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A standard form contract (sometimes referred to as a ''contract of adhesion,'' a ''leonine contract'', a ''take-it-or-leave-it contract'', or a '' boilerplate contract'') is a
contract A contract is a legally binding agreement that defines and governs the rights and duties between or among its parties Image:'Hip, Hip, Hurrah! Artist Festival at Skagen', by Peder Severin Krøyer (1888) Demisted with DXO PhotoLab Clearview ...

contract
between two parties, where the terms and conditions of the contract are set by one of the parties, and the other party has little or no ability to negotiate more favorable terms and is thus placed in a "take it or leave it" position. While these types of contracts are not illegal ''per se'', there exists a potential for
unconscionability Unconscionability (sometimes known as unconscionable dealing/conduct in Australia) is a doctrine in contract law that describes terms that are so extremely unjust, or overwhelmingly one-sided in favor of the party who has the superior bargaining po ...
. In addition, in the event of an ambiguity, such ambiguity will be resolved ''
contra proferentem ''Contra proferentem'' (Latin Latin (, or , ) is a classical language belonging to the Italic languages, Italic branch of the Indo-European languages. Latin was originally spoken in the area around Rome, known as Latium. Through the power of ...
'', i.e. against the party drafting the contract language.


Theoretical issues

There is much debate on a theoretical level whether, and to what extent, courts should enforce standard form contracts. On one hand, they undeniably fulfill an important role of promoting economic efficiency. Standard form contracting reduces
transaction cost In economics and related disciplines, a transaction cost is a cost in making any economic trade when participating in a Market (economics), market. Oliver E. Williamson defines transaction costs as the costs of running an economic system of companie ...
s substantially by avoiding the need for buyers and sellers of goods and services to negotiate the details of a sale contract each time the product is sold. On the other hand, there is the potential for inefficient, and even unjust, terms to be accepted by signatories to these contracts. Such terms might be seen as unjust if they allow the seller to avoid all liability or unilaterally modify terms or terminate the contract. These terms often come in the form of, but are not limited to, forum selection clauses and mandatory arbitration clauses, which can limit or foreclose a party's access to the courts; and also liquidated damages clauses, which set a limit to the amount that can be recovered or require a party to pay a specific amount. They might be inefficient if they place the risk of a negative outcome, such as defective manufacturing, on the buyer who is not in the best position to take precautions. There are a number of reasons why such terms might be accepted: ;Standard form contracts are rarely read:Lengthy boilerplate terms are often in
fine print Fine print, small print, or mouseprint is less noticeable print smaller than the more obvious larger print it accompanies that advertises or otherwise describes or partially describes a commercial product or service. The larger print that is used ...
and written in complicated legal language which often seems irrelevant. The prospect of a buyer finding any useful information from reading such terms is correspondingly low. Even if such information is discovered, the consumer is in no position to bargain as the contract is presented on a “take it or leave it” basis. Coupled with the often large amount of time needed to read the terms, the expected payoff from reading the contract is low and few people would be expected to read it. ;Access to the full terms may be difficult or impossible before acceptance: Often the document being signed is not the full contract; the purchaser is told that the rest of the terms are in another location. This reduces the likelihood of the terms being read and in some situations, such as
software license agreement An end-user license agreement (EULA, ) is a legal contract entered into between a software developer or vendor and the user of the software Software is a collection of Instruction (computer science), instructions and data (computing), data th ...
s, can only be read after they have been notionally accepted by purchasing the good and opening the box. These contracts are typically not enforced, since common law dictates that ''all'' terms of a contract must be disclosed ''before'' the contract is executed. ;Boilerplate terms are not salient: The most important terms to purchasers of a good are generally the price and the quality, which are generally understood before the contract of adhesion is signed. Terms relating to events which have very small probabilities of occurring or which refer to particular statutes or legal rules do not seem important to the purchaser. This further lowers the chance of such terms being read and also means they are likely to be ignored even if they are read. ;There may be social pressure to sign: Standard form contracts are signed at a point when the main details of the transaction have either been negotiated or explained. Social pressure to conclude the bargain at that point may come from a number of sources. The salesperson may imply that the purchaser is being unreasonable if they read or question the terms, saying that they are "just something the lawyers want us to do" or that they are wasting their time reading them. If the purchaser is at the front of a queue (for example at an airport car rental desk) there is additional pressure to sign quickly. Finally, if there has been negotiation over price or particular details, then concessions given by the salesperson may be seen as a
gift A gift or a present is an item given to someone without the expectation of payment or anything in return. An item is not a gift if that item is already owned by the one to whom it is given. Although gift-giving might involve an expectation o ...

