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CONTRACT OF ADHESION

What is contract of adhesion??Is the term adhesion having any meaning???

DefinitionThe contract in which one party has extensive bargaining power and he/she uses it to his or her advantage.Example:Insurance Contract : A standardized contract form, where the service is provided to the consumer in a Take it or leave it basis.

What are necessary ingredients of a contract of adhesion ??? Are they really tough to discern???Ingredients of contract of adhesionFeaturesOne party having stronger bargaining power in business.

Other party weaker; may be consumer in need of a good or service.

The state prior to adherence to contract doesnt generally involve negotiation or modification of term and conditions. According to Law Commission: The law commission in its 103th report observed that, this type of contract is a pretended contract, but have only the name as contract.

What else could we say if we dont like calling it adhesion contracts???Is there any other name???

Other NamesBoilerplate Contracts: Which can be used again and again and change is not considered necessary.

Compulsory Contract: As there is absolute imposition of the terms if you want to use the service.

Adhesion: This term purports that you have to adhere to the unilateral will of the other party. And, Hence the name.

Is there a zilch of social and economic benefit to the society in general and parties in particular ???Economic and Social Benefits: Competitive market is upheld where a consumer has options to choose among the service providers to suit their demand and which imposed limited risk. Example : LIC VS Bajaj Allianz. Reduces transaction cost. Else, the bargaining and negotiation process may exhaust a lot of money and time for both seller and buyer. The cost of attorney for drafting contract and related legal expenditures are also eliminated.

Do you think this type of contracts where no negotiation is there is illegal ??LegalityIn a blanket statement we can not say that adhesion contracts are illegal. However, there is a caveat. Court can have a say under some conditions. In order to understand those conditions lets know the possible problems in an adhesion contract. Troubles InherentRarely read and incomprehensible Lengthy Written in legal jargons- Acts and Sections are used at time difficult to a common man. Needs a lot of time.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.

Troubles with the consequence

Probability of unfair terms: Companies may work out an unfair term to their advantage by disadvantaging other party at the same time.

Restrictive freedom in the performance:Debarred from certain jurisdictions of your choice. Unilaterally terminable contracts may be another instance.

Since there cannot be a presumption of free assent in a true sense, therefore conditions have been laid down to when it would be unenforceable. Is there any mortal consequence if I accept the contract ???

Which are the touchstone upon which the reasonable test is made???Basis for bringing equityFundamental Breach: In case, the innocent party is deprived of the substantial benefit of the contract or the unfair clause hits the root of the contract, then court rescues.Case:Skandia Insurance Co. Ltd. v. KokilabenChandravadan: [1987] 2 SCC 654Facts: Driver left the truck with running engine - meanwhile a cleaner started driving and lost control causing an accident - driver the insurance company were held liable Insurance company claimed exemption.SC Ratio: The clause of exemption is to be read with the main purpose . Hence, Insurance company were made to pay. No exemption was granted.

Another Similar CaseB.V. Nagaraju v. M/s. Oriental Insurance Co. Ltd., Divisional officer, Hassan.Facts: A vehicle in operation maximum number of people allowed 6 Had an accident - Insurance company brought exemption clause.

Issue: Whether the alleged breach of carrying humans in a goods vehicle, more than the number permitted in terms of the insurance policy, is so fundamental a breach so as to afford ground to the insurer to avoid liability altogether?

Held: In addition to the fundamental breach, the accident was due to negligence. Hence this situation will not exempt the insurer to pay the due amount.

Can adequacy of notice become a ground for non- obligation of contract???Adequacy of NoticeThe test of adequacy says that there should be an attempt by one party to make the other party known about a necessary provision in way which is reasonably sufficient to that making.

Case: Parker v. South Eastern Railway Company: [1877] 2 CPD 416. Facts: Mr. Parker left a bag in the cloakroom - Paying two pence he received a ticket - failed to read the clause of exclusion of liability Lost His bag and sued the company.Issue: whether the company had done whatever was reasonably sufficient to give the plaintiff notice of the condition?Held: Company liable; by the above test.

Is timing an imperative factor while deciding the enforceability?? ?Really???Timing Test The crux of this test is that if the timing at which the terms are brought to notice of the innocent party is after the contract then, it is unjust and bad in law.Case: Facts: Chapelton v. Barry Urban District Council 15 and Olley v. Marlborough Court Ltd: [1940] 1 KB 532 .Facts: Chair was hired- ticket was obtained from attendants - on the ticket was written- council will not be liable for any accident or damage arising from the hire of the chair - by the canvas tearing he was injured.Held: If the ticket was to form an integral part of contract then, it must have been given on or about time of the contract.

Can the unconscionabilityof a condition be brought to the rescue of the contracting party??Unconscionable AgreementTest: Unfair and Unreasonable clause in a contract entered between parties under economic duress or by unequal bargaining capacity may become unenforceable. Case: Central Inland Water v. Brojo Nath Ganguly: AIR 1986 SC 1571.Facts: After years of service in the corporation, plaintiff was kicked out of the company. The company has a term for this in the rules of the corporation. This rule was challenged.Issue: Whether an unconscionable term can be held to be void/ voidable under Indian Contract Act (ICA)?Held: The term was held unconscionable and opposed to public policy for it affected the rights of the employees. Hence void.

Is there any statutory support for this?

Statutory SupportIndian Law: No specific law is there to protect innocent parties in an unfair contract. Indian Contact Act: Sec. 16(3) Undue Influence.Sec. 23 : Lawful & Unlawful consideration.U.K. LawUnfair Contract Terms Act 1977The Unfair Terms in Consumer contracts Regulations Act, 1999US LawUniform Contract Code (1952) Contract Law Restatement,1981 Sec. 211 (3) .

Can we conclude that there is a room for improvement ???

ConclusionIt has recommended to add Sec. 67A to ICA 1872. The section says as follows:

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

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