Standard form contract

Legal issues arising in Indian

Friday, October 23, 2009 Dr. Tabrez Ahmad, KLS KIIT. 1

 Exemption or Limitation Clauses

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 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."

Friday, October 23, 2009 Dr. Tabrez Ahmad, KLS KIIT. 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".

Friday, October 23, 2009 Dr. Tabrez Ahmad, KLS KIIT. 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

Friday, October 23, 2009 Dr. Tabrez Ahmad, KLS KIIT. 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.

Friday, October 23, 2009 Dr. Tabrez Ahmad, KLS KIIT. 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.

Friday, October 23, 2009 Dr. Tabrez Ahmad, KLS KIIT. 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 business's 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 business's
agent to sign quickly and may believe that the events described in the boilerplate are
too remote to be worth worrying about.

Friday, October 23, 2009 Dr. Tabrez Ahmad, KLS KIIT. 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.

Friday, October 23, 2009 Dr. Tabrez Ahmad, KLS KIIT. 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.

Friday, October 23, 2009 Dr. Tabrez Ahmad, KLS KIIT. 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."

Friday, October 23, 2009 Dr. Tabrez Ahmad, KLS KIIT. 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 ) .

Friday, October 23, 2009 Dr. Tabrez Ahmad, KLS KIIT. 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 Bramwell's dictum could have no application in the
case of such unilateral instruments handed across the
counter by one person to another.

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 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 ) .

Friday, October 23, 2009 Dr. Tabrez Ahmad, KLS KIIT. 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.

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 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.

Friday, October 23, 2009 Dr. Tabrez Ahmad, KLS KIIT. 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.

Friday, October 23, 2009 Dr. Tabrez Ahmad, KLS KIIT. 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.

Friday, October 23, 2009 Dr. Tabrez Ahmad, KLS KIIT. 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 ).

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 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 ).


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 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) ).

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 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) ).

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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.

Friday, October 23, 2009 Dr. Tabrez Ahmad, KLS KIIT. 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 ).

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 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.

Friday, October 23, 2009 Dr. Tabrez Ahmad, KLS KIIT. 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.

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 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) ).

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 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.

Friday, October 23, 2009 Dr. Tabrez Ahmad, KLS KIIT. 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.

Friday, October 23, 2009 Dr. Tabrez Ahmad, KLS KIIT. 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.

Friday, October 23, 2009 Dr. Tabrez Ahmad, KLS KIIT. 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.

Friday, October 23, 2009 Dr. Tabrez Ahmad, KLS KIIT. 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.

Friday, October 23, 2009 Dr. Tabrez Ahmad, KLS KIIT. 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.

Friday, October 23, 2009 Dr. Tabrez Ahmad, KLS KIIT. 33

 In effect, with the best of intentions, the court had completely thwarted
the consumer's 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 ).

Friday, October 23, 2009 Dr. Tabrez Ahmad, KLS KIIT. 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.

Friday, October 23, 2009 Dr. Tabrez Ahmad, KLS KIIT. 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.

Friday, October 23, 2009 Dr. Tabrez Ahmad, KLS KIIT. 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.

Friday, October 23, 2009 Dr. Tabrez Ahmad, KLS KIIT. 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.

Friday, October 23, 2009 Dr. Tabrez Ahmad, KLS KIIT. 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.

Friday, October 23, 2009 Dr. Tabrez Ahmad, KLS KIIT. 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.

Friday, October 23, 2009 Dr. Tabrez Ahmad, KLS KIIT. 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.

Friday, October 23, 2009 Dr. Tabrez Ahmad, KLS KIIT. 41

 In interpreting the provisions of the Indian Trusts Act pertaining to
quasi-trusts, the Hon'ble 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.

Friday, October 23, 2009 Dr. Tabrez Ahmad, KLS KIIT. 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.

Friday, October 23, 2009 Dr. Tabrez Ahmad, KLS KIIT. 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.

Friday, October 23, 2009 Dr. Tabrez Ahmad, KLS KIIT. 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.

Friday, October 23, 2009 Dr. Tabrez Ahmad, KLS KIIT. 45

 Thanks we will continue……

Friday, October 23, 2009 Dr. Tabrez Ahmad, KLS KIIT. 46