Standard form Contracts in Tanzania: Rules of Evidence vis-à-vis Ethical Behaviour in Business

Jaba Shadrack, UDSM – School of Law, jaba@udsm.ac.tz

Standard form contract may be referred to as a written contract prepared in advance by one party to the contract, the other party is expected to accept or reject the terms in the contract as presented to him or her .  They are kind of contracts which do not provide for a prior chance for negotiation. Usually, standard form contracts are prepared by a stronger party (especially multinational corporations, government entities, and a few sole traders) imposed on a weaker party to the transaction (customers/clients) on ‘a take it or leave it basis’. The parties to this kind of contracts have unequal bargaining power. Standard form contracts are also known as ‘mass contracts’ or ‘contracts of adhesion’ or ‘boilerplate contract’. The good example of standard form contracts in Tanzanian context are the DAWASCO’s water bill, TANESCO’s electricity bill, Students and HESLB loan agreements, terms and conditions on a bus tickets, Air and Railway fares arrangements.

According to Professor Rakoff, there are seven characteristics of standard form contracts, namely; 

One, they are in printed form that contains many terms. Two, the contract is drafted by, or on behalf of, one party to the transaction. Three, the drafting party participates in numerous transactions of the type represented by the form and enters into these transactions as a matter of routine. Four, the form is presented to the adhering party with the representation that, except perhaps for a few identified items (such as the price term), the drafting party will enter into the transaction only on the terms contained in the document. Five, the document is signed by the adherent with no chance for bargaining or negotiation. Six, the adhering party enters into few transactions of the type represented by the form, in comparison with the drafting party. Seven, the principal obligation of the adhering party in the transaction considered as a whole is the payment of money as presented by the contract. 

Parties who proffer the use of standard form contracts cite sophistication of trade, increase of population and emergence of monopolistic (multilateral) businesses in the form of syndicates, cartel, and consortium as a causative factor. To them, all of these necessitate the use of standard form contracts to ease, facilitate and transact or reach many customers in a short time with uniformity of terms and without incurring extra costs . Economists, on the other hand, associate standard form contracts with the notions of ‘laissez-faire policy’ and ‘freedom of contract’.

However, in legal dimension, standard form contracts are proffered by large businesses to limit or exempt themselves from legal liabilities to customers. The usual way to do this is by inserting ‘exemption (exclusion) clauses’ or ‘limitation clauses’ in the contract. By definition, exemption clause is a term in a contract which stipulates that a strong party is excluded wholly from liability in case he breaches the contract. It is usual to find a clause such as ‘J & Co. Ltd. is not liable for any property damage however caused’, or ‘the carrier shall not be liable for loss of luggage of a passenger’. Conversely, a limitation clause is a provision in a contract which limit a party's potential liability arising from breach of a contract to certain amount. For example, ‘J & Co. Ltd. will only accept liability up to the amount of Tsh.500,000/-’ or ‘in case of loss of the luggage, the liability of the carrier shall be limited to only two times the paid fare’.

In law, once a party has concluded a contract by either affixing signature or stamping it, is bound by terms and conditions embodied therein i.e. a contract becomes a sacrosanct. This is because once a contract is in written form, the rules of evidence limits the scope of such agreement to the terms of the writing. Principally, a 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. In Tanzania, rules of evidence attach special significance to signature affixed on the document. For example section 72 of the Evidence Act provides that;

The admission of a party to an attested document of its execution by himself shall be sufficient proof of its execution as against him, though it might be a document required by law to be attested.

Further, sections 100(1) and 101 exclude extrinsic evidence to be admitted in evidence to contradict or alter a written contract. Section 100(1) provides that;

When the terms of a contract, grant, or any other disposition of property, have been reduced to the form of a document, and in all cases in which any matter is required by law to be reduced to the form of a document, no evidence shall be given in proof of the terms of such contract, grant, or other disposition of property, or of such matter except the document itself, or secondary evidence of its contents in cases in which secondary evidence is admissible under the provisions of this Act.

In my view, section 100(1)  need to be read with section 66  which provides for ‘the best evidence rule’, i.e. a document need to be proved by primary evidence (writing becomes its own evidence) . By primary evidence means the original document itself produced before the Court of law for inspection. Section 101 cements the above position by providing for ‘the parol evidence rule’ which prevents a party to a written contract from presenting extrinsic evidence that contradicts or adds to the written terms of the contract that appears to be whole . Section 101 say;

When the terms of a contract, grant or other disposition of property, or any matter required by law to be reduced to the form of a document, have been proved according to section 100, no evidence of any oral agreement or statement shall be admitted, as between the parties to that instrument or their representatives in interest, for the purpose of contradicting, varying, adding to or subtracting from its terms…..

