

Standard-form contracts are often recognized as legal and enforceable under Indian law so long as they satisfy the criteria for a legal contract, such as informed and free consent, consideration, and a legitimate object. However, standard-form contracts also have some drawbacks, notably in terms of their enforcement and fairness, which the courts have acknowledged.

The parties’ limited ability to bargain is one of the main problems with standard-form contracts. A big firm often holds more negotiating power than a small business or customer, creating imbalanced situations. Particularly if the terms are non-negotiable, this may lead to unjust or unreasonable terms.

The enforceability of standard form contracts is governed by a set of norms and principles that the Indian courts have adopted to relieve these worries. One such rule is that a standard form contract’s provisions must be explicit and clear. The courts have also acknowledged that some clauses may be deemed unjust and unenforceable, such as those that disclaim liability for carelessness or contract violations.

The Indian government has also passed several laws and rules that expressly deal with standard-form contracts. The Consumer Protection Act of 2019 offers customers several defenses against unfair contract clauses, such as the ability to pursue compensation for dishonest or constrictive business practices.

Life Insurance Corporation of India v. D.J. Bahadur

To evaluate the validity of these kinds of contracts and avoid exploitation, Indian courts have developed procedures. The Supreme Court of India ruled in Life Insurance Corporation of India v. D.J. Bahadur that standard form contracts are admissible if they are neither unfair nor against the law. The court ruled that a standard form contract’s contents must be unequivocal and plain and that the party seeking to enforce the agreement must demonstrate that the other party was aware of its terms.

Overall, standard-form contracts are recognized as legitimate and enforceable under Indian law, but they are also subject to several regulations and principles that are intended to safeguard the rights and interests of all parties, especially those who may not have as much negotiating power. Standard contract forms are acceptable and permitted in India. To assess the validity of these contracts and avoid exploitation, the courts have created procedures.  A standard form contract must have explicit and unambiguous terms, and the party seeking to enforce it must demonstrate that the other party was aware of them. Any standard form contract should be properly read and comprehended before being signed. Before signing the contract, it’s vital to negotiate or get legal counsel if there are any confusing or unjust conditions[2].

ADVANTAGES OF STANDARD FORM CONTRACTS

Boilerplate contracts, usually referred to as standard form agreements, provide various benefits for both customers and enterprises. Among the principal benefits are:

EFFICIENCY

Transactions may be made more efficient and more affordable by using standard-form contracts. This is because they employ standardized terminology and phrasing that is frequently seen in contracts of a similar nature. This can help both parties save time and resources by reducing the need for drawn-out talks between the parties.

CONSISTENCY AND PREDICTABILITY

Standard form contracts provide the parties with a certain amount of consistency and predictability. The parties may comprehend their rights and duties under the contract since the phrases are standardized and frequently used. This may lessen misunderstandings and conflicts.

ACCESS TO GOODS AND SERVICES

Standard form contracts may assist in enhancing consumer access to products and services. This is because standardized terminology and language make it simpler for companies to provide their goods and services to a larger variety of customers.

ERROR RISK REDUCTION

Standard-form contracts can aid in lowering the possibility of contract mistakes or omissions. This is because there is less chance of errors or omissions. After all, the terms have been tested in prior transactions and are standardized.

LEGAL PROTECTION

The parties may be given legal protection through standard-form contracts. Breach of contract can result in legal action, as provisions are typically enforceable in court by the affected party.

Standard form contracts provide several benefits for both enterprises and customers, including effectiveness, clarity, predictability, enhanced accessibility to goods and services, less chance of mistakes, and legal protection. Standard-form contracts may have disadvantages such as a lack of flexibility and potential injustice, yet because of their benefits, they are often used in business and consumer transactions[3].

DISADVANTAGES OF STANDARD FORM CONTRACTS

Even if using standard-form contracts has certain benefits, there are also several drawbacks. These consist of:

LACK OF NEGOTIATING POWER

The inability to negotiate may lead to unfair terms for the other party, as a consequence. Standard form agreements are often non-negotiable, which implies that the parties cannot alter the agreement’s provisions to meet their particular requirements. This may restrict the parties’ capacity to modify the agreement to reflect their particular situation.

