Introduction
Have you heard about the “take- it or leave- it Contracts”?
Yes, you heard it right!
“Take- it or leave- it Contracts” also known as Standard form of Contracts are the type of contracts where only one party has the power to decide the terms and conditions of the contracts and the other party has no option to negotiate, suggest or alter the contract terms. The second party is merely left with the right to choose whether to agree to the terms and conditions offered by the first party or just leave the contract by not signing it.
Such species of contracts are popularly known as Standard Form of Contracts.
Eminent business guru Warren Buffet wisely said, “It is impossible to unsign a contract, so do all your thinking before you sign”.
As a business owner, negotiating contracts is an essential part of your operations. However, how often are you placed in a situation with a supplier who hands you over a standard form of contract? Standard form of contracts are pre-drafted agreements that are offered by one party to another party. These contracts are typically offered on a “take-it-or-leave-it” basis, meaning that the receiving party has little to no opportunity to negotiate the terms of the agreement.
Standard Form of Contracts (SFC) are commonly used in many business transactions.
As we have discussed that such type of contracts are 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 and is thus placed in a “take it or leave it” position. That’s why sometimes these contracts are referred to as a Take-it or Leave-it contract or Contract of Adhesion or a Boilerplate Contract or a Leonine Contract.
A Standard Form of Contract is known as Contract of Adhesion, since one party creates the terms and the other party merely adheres to it by agreeing to it. Similarly, it is also known as Leonine Contracts because, etymologically, the word Leonine Contracts means a contract in which one party has significantly greater bargaining power than the other.
These types of contracts offer both advantages and disadvantages, but are boon to the modern era, as they are easy to use and the most convenient form of contracts for companies to enter in an agreement with many customers or other big organizations.
Let’s understand in a much better way:-
Consider you have founded a company XYZ providing software services, now A, B, C,D,E,F,G,H,I are individual customers who wants to hire your services. Mr. A in here wants to change the jurisdiction venue to be in Kerala while Mr. D wants the jurisdiction venue to be Punjab; but your company is situated in Mumbai, will you be able to alter the jurisdiction venue for each and every customer individually?
No right? Because that will make it too hectic for you to create a separate contract for each client and reach different venues in case any dispute arises. To avoid this scenario you’ll make one standard agreement with same terms and conditions for all your clients. Which will be subject to minor necessary alterations like date, party name, quantity and consideration amount. As these are the facts which may vary from person to person; rest every term and condition will remain constant for all.
Thus, Standard Form of Contracts are very beneficial for organizations and firms who enter into business transactions with a mass number of people during their day to day function.
Essential Elements of Standard Form of Contracts
The essentials of a Standard Form of Contracts are similar to the essentials of a valid contract. It can be described as follows:
- A contractual document should be signed.
- This sign should not be obtained by fraud, coercion, or misrepresentation.
- The person who made contract terms and conditions should notify the other about them.
- The notice must be made before or during the contract but not after signing the contract.
- The terms and conditions mentioned in the contract should be reasonable in nature.
Let us see what the types of Standard Form of Contracts are –
- Adhesion Contracts– Non-negotiable terms set by one party.
- Consumer Contracts– Used in everyday transactions between businesses and consumers where the consumers only have a limited negotiating power with them.
- Employment Contracts- Predefined terms set by employers for employees. Other than the terms of the Pay/Salary, the employees generally don’t have much say or have very limited negotiating power with them regarding the terms of the contract.
- Advantages & Disadvantages of SFC
ADVANTAGES:-
Standard form of contracting has a lot of benefits, such as
- Saves Time and Money: One of the main advantages of a standard form of contract is that it saves time and money. By using a pre-existing template, parties can avoid the time-consuming process of drafting a new contract from scratch.
- Eliminates scope of Negotiation- Just imagine you have to enter in an agreement with
100 of clients within an hour, will you be in a position to negotiate with all of them and create contracts as per their needs and requirements? Standard form of contracts saves your time spend on negotiating with each client and speeds up the bidding process.
- Less Room for Deviation- SFC helps in maintaining consistency in contracts and it also makes it easier for the employer to maintain records and remember the terms and conditions. Also the customers will be well aware with the contractual terms as the employer cannot make any changes to the contract without informing about it to his clients.
- Legal Precedent: There are many Precedents existing for interpreting key provisions of SFCs due to their historical use.
