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Contract Terms Are Common Sense – An excerpt

It is crucial for managers to understand the terms of the contract that they work with. This exceedingly effective guide helps readers explore and master the many terms and conditions set up for conducting businesses. The book makes the subject readily accessible by employing easy-to-understand and discover-yourself techniques.
Akhileshwar Pathak is a professor of business law at IIM Ahmedabad. He holds a doctorate in law from the University of Edinburgh, UK, and an LLB from Delhi University. His areas of interest are corporate law and the globalization and liberalization of India.
Let’s read an excerpt from the book here.
Ticket, Vouchers and Receipts
Case: wrong show
A person approached the ticket booking counter of a cinema theatre in a multiplex. A display had announced the ticket prices and show timings. A gold ticket was for Rs 250. When his turn came, the man told the booking clerk the film he wanted to see: ‘Two tickets, gold, Rs 250 tickets, 3–6 show.’ The clerk announced: ‘Yes, sir.’ The clerk printed the tickets. The customer gave Rs 500 and the clerk the tickets. The customer put the tickets in his pocket and left.
It was show time. The film started but it was not the one he had bought the ticket for, but another popular film! He was startled. The attendant in the theatre informed him that there was a technical problem and instead, another film was being screened. The customer protested and demanded a refund from the theatre. The theatre refused to give him any refund. The theatre manager asked him for his tickets and showed the terms written on them:
If the theatre is not able to screen a film due to technical reasons or otherwise, it will screen another film and there will be no refund for the ticket holders.
The customer protested that he did not know of the terms. The theatre persisted that these were the printed terms and binding on the parties. The customer insisted on getting a refund. Let us analyse the formation of the agreement between the theatre and the customer in the language of the offer and the acceptance and application of the printed terms on the ticket.
Who offered? Who accepted?
When was the agreement formed?
Did the ticket come before or after the formation of the agreement?
Are the terms a part of agreement between the parties?
The customer offered when he asked for the tickets. The store accepted when the attendant declared: ‘Yes, sir.’ A contract got formed at that point of time. The terms on the ticket came after the agreement was formed! The terms should not be binding. The answer is slightly nuanced. With the expansion of railways, steamers and cloakrooms in the last century, issuing of tickets became prevalent. When disputes arose, the ticket issuers contended that everyone knew that there were terms on the tickets. Thus, they contended that the terms were implied in the offer of the customer. The courts could not dismiss the point. However, they reasoned that the customer did not expect unreasonable and harsh terms. So these terms would not bind unless notice was given of them. Therefore, harsh and unreasonable terms are not binding unless notice is given of them. Terms that are reasonable and ordinary bind the parties even if they come after the contract is formed. Further, terms that are beneficial to the customer are binding as the ticket issuer has full notice of it and the customer has no objection to it. We could now appraise whether each of the terms on the ticket issued by the theatre would be binding or not. The terms read:
Avail of the 30 per cent discount on a large bucket of popcorn.
Suitcases and big baggage are not allowed inside the theatre. Kindly leave them with the theatre security.
If the theatre is not able to screen a film due to technical reasons or otherwise, it will screen another film and there will be no refund for the ticket holders.
The first term is binding as it is beneficial to the customer. The second term is also binding as it is ordinary and reasonable. The third term is not as it is harsh and onerous. In numerous consumer contracts, tickets and receipts are issued and the principle finds application. This includes dry cleaners, repair stores and shops. It finds application in most commercial contracts.
A business contract is formed on the phone or by email or through signed forms and documents. Later, invoices, receipts or vouchers are raised or goods delivered with delivery notes. These acknowledge a contract that is formed earlier. The documents sent contain terms. The same principle applies to these terms. Ordinary and reasonable terms would bind while the harsh and onerous terms will bind only if notice is given of them. An interesting case on the theme is Interfoto Picture Library Ltd. v. Stiletto Visual Programmes Ltd. 2 A contract was made on the phone for use of photos in transparencies. A bag of transparencies was delivered with a delivery note. The delivery note had several terms. It required that all the transparencies were to be returned within fourteen days. A holding fee of £5 per day for each transparency was to be charged for retaining them for longer than fourteen days. The customer did not read the terms. The photos were not used. The bag was put aside and forgotten. The customer was raised a bill for £3783 in holding charges. The court held this to be a harsh and onerous condition and not binding as notice of it was not given at the time of delivery.
There is something that leaves one uncomfortable. It will always be contentious whether the terms are onerous or not. Further, if the terms were ordinary, they will end up binding, even if one did not know of it or wanted it, merely because the other party issued an invoice, ticket or voucher. What can be done to prevent this post-contract intrusion? Put a term in the contract itself that nothing coming later will be binding. To neutralize the ticket terms, a term to this effect is added in contract documents. It reads:
The contracting parties will not be bound by any voucher, invoice, receipt, packing list, delivery note or printed conditions that impose a term at variance with or supplemental to the contract.
Case: past practices
A customer had taken his car to a garage three times in the past four years. Every time, as a part of the contract for servicing the car or carrying out repairs, the garage required him to sign a form that exempted it from all liabilities for any damage to the car. This time, the car got stalled in the middle of the road. The customer called up the garage. The garage sent him assistance. The mechanic towed the car to the garage and the customer took a taxi to his office. There was a fire in the garage and the car got damaged. The garage, this time, had not got any papers signed by the customer. The garage claimed that the terms exempting it from liability are implied as it was a past practice between the parties. There is undoubtedly a contract between the parties for repair of the car. Should the past practices, that the garage is not liable for the damages, be incorporated in the contract?
An answer can be that the terms are implied in the contract. The point then is how long and frequent should the past dealings be for these to be implied in the contract. The courts, thus, came to formulate that the past dealings must be invariant and long enough for these to be implied. They are most stringent in applying this criterion. Only in rare cases has a court implied past dealings in contracts. Thus, past dealings are inadequate means of incorporation of terms into a contract. These should never be relied upon.

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