contract of adhesion

8/10/2019 Contract of Adhesion

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CONTRACT OF ADHESION


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What is contract

of adhesion??Is the termadhesion havingany meaning???

The contract in which one party hasextensive bargaining power and he/sheuses it to his or her advantage.

Insurance Contract : A standardized contract form, wherethe service is provided to the consumer in a Take it orleave it basis .


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What arenecessary

ingredients of acontract of

adhesion ??? Arethey really tough

to discern???

Features1. One party having stronger bargaining

power in business.

2. Other party weaker; may beconsumer in need of a good orservice .

3. The state prior to adherence tocontract doesnt generally involvenegotiation or modification of termand conditions.

According to Law Commission : The law commission in its 103th reportobserved that, this type of contract is a

pretended contract , but have only thename as contract.


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What else couldwe say if we

dont like callingit adhesion

contracts???Is there any other

name???

Other Names:Boilerplate Contracts : Which can be

used again and again and change is notconsidered necessary.

Compulsory Contract : As there isabsolute imposition of the terms if youwant to use the service.Adhesion : This term purports that you

have to adhere to the unilateral will ofthe other party. And, Hence the name.


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Is there a zilchof social and

economic benefitto the society in

general and parties in

particular ???

Economic and Social Benefits:

1. Competitive market is upheld where a

consumer has options to choose amongthe service providers to suit theirdemand and which imposed limited risk.Example : LIC VS Bajaj Allianz.

2. Reduces transaction cost . Else, thebargaining and negotiation process may

exhaust a lot of money and time forboth seller and buyer.

3. The cost of attorney for draftingcontract and related legal expendituresare also eliminated.


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Do you think this

type ofcontracts whereno negotiation isthere is illegal ??

LegalityIn a blanket statement we can not say thatadhesion contracts are illegal. However,there is a caveat. Court can have a sayunder some conditions.In order to understand those conditionslets know the possible problems in aadhesion contract.

Troubles Inherent:1. Rarely read and incomprehensible Lengthy Written in legal jargons- Acts and

Sections are used at time difficult to acommon man.

Needs a lot of time.2. May not be a complete contact A part of contact is what you may sign

and the rest is attached later.3 . May be part of social commitment.


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Troubles with the consequence

Probability of unfair terms : Companies

may work out an unfair terms to theiradvantage by disadvantaging other partyat the same time.

Restrictive freedom in the performance: Debarred from certain jurisdictions ofyour choice. Unilaterally terminable contracts maybe another instance.

Since there cannot be a presumption of free assent in a true sense, thereforeconditions have been laid down when itwould be unenforceable.

Is there any

mortalconsequence ifI accept thecontract ???


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Which are the

touchstoneupon which thereasonable test

is made???

Basis for bringing equity Fundamental Breach : In case, the innocentparty is deprived of the substantial benefitof the contract or hits the root of thecontract, then it comes under this.Case:Skandia Insurance Co. Ltd. v. KokilabenChandravadan: [1987] 2 SCC 654Facts: Driver left the truck with runningengine - meanwhile a cleaner starteddriving and lost control causing an accident- driver the insurance company were heldliable Insurance company claimedexemption.SC Ratio: The clause of exemption is to beread with the main purpose .Hence, Insurance company were made to

pay. No exemption was granted.


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Another Similar CaseB.V. Nagaraju v. M/s. Oriental InsuranceCo. Ltd., Divisional officer, Hassan.

Facts: A vehicle in operation maximumnumber allowed 6 Vehicle was 9 whilehaving accident - Insurance companycontested on the exemption clause.Issue: whether the alleged breach ofcarrying humans in a goods vehicle, morethan the number permitted in terms of theinsurance policy, is so fundamental a breachso as to afford ground to the insurer toavoid liability altogether?Held : In addition to the fundamentalbreach, the accident was due to negligence.Hence this situation will not exempt theinsurer to pay the due amount.


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Can adequacy of

notice become aground for non-

obligation ofcontract???

Adequacy of NoticeThe test of adequacy says that thereshould be an attempt by one party tomake the other party known about anecessary provision in way which isreasonably sufficient to that making.Case: Parker v. South Eastern RailwayCompany: [1877] 2 CPD 416.Facts: Mr. Parker left a bag in thecloakroom - Paying two pence he receiveda ticket - failed to read the clause ofexclusion of liability Lost His bag andsued the company.Issue: whether the company had donewhatever was reasonably sufficient togive the plaintiff notice of the condition?Held: Company liable; by the above test.


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Is timing animperative

factor whiledeciding the

enforceability? ? ?

Really???

Timing TestThe crux of this test is that if the timing atwhich the terms are brought to notice ofthe innocent party is after the contractthen, it is unjust and bad in law.Case:Facts: Chapelton v. Barry Urban DistrictCouncil 15 and Olley v. MarlboroughCourt Ltd: [1940] 1 KB 532 .Facts: Chair was hired- ticket wasobtained from attendants - on the ticketwas written- council will not be liable forany accident or damage arising from thehire of the chair - by the canvas tearing hewas injured.

Held: If the ticket was to form an integralpart of contract then , it must have beengiven on or about time of the contract .


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Can theunconscionabilit

yof a conditionbe brought to

the rescue of thecontracting

party??

Unconscionable Agreement

Test: Unfair and Unreasonable clause in acontract entered between parties under

economic duress or by unequal bargainingcapacity may become unenforceable.Case : Central Inland Water v. Brojo NathGanguly: AIR 1986 SC 1571.Facts: After years of service in thecorporation, plaintiff was kicked out of thecompany. The company has a term for thisin the rules of the corporation. This rulewas challenged.Issue: Whether an unconscionable termcan be held to be void/ voidable underIndian Contract Act (ICA)?Held : The term was held unconscionableand opposed to public policy for it affectedthe rights of the employees. Hence void.


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Is there anystatutory support

for this?

Statutory Support Indian Law:

No specific law is there to protectinnocent parties in an unfair contract.Indian Contact Act: Sec. 16(3) UndueInfluence.Sec. 23 : Lawful & Unlawful consideration.

U.K. Law Unfair Contract Terms Act 1977 The Unfair Terms in Consumercontracts Regulations Act, 1999US Law Uniform Contract Code (1952) Contract Law Restatement,1981 Sec. 211 (3) .


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Can we

conclude thatthere is aroom for

improvement???

ConclusionIt has recommended to add Sec. 67A toICA 1872. The languages include.

(1) Where the court on the terms of the contract oron the evidence adduced by the parties, comes tothe conclusion that the contract or any part of it isunconscionable, it may refuse to enforce thecontract or the part that it holds to beunconscionable.(2) Without prejudice to the generality of theprovision of this section, a contract or part of it isdeemed to be unconscionable, if it exempts anyparty thereto form:(a) the liability for willful breach of thecontract, or(b) the consequences of negligence.


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contract of adhesion

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