gift
which socially obliges the purchaser to respond by being co-operative and concluding the transaction. ;Standard form contracts may exploit unequal power relations: If the good which is being sold using a contract of adhesion is one which is essential or very important for the purchaser to buy (such as a rental property or a needed medical item) then the purchaser might feel they have no choice but to accept the terms. This problem may be mitigated if there are many suppliers of the good who can potentially offer different terms (see below), although even this is not always possible (for instance, a college freshman may be required to sign a standard-form dormitory rental agreement and accept its terms, because the college will not allow a freshman to live off-campus). Some contend that in a competitive market, consumers have the ability to shop around for the supplier who offers them the most favorable terms and are consequently able to avoid injustice. However, in the case of credit cards (and other oligopolies), for example, the consumer while having the ability to shop around may still have access to only form contracts with like terms and no opportunity for negotiation. Also, as noted, many people do not read or understand the terms so there might be very little incentive for a firm to offer favorable conditions as they would gain only a small amount of business from doing so. Even if this is the case, it is argued by some that only a small percentage of buyers need to actively read standard form contracts for it to be worthwhile for firms to offer better terms if that group is able to influence a larger number of people by affecting the firm's reputation. Another factor which might mitigate the effects of competition on the content of contracts of adhesion is that, in practice, standard form contracts are usually drafted by lawyers instructed to construct them so as to minimize the firm's liability, not necessarily to implement managers' competitive decisions. Sometimes the contracts are written by an industry body and distributed to firms in that industry, increasing homogeneity of the contracts and reducing consumers' ability to shop around.


Common law status

As a general rule, the common law treats standard form contracts like any other contract. Signature or some other objective manifestation of intent to be legally bound will bind the signor to the contract whether or not they read or understood the terms. The reality of standard form contracting, however, means that many common law jurisdictions have developed special rules with respect to them. In general, in the event of an ambiguity, the courts will interpret standard form contracts ''
contra proferentem ''Contra proferentem'' (Latin Latin (, or , ) is a classical language belonging to the Italic languages, Italic branch of the Indo-European languages. Latin was originally spoken in the area around Rome, known as Latium. Through the power of ...
'' (against the party that drafted the contract), as that party (and only that party) had the ability to draft the contract to remove ambiguity.


United States


Generally

Standard form contracts are generally enforceable in the United States. The
Uniform Commercial Code The Uniform Commercial Code (UCC), first published in 1952, is one of a number of Uniform Act In the United States The United States of America (USA), commonly known as the United States (U.S. or US), or America, is a country Contiguous ...

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.


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 The ''Harvard Law Review'' is a law review A law review (or law journal) is a scholarly journal or publication that focuses on a wide array of legal issues. A law review is a type of legal periodical. Typically, the law students initiate the p ...
'' published an influential article by Edwin W. Patterson in 1919. It was subsequently adopted by the majority of American courts, especially after the
Supreme Court of California The Supreme Court of California is the highest and final court of appeals in the courts A court is any person or institution, often as a government A government is the system or group of people governing an organized community, g ...
endorsed adhesion analysis in 1962. ''See'' ''Steven v. Fidelity & Casualty Co.'', 58 Cal. 2d 862, 882 n.10 (1962) (explaining history of concept). 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 acceptance of the contract. *Section 211 of the
American Law Institute The American Law Institute (ALI) is a research Research is "creative and systematic work undertaken to increase the stock of knowledge". It involves the collection, organization and analysis of information to increase understanding of a ...
's
Restatement (Second) of Contracts The Restatement (Second) of the Law of Contracts is a legal treatise from the second series of the Restatements of the Law In American jurisprudence, the ''Restatements of the Law'' are a set of treatises on legal subjects that seek to inform judg ...
, 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 Unconscionability (sometimes known as unconscionable dealing/conduct in Australia) is a doctrine in contract law that describes terms that are so extremely unjust, or overwhelmingly one-sided in favor of the party who has the superior bargaining po ...
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.'')


Shrink wrap contracts

Courts in the United States have faced the issue of
shrink wrap contract Shrink wrap contracts are boilerplate contract A standard form contract (sometimes referred to as a ''contract of adhesion,'' a ''leonine contract'', a ''take-it-or-leave-it contract'', or a ''boilerplate text, boilerplate contract'') is a contr ...
s 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.


