Standard form contract

Standard form contracts are generally enforceable in the United States. The Uniform Commercial Code which is followed in most American states has specific provisions relating to standard form contracts for the sale or lease of goods. Furthermore, standard form contracts will be subject to special scrutiny if they are found to be contracts of adhesion.

The concept of the contract of adhesion originated in French civil law, but did not enter American jurisprudence until the Harvard Law Review published an influential article by Edwin W. Patterson in 1919.[8] It was subsequently adopted by the majority of American courts, especially after the Supreme Court of California endorsed adhesion analysis in 1962. See Steven v. Fidelity & Casualty Co., 58 Cal. 2d 862, 882 n.10 (1962) (explaining the history of the concept).[9]

For a contract to be treated as a contract of adhesion, it must be presented on a standard form on a "take it or leave it" basis, and give one party no ability to negotiate because of their unequal bargaining position. The special scrutiny given to contracts of adhesion can be performed in a number of ways:

• If the term was outside of the reasonable expectations of the person who did not write the contract, and if the parties were contracting on an unequal basis, then it will not be enforceable. The reasonable expectation is assessed objectively, looking at the prominence of the term, the purpose of the term and the circumstances surrounding the acceptance of the contract.
• Section 211 of the American Law Institute's Restatement (Second) of Contracts, which has persuasive though non-binding force in courts, provides:

  Where the other party has reason to believe that the party manifesting such assent would not do so if he knew that the writing contained a particular term, the term is not part of the agreement.

  This is a subjective test focusing on the mind of the seller and has been adopted by only a few state courts.
• The doctrine of unconscionability is a fact-specific doctrine arising from equitable principles. Unconscionability in standard form contracts usually arises where there is an "absence of meaningful choice on the part of one party due to one-sided contract provisions, together with terms which are so oppressive that no reasonable person would make them and no fair and honest person would accept them." (Fanning v. Fritz's Pontiac-Cadillac-Buick Inc.[10])

Courts in the United States have faced the issue of shrink wrap contracts in two ways. One line of cases follows ProCD v. Zeidenberg which held such contracts enforceable (e.g. Brower v Gateway), and the other follows Klocek v. Gateway, Inc, which found them unenforceable. These decisions are split on the question of assent, with the former holding that only objective manifestation of assent is required while the latter require at least the possibility of subjective assent.

In Canada, exclusion clauses in a standard form contract cannot be relied on where a seller knows or has reason to know a purchaser is mistaken as to its terms (Tilden Rent-A-Car Co. v. Clendenning).

Standard form contracts have generally received little special treatment under Australian common law. A 2003 New South Wales Court of Appeal case (Toll (FGCT) Pty Limited v Alphapharm Pty Limited) gave some support for the position that notice of exceptional terms is required for them to be incorporated. However the defendant successfully appealed to the High Court so currently there is no special treatment of standard form contracts in Australia.

Since 1 January 2011, the Australian Consumer Law has been enacted in Australia at the national level, and due to a Council of Australian Governments (COAG) agreement this legislation is now part of each jurisdiction's (state's or territory's) Fair Trading laws.[11]

In India leonine contracts are generally deemed unconscionable contracts (though not all leonine contracts are unconscionable contracts) and are voidable. The 199th Law Commission report (2006) on "UNFAIR (PROCEDURAL & SUBSTANTIVE) TERMS IN CONTRACT" deals with it. The unfairness can be procedural or substantive. However, standard form contracts are ubiquitous in India and especially in the digital age, standard form contracts are used much more frequently than any other form. They can be legally valid if reasonable notice has been given and if the terms are not unreasonable.[12] Unfair terms in non-negotiated agreements are often held void.[13]

Section 3 of the Unfair Contract Terms Act 1977 limits the ability of the drafter of consumer or standard form contracts to draft clauses that would allow him to exclude liability in what is termed an exclusion clause – the act does not per se render ineffective provisions in other areas which to the layman appear "unfair". Where a contract has negotiated the provisions of the act likely would not apply – the law protects from a lot of things but openly making a bad bargain is not one of them.

The Standard Form Contract Act 1982 defines a set of depriving conditions that may be canceled by a court of law, including unreasonable exclusion or limitation of liability, unreasonable privileges to unilaterally cancel, suspend or postpone the execution of the contract and to change any fundamental charges or pricing, transfer of liability for the execution of the contract to a third party, unreasonable obligation to use the services of a third party or to limit, in any way, the choice of contracting third parties, denial of legal remedy, unreasonable limitations on contractual remedies or setting unreasonable conditions for the consummation of the remedy, denying or limiting the right for legal procedures, exclusive rights to decide on the location of the trial or arbitration, obligatory arbitration with unilaterally control over the arbitrators or the location of the arbitration and setting the holder of the burden of proof contrary to common law. The act also establishes a Standard Form Contract Court, chaired by a district judge and consists of a maximum of 12 members, appointed by the justice minister, including an acting chairman (also a district judge), civil servants (no more than a third) and, at least, 2 consumer organization representatives. The court holds hearings regarding appeals against standard form contract clauses or approval of a specific standard form contract at the requests of a provider.

Standard conditions in Lithuania shall be such provisions that are prepared in advance for general and repeated use by one contracting party without their content being negotiated with another party, and which are used in the formation of contracts without negotiation with the other party. Standard conditions prepared by one of the parties shall be binding to the other if the latter was provided with an adequate opportunity of getting acquainted with the said conditions (Article 6.185. Standard conditions of contracts, Lithuanian Civil Code).[14] A consumer shall have the right to claim within the judicial procedure for invalidity of conditions in a consumer contract that are contrary to the criterion of good faith (Article 6.188).

In July 2013, Russian Dmitry Agarkov won a court case against Tinkoff Bank after he altered the standard form contract he had received in the mail. The bank, failing to notice the changes, accepted the application and gave him an account based on the amended contract. The judge ruled that the bank was legally bound to the contract it had signed. Agarkov is further suing the bank for failing to comply with the terms he had added to the contract, which it had unwittingly agreed to by signing the contract. Agarkov's lawyer, Dmitry Mihalevich said – "They signed the documents without looking. They said what usually their borrowers say in court: 'We have not read it'."[15]