ONE-SIDED CLAUSES

Clauses in standard form contracts may be lopsided and highly weighted in the writer’s favor. This might make it challenging for the opposite party to comprehend the agreement’s provisions or to negotiate more fair conditions.

Terms that are vague or ambiguous might result in misunderstandings and disagreements between the parties and can be found in standard-form contracts.

Standard-form contracts can be challenging for the typical individual to read and comprehend since they frequently include complicated legal jargon and are long. This might make it difficult for the other party to comprehend all of the contract’s contents as well as their rights and duties.

THE UNENFORCEABILITY OF SOME CLAUSES

If a clause in a standard form contract is deemed unfair or unjust, it may not be enforceable in court.

Standard-form contracts have many drawbacks, including a lack of bargaining power, limited flexibility, one-sided terms, unclear or ambiguous terms, difficulty reading and understanding, and the potential unenforceability of some terms. Standard form contracts do, however, have some benefits, such as efficiency and predictability. Before consenting to the provisions of a standard form contract, parties should thoroughly analyze and comprehend them[4].

VARIOUS JUDICIAL PRONOUNCEMENTS

Life Insurance Corporation of India v. D.J. Bahadur

The Supreme Court of India ruled in Life Insurance Corporation of India v. D.J. Bahadur [5]that standard form contracts are enforceable if they are neither unfair nor against the law. The court ruled that a standard form contract’s contents must be unequivocal and plain and that the party who wants to enforce the agreement must demonstrate that the other party was aware of its terms.

M/s Dozco India Pvt. Ltd v. M/s Doosan Infracore Co. Ltd.

The Delhi High Court ruled in M/S. Dozco India Pvt. Ltd. v. M/S. Doosan Infracore Co. Ltd. [6]that a standard form contract cannot be enforced if it is unconscionable and one-sided. The court also ruled that to enforce a contract, one party must demonstrate that the other party was aware of its provisions.

M/S Gujarat Maritime Board v. Larsen & Toubro Ltd.

A standard form contract can be enforced if it is not unconscionable or against public policy, according to the Supreme Court of India’s ruling in M/S. Gujarat Maritime Board v. Larsen & Toubro Ltd.[7] The court also ruled that to enforce a contract, one party must demonstrate that the other party was aware of its provisions.

M/S Bharat Sanchar Nigam Ltd. v. Motorola India Pvt. Ltd

The Supreme Court of India found that a standard form contract can be enforced provided it is not unconscionable or against public policy in M/S. Bharat Sanchar Nigam Ltd. v. Motorola India Pvt. Ltd.[8] The court also ruled that to enforce a contract, one party must demonstrate that the other party was aware of its provisions.

Walker- Thomas Furniture Co. v. Williams

Walker-Thomas Furniture Co. v. Williams[9],  A “cross-collateralization” provision was present in the typical contract that the defendant used to sell furniture to the plaintiff in this case. Defaulted payments let the defendant repossess the plaintiff’s belongings, as stated in the provision. The clause was declared unenforceable and unconscionable by the court.

Carnival Cruise Lines, Inc. v. Shute

Carnival Cruise Lines, Inc. v. Shute[10]. In this case, the plaintiff bought a cruise ticket that had a stipulation requiring any legal issues to be filed in a certain court, known as a “forum selection clause.” The plaintiff engaged in the agreement freely and had the option to examine and reject it, thus the court upheld the clause.

STANDARD CONTRACT REGULATIONS

In India, there are no particular Standard Contract Regulations. The Indian Contract Act of 1872 does, however, acknowledge the validity of standard form agreements. A standard form contract is an agreement between two parties that forbids discussion and is either accepted or rejected. It is frequently an agreement reached between parties with different negotiating power. Standard Form Contracts are standardized contracts that have a lot of small print terms and conditions that limit and frequently exclude responsibility. Specific processes have been developed to limit exploitation in this form of contract to safeguard the interests of the weaker parties. In standard form contracts, the law of contracts has created several mechanisms for the protection of persons. The courts in India have used unique rules of interpretation that give the contract’s objective higher importance, and they have even annulled contracts where an unconscionable practice affected a significant portion of them.