Canada

In Canada,
exclusion clause An exclusion clause is a term in a contract A contract is a legally binding agreement that defines and governs the rights and duties between or among its parties Image:'Hip, Hip, Hurrah! Artist Festival at Skagen', by Peder Severin Krøyer ...
s 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'').


Australia

Standard form contracts have generally received little special treatment under Australian common law. A 2003
New South Wales New South Wales (abbreviated as NSW) is a state State may refer to: Arts, entertainment, and media Literature * ''State Magazine'', a monthly magazine published by the U.S. Department of State * The State (newspaper), ''The State'' (newspape ...
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 High court usually refers to the superior court In common law systems, a superior court is a court A court is any person or institution, often as a government institution, with the authority to Adjudication, adjudicate legal disputes between ...

High Court
so currently there is no special treatment of standard form contracts in Australia. Since 1 January 2011, the
Australian Consumer Law The Australian Consumer Laws (ACL), beinto the ''Competition and Consumer Act 2010 The ''Competition and Consumer Act 2010'' (CCA) is an Act of the Parliament of Australia The Parliament of Australia (officially the Federal Parlia ...
has been enacted in Australia at the national level, and due to a
Council of Australian Governments The Council of Australian Governments (COAG) was the primary intergovernmental forum in Australia from 1992 to 2020. Comprising the Government of Australia, federal government, the governments of the States and territories of Australia, six st ...
(COAG) agreement this legislation is now part of each jurisdiction's (state's or territory's) Fair Trading laws.


India

In India leonine contracts are generally deemed unconscionable contracts (though not all leonine contracts are unconscionable contracts) and are voidable. Th
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. Unfair terms in non-negotiated agreements are often held void.


Legislation

In recognition of the consumer protection issues which may arise, many governments have passed specific laws relating to standard form contracts. These are generally enacted on a state level as part of general consumer protection legislation and typically allow consumers to avoid clauses which are found to be unreasonable, though the specific provisions vary greatly. Some laws require notice to be given for these clauses to be effective, others prohibit unfair clauses altogether (e.g

.


United Kingdom

Section 3 of the
Unfair Contract Terms Act 1977 The Unfair Contract Terms Act 1977c 50 is an Act of Parliament Acts of parliament, sometimes referred to as primary legislation, are texts of law passed by the Legislature, legislative body of a jurisdiction (often a parliament or council). In ...
limits the ability of the drafter of consumer or standard form contracts to draft clauses which 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 is 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.


Israel

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.


Lithuania

Standard conditions in Lithuania shall be such provisions which 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). 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).


Civil law countries


Russia

In July 2013, Russian Dmitry Agarkov won a court case against
Tinkoff Bank Tinkoff Bank (russian: Тинькофф банк), formerly Tinkoff Credit Systems (russian: Тинькофф Кредитные Системы) is a Russian commercial bank based in Moscow Moscow (, ; rus, links=no, Москва, r=Moskv ...
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'."Russian Man Who Got Bank to Sign Homemade Credit Card Contract Now Suing Them for Not Following Terms
, ''
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'', 8 Aug 2013. Retrieved 9 Aug 2013.


See also

*
Electronic Signatures in Global and National Commerce Act The Electronic Signatures in Global and National Commerce Act (ESIGN, , ) is a United States federal law The law of the United States comprises many levels of codified and uncodified forms of law, of which the most important is the United States ...
(ESIGN, USA) *
Hobson's choice A Hobson's choice is a free choice Freedom of choice describes an individual's opportunity and autonomy File:Новая Кукковка.jpg, The Republic of Karelia is an autonomous Federal subjects of Russia, federal subject in Russia, ...
*
Non est factum ''Non est factum'' (Latin Latin (, or , ) is a classical language A classical language is a language A language is a structured system of communication Communication (from Latin ''communicare'', meaning "to share" or "to be i ...
*
Terms of service Terms of service (also known as terms of use and terms and conditions, commonly abbreviated as TOS or ToS, ToU or T&C) are the legal agreements between a service providerA service provider (SP) provides organizations with consulting, legal, real ...


Notes


References


External links


Joint Contracts Tribunal for United Kingdom Building Industry

CLAB Data Base
of the European Commission {{DEFAULTSORT:Standard Form Contract Contract law Terms of service