DISADVANTAGES:-
- No Bargaining Power- In these contracts only one party (usually the seller) is in the position to create terms and conditions and the latter (the buyer) is left with no negotiating power but to accept those terms and conditions or to ignore. Thus, the latter party is left with no bargaining power to negotiate the terms and conditions in a Standard Form of Contract.
- Exploitation of customers- The other party is usually unaware of his rights and knowledge about the contractual terms while signing the contract as such contracts are usually lengthy in nature and the other party merely signs it without even knowing to what he is agreeing to.
Remember when you click on “I Agee” after downloading an app, Do you know for what you have given your consent? Majorly we know that by clicking on “I Agree” we give consent to the app owner to access your location, media, personal information such as email id, contact no and various other details. But certain points such as where such information will be used, whether they’ll be kept confidential or not are left unknown.
Most of the people do not go through the Boilerplate clause, considering it just to be a legal formality. Often, the issue is not with what that clause contains; it’s rather with what it leaves out.
For instance, if the person offering you the contract has removed the part that requires the losing party to pay the attorney fees of the winning party, you may be at a disadvantage despite winning a case.
Another example is the condition to resolve a dispute between the parties through Arbitration. If you’d like to reserve the right, you should either remove or modify this clause of boilerplate.
- Suggestions:
The most important tip is that one must always read the whole of the boilerplate thoroughly to look out for the provisions you don’t agree with.
Nowadays, Standard Form of Contracts are commonly used in many places. Some examples include terms and conditions agreements, rental agreements, equipment leasing and related supplier agreements.
To protect your business interests when dealing with suppliers offering up “take- it or leave- it Contracts”, there are 5 crucial steps you need to take such as:
- Understand the Terms:
It’s important to precisely review any contract before subscribing to it. This means reading through the entire agreement and also the provisions that seem boring. Look for any terms that may limit your legal rights, or that give the supplier inferior rights. However, don’t hesitate to seek advice or guidance, If there are any provisions in the contract that you don’t understand.
- Negotiate Where Possible:
Although standard forms of contracts are generally portrayed as a “ take- it- or- leave- it ” agreement, there may be some accommodations made. However, consider negotiating with your supplier to see if they’re willing to modify the agreement, If there are any terms that you find one-sided. For illustration, you may be suitable to negotiate the length of the contract or the termination provisions. However, don’t subscribe to it and find another supplier, if the terms aren’t agreeable.
- No Bargaining Power:
When reviewing a standard form contract, consider the negotiating power of both parties. However, you may need to be more conservative about accepting the terms of the agreement and consider whether terms of the agreement are illegal, If you’re a lower business with limited request power.
- Beware of Hidden or Unfair Terms:
Standard form contracts may contain terms that are hidden or buried in the fine print and may be unfavorable to you if a disagreement arises. Look for any clauses that limit your legal rights or lower your capability to partake information about the agreement. Instances include allowing one party to unilaterally modify the terms of a contract but not the other party.
- Seek Advice:
If you’re doubtful about the terms of a standard form contract, consider seeking legal advice. An educated counsel can review the agreement and help you understand your legal rights and obligations. However, they can also help you negotiate with your supplier to ensure the agreement is fair and balanced, if a disagreement arises.
- Conclusion
In conclusion, standard forms of contracts can indeed be perceived as “take-it or leave-it” agreements due to their pre-drafted nature. However, it is crucial for businesses to understand the legal outcomes and seek legal advice to ensure that their rights are protected. Remember to thoroughly review any standard form contract before signing to avoid potential loopholes. It is advisable to negotiate terms where possible and seek clarification on any ambiguous clauses. Ultimately, staying informed and proactive is key to safeguarding your interests in contractual agreements. By being vigilant and seeking legal advice when needed, you can navigate standard form contracts effectively and protect your business from unfavorable terms.
References:
https://lawbhoomi.com/standard-form-contracts/#Use_of_standard_form_contracts
https://www.law.cornell.edu/wex/adhesion_contract
Advantages of Standard Form Contracts: Everything You Need to Know (upcounsel.com)
Benefits of standard form contracts – iPleaders
Advantages and Disadvantages of a Standard Form Contract – Instituto Castanera
Authored by- Merwyn Nazareth (College Name: Rizvi Law College, Mumbai University.)
1 Comment
It was very clear and concise