India does not have any explicit Standard Contract Regulations. The Indian Contract Act, of 1872, does, however, acknowledge the existence of standard-form contracts. Specific processes have been developed to limit exploitation in this form of contract to safeguard the interests of the weaker parties. In standard form contracts, the law of contracts has created several mechanisms for the protection of persons. The courts in India have used unique rules of interpretation that give the contract’s objective higher importance, and they have even annulled contracts where an unconscionable practice affected a significant portion of them[11].

SOME DRAWBACKS OF STANDARD-FORM CONTRACTS

Standard forms of contracts come with several drawbacks. The fact that they are frequently prepared by one party, typically the one with greater bargaining strength, and the conditions are non-negotiable by the other side, is one of the key issues. This may result in an imbalance of power and the weaker side being taken advantage of. The fact that standard form contracts frequently have exclusions and restrictions on responsibility in the small print is another issue with them. As a result, the weaker party may not be transparent or grasp the contract’s provisions. Standard-form contracts may also result in disagreements about their terms. The “battle of forms,” when one party seeks to enforce its standard form contract on the other side, is what is known as. As a result, the contract’s terms may become murky and ambiguous.

They may result in power disparities and the exploitation of the weaker party, a lack of clarity and a lack of comprehension of the contract’s contents, and disagreements about those terms. Any standard form contract should be properly read and comprehended before being signed. Before signing the contract, it’s vital to negotiate or get legal counsel if there are any confusing or unjust conditions[12].

CONCLUSION

In conclusion, standard contracts are valid and enforceable as long as they adhere to certain legal requirements, such as being clear and understandable, entered into voluntarily, and not being unconscionable or against public policy. Standard contracts have been the subject of several important cases, and their usage is governed by many laws. To guarantee compliance with these laws and regulations, firms must check their standard contracts.

Standard form contracts are standardized agreements that have a lot of small print terms and conditions that limit and frequently exclude responsibility. They are frequently employed in commercial agreements if the parties do not have comparable negotiating strength. In addition, Reduced costs, quick bidding, simple contract terms, more trust in contract terms, less space for departure, and a body of established case law for future reference are all benefits of standard-form contracts. Price fixing, injustice to the party with less negotiating strength, and the possibility for ambiguity or confusion owing to boilerplate wording are drawbacks of standard form contracts, nevertheless. Any standard form contract should be properly read and comprehended before being signed. Before signing the contract, it’s vital to negotiate or get legal counsel if there are any confusing or unjust conditions[13].

REFERENCES

[1] http://ijariie.com/AdminUploadPdf/Standard_Form_Contracts__A_Comprehensive_Analysis_ijariie3494.pdf ( Last Seen 23/04/2023 at 11:00 AM).

[2] https://www.legalservicesindia.com/article/286/Standard-form-of-Contract.html (Last seen 23/04/2023 at 11:20 AM).

[3] Kaushiki, An Analysis on Standard Form of Contracts: Different Measures and Current Status in India, 6 (1) IJLMH Page 538 – 550 (2023), DOI: https://doij.org/10.10000/IJLMH.114089

[4] Ibid.

[5] 1981 SCR (1)1083

[6] 2011) 6 SCC 179

[7] (2020) 10 SCC 531.

[8] (2009) 2 SCC 337.

[9] 350 F.2d 445 (D.C. Cir. 1965).

[10] (499 U.S. 585 (1991)

[11] Michels, Johan David and Millard, Christopher and Turton, Felicity, Contracts for Clouds, Revisited: An Analysis of the Standard Contracts for 40 Cloud Computing Services (June 11, 2020). Queen Mary School of Law Legal Studies Research Paper No. 334/2020, Available at SSRN: https://ssrn.com/abstract=3624712 

[12] Ibid.

[13] Schwartz, A., & Scott, R. E. (2003). Contract Theory and the Limits of Contract Law. The Yale Law Journal, 113(3), 541–619. https://doi.org/10.2307/3657531