Admittedly, the rules of evidence are powerful friend of the parties who proffer the use of standard form contracts. Once the contract is accepted by a weaker party, the rules of evidences come into play to protect interests of the strong party as presented by terms of the contract. Therefore, the weaker party is estopped or will not be allowed (save for exceptional cases) to contradict or vary terms of such contract for either being one-sided or unfair or by reason of ignorance. The traditional rules of evidence are stated by Professor Rakoff as follows;

(i) The adherent's signature on a document clearly contractual in nature, which he had an opportunity to read, will be taken to signify his assent and thus will provide the basis for enforcing the contract. (2) It is legally irrelevant whether the adherent actually read the contents of the document, or understood them, or subjectively assented to them. (3) The adherent's assent covers all the terms of the document, and not just the custom-tailored ones or the ones that have been discussed. (4) Exceptions to the foregoing principles are narrow. In particular, failure of the drafting party to point out or explain the form terms does not constitute an excuse.

In practice, however Courts will interpret standard form contracts strictly against the proffering person (i.e. contra proferentem rule). For instance, in Houghton v. Trafalgar Insurance, the plaintiff purchased a comprehensive insurance from the defendant (insurer) to cover his five-seater motor car. The policy of insurance had an exemption clause which provided to the effect that the insurer would not be liable for damage caused “whilst the car is carrying any load in excess of that for which it was constructed”. The car was involved in an accident while carrying six passengers. The insurer refused to indemnify the plaintiff. The Court construed the said clause against the proffered party (the insurer) and thus held that the clause did not extend to cases where the car was carrying too many passengers. Moreover, in Olley v. Marlborough Court, the plaintiff booked in for a week's stay at the defendants' hotel. A stranger gained access to her room and stole her mink coat. There was a notice on the back of the bedroom door which stated that "the proprietors will not hold themselves responsible for articles lost or stolen unless handed to the manageress for safe custody." The Court of Appeal held that the notice was not incorporated in the contract between the proprietors and the guest. The contract was made in the hall of the hotel before the plaintiff entered her bedroom and before she had an opportunity to see the notice.

It suffices now to look at some of the ethical issues arising due to the use of standard form contracts in one’s business and how rules of evidence creates ethical dilemma in the process;

One, the rules of evidence in relation to standard form contracts confers unfair benefit to businessmen. There are situations where a strong party to the contract is at fault or acted negligent or in serious breach of the contract yet may be protected by a clause in contract. Since standard form contracts are typically used by enterprises with strong bargaining power, the weaker party, in need of the goods or services, is frequently not in the position to shop around for better terms. This may cause considerable injustice to the weaker party where is estopped to adduce extrinsic evidence to contradict such contract. For example, the businessman may decide to shift or allocate all his business risks to customers. In Evans v. Andrea Merzario, the plaintiffs had imported machines from Italy for many years and for this purpose they used the services of the defendants, who were forwarding agents. The plaintiffs were orally promised by the defendants that their goods would continue to be stowed below deck. On one occasion, the plaintiff's container was stored on deck and it was lost when it slid overboard. The Court of Appeal held that the defendants could not rely on an exemption clause contained in the standard conditions of the forwarding trade, on which the parties had contracted, because it was repugnant to the oral promise that had been given. The oral assurance that goods would be carried inside the ship was part of the contract and was held to override the written exclusion clause.

Two, sanctity of written documents allows strong parties to maximize profit by charging high for their services. Strong parties exploit consumers due to their superior bargaining power facilitated by a change in the market structure from a competitive to a monopolistic one. On this point Vögerl argue that the existence of standard form contracts derives from the monopoly power of firms or from collusion within an industry, which leaves consumer no alternative other than to except or refuse the contract as a whole.

Three, it undermines individual autonomy, as the buyer finds himself obligated to terms to which he did not voluntarily agree (i.e. Unconscionability) . This situation 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. Freedom of contract demands freedom from contract, and just as no party has the ability to force another into a contract, no party should have the ability to force another party to accept specific terms . In Curtis v. Chemical Cleaning Co, the plaintiff took a wedding dress to be cleaned by the defendants. She signed a piece of paper headed 'Receipt' after being told by the assistant that it exempted the cleaners from liability for damage to beads and sequins. The receipt in fact contained a clause excluding liability "for any damage howsoever arising". When the dress was returned it was badly stained. It was held that the cleaners could not escape liability for damage to the material of the dress by relying on the exemption clause because its scope had been misrepresented by the defendant's assistant.

