When a large number of contracts have got to be entered into 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 conditions” become binding as part of the contract only if they are brought to the notice of the acceptor before or at the time of the 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:-
(1) 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 the terms,. Where an adequate notice is not given the offeree is not bound by the terms.
(2) Notice should be contemporaneous with the contract – if a party to the contract wants to have exemption from liability he must give a notice about the exemption while the
contract is being entered into and not thereafter ( Olley Vs. Marlborough Court. Ltd.)
(3) Terms of contract should be reasonable – if the terms of the contract are unreasonable and opposed to public policy, they will not be enforced.
(4) 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, the dry cleaner has to be answerable , even if the contract contains all sorts of exemption clauses, if the cloth is altogether lost.
(5) Strict construction – a strict construction shall be applied to exemption clause, and any ambiguity is to be resolved in favour of the weaker party.
(6) Statutory protection – The English Unfair Contract Terms Act, 1977 severely limits the right of the contracting parties to exclude or limit their liability through exemption clauses
in the agreement. India lacks such an Act.