Four, they protect economic interests of the strong parties to the detriment of the weaker contracting parties. In Shell Oil Co. v. Marinello, the Court invalidated a clause in onerous contract which gave Shell Oil Co., the right to terminate a dealer's franchise on short notice and without cause.  The court determined that the case presented a matter of public interest. Further, in Chappleton v. Barry UDC, deck chairs were stacked by a notice asking the public who wished to use the deck chairs to get tickets and retain them for inspection. The plaintiff paid for two tickets for chairs, but did not read them. On the back of the ticket were printed words purporting to exempt the council from liability. The plaintiff was injured when a deck chair collapsed. The clause was held to be ineffective. The ticket was a mere receipt; its object was that the hirer might produce it to prove that he had paid and to show him how long he might use the chair. Slesser LJ pointed out that a person might sit in one of these chairs for an hour or two before an attendant came round to take his money and give him a receipt.

Five, allows the strong party to create its own law to govern [its] transaction. Many of the terms in typical standard form contracts are specifically designed to displace or waive clear rules of law that would otherwise govern the transaction in question. For instance, in Scruttons Ltd. v. Midland Silicones, shipping company (the carrier) agreed to ship a drum of chemicals belonging to the plaintiffs. The contract of carriage limited the liability of the carrier for damage to £179 per package. The drum was damaged by the negligence of the defendants, a firm of stevedores, who had been engaged by the carriers to unload the ship. The plaintiffs sued the defendants in tort for the full extent of the damage, which amounted to £593. The defendants claimed the protection of the limitation clause. The House of Lords held in favour of the plaintiffs. The defendants were not parties to the contract of carriage and so they could not take advantage of the limitation clause.

Moreover, the principle of freedom of contract enables enterprises to use standard form contracts to legislate in a substantially authoritarian manner. For examples, clauses requiring suit to be brought within a brief period (displacing otherwise applicable statutes of limitations) and due-on-sale clauses in mortgages (displacing background law permitting the sale of real estate subject to a mortgage). This means that firms can design one sided terms, which are binding upon consumers, in the same way as the state can impose legal rules upon its subjects.

Six, it allows strong party to take advantage over weaker parties who have not read or understood the terms of the contract. In standard form contracts, terms are often in fine print and written in complicated legal language. 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”. For example, in Lewis v. Great Western Railway, an action was brought to recover damages for the loss of a parcel. The plaintiff argued that the person who approached him asked him to sign the document supplied by the railway authority but did not call his attention to read the terms and conditions therein. The trial judge upheld the company's plea that the plaintiff's claim was barred because it was not made within the brief period specified in the printed document that the plaintiff had signed. In L'Estrange v. Graucob, the plaintiff bought a cigarette machine for her cafe from the defendant and signed a sales agreement, in very small print, without reading it. The agreement provided that "any express or implied condition, statement or warranty … is hereby excluded". The machine failed to work properly. In an action for breach of warranty the defendants were held to be protected by the clause. Scrutton LJ said:

When a document containing contractual terms is signed, then, in the absence of fraud, or, I will add, misrepresentation, the party signing it is bound, and it is wholly immaterial whether he has read the document or not.

Finally, standard form contracts may justify indirect discrimination of customers. A corporation might have an incentive to screen out unwanted consumers or to only transact with a specific class of people. Thus, the price which is not negotiable printed on a standard form might be an effective tool to bar unwanted customers e.g. children or poor people. That is to say, strong party could use standard form contracts to raise the costs for some consumers in order to discourage them from entering into the contract.

In my submission, afore discussed rules of evidence and the way standard form contracts are drafted, relying on rules of evidence, do actually promote unethical behaviour in business such as fraud, misrepresentation, economic duress, unfair competition, maximization of profit, unfair communication, non-respect of agreements, and unfair attitudes towards customers or stakeholders. Professor Meyer sum up this ethical dilemma by saying;

By virtually eliminating the bargaining element, the standardized form contract invites new manifestations of old sins. Power, greed, and "hog-drafting" are not easily concealed or euphemized in the bargaining process which precedes a negotiated, tailor-made, contract. Nor do their terms operate beyond the confines of the contract in which they appear. By contrast, the unilateral "production" of a printed contract can incorporate the time and talent of experts in manipulating form and content to disguise the one-sided nature of the document. With periodic revisions to prevent the recurrence of adverse experiences in or out of court, the form determines contract relations with countless and faceless adhering parties.

NB: This document is also available in Pdf & iPaper (with footnotes) at: www.scribd.com/jabashadrack  

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