Standard Form of Contract: A Case Study of Flipkart

Sahil Jain & Pradyumna Kibe1.

Standard Form Contracts are agreements that employ standardized, non-negotiated provisions, usually in pre-printed forms.  These are sometimes referred to as “boilerplate contracts,” “contracts of adhesion,” or “take it or leave it” contracts. The terms, often portrayed in fine print, are drafted by or on behalf of one party to the transaction – the party with superior bargaining power who routinely engages in such transactions.  With few exceptions, the terms are not negotiable by the consumer2. They are basically used where the seller cannot enter into a contract with everyone and each one wants the contract according to him/her. It means when the party is having numerous transaction to make then Standard Form Contract comes into picture. Like in the railway sector, there are same terms and conditions for everyone. It is a contract of adherence.

There are two issues which arise from this contract. Firstly, the parties are not at parity and seller is having the advantage and is one step forward unlike buyer who has no other option other then accepting it or leaving it. Secondly, there is no bargaining power available to weaker party i.e. buyer. He /She cannot negotiate with the seller. Lord Denning MR in Thornton vs. Shoe Lane Parking Ltd.3, commented on Standard Form Contracts as;

“He cannot alter those terms or even discuss them; they are there for him to take or leave. He therefore does not undertake the laborious and profitless task of discovering what the terms are.”

Flipkart, a company registered in Singapore, was founded back in 2007 by IIT-D alumni and former Amazon employees Sachin Bansal and Binny Bansal. The trend of e-commerce was not developed at that point of time, while, in the other parts of the world it was well settled. Flipkart started its business with selling books online, same as what Amazon did. With the time, as the internet users in India were still increasing with great speed, Flipkart became the most reliable place for online shopping. The company works on a marketplace model, where sellers and buyers can meet online and transact with each other, it wasn’t able to come in direct retailing as foreign players were not allowed in retail market and Flipkart, a company registered in Singapore and most of their shareholders were of abroad. Flipkart is mainly known for its customer friendly approach and hence is the market-leader and reliable e-commerce websites.

COMPARISON TO PROTECTIVE DEVICES

As standard form contracts have evolved as an instrument for making the transactions on a large level, faster and easier, it has led to the exploitation of weaker parties, mostly buyers or the receiver of services.  The court, therefore has on various occasions has evolved protective devices to look after consumers. Till now, there has been a total no. of seven devices by developed. They are:

  1. Reasonable notice
  2. Notice should be contemporaneous with the contract
  3. Theory of fundamental breach
  4. Strict construction
  5. Liability in tort
  6. Unreasonable terms
  7. Exemption clauses and third parties

These protective devices are subject to study in a standard form contract because if any breach arises, the compensation should be claimable.

Reasonable notice

In Henderson vs. Stevenson4, it was held that there should be a notice to the other party accepting the contract about the terms and conditions. On the e-commerce websites or on the softwares of common use, there is always some tab like ‘I Accept’. When the website or the software firm takes one to such a page, the condition of reasonable notice is fulfilled.

When, a customer gets involved in a transaction with Flipkart, before confirming the order it shows a similar tab as other websites and the words ‘Terms of Use’ and ‘Privacy Policy’ are respectively hyperlinked. So, it can be hence be confirmed that Flipkart gives a chance to its user to go through ‘Terms of Use’ and ‘Privacy Policy’ before getting bound to a legal agreement.

Notice should be contemporaneous with the contract

This means that whenever the terms & conditions are produced before the acceptor, it should be before the contract is formed. The acceptor does not have power to bargain the terms and conditions, so then, they should be always being provided beforehand otherwise it would result to great injustice to the acceptor and it will break the essence of contract which is the ‘Principle of Party’s Autonomy’.

In our case, Flipkart provides the Terms of Use before getting into any kind of transaction with the buyer. But, when it comes to Flipkart stating in its para 7 of the Terms of Use document that,

“ACCESSING, BROWSING OR OTHERWISE USING THE SITE INDICATES YOUR AGREEMENT TO ALL THE TERMS AND CONDITIONS UNDER THESE TERMS OF USE, SO PLEASE READ THE TERMS OF USE CAREFULLY BEFORE PROCEEDING. By impliedly or expressly accepting these Terms of Use, You also accept and agree to be bound by Flipkart Policies (including but not limited to Privacy Policy available on http://www.Flipkart.com/s/privacypolicy) as amended from time to time.

This does not amount to contemporaneous notice provided by Flipkart. As, no one can read the documents like Terms of Use and Privacy Policy before accessing the website.

Theory of fundamental breach

In contract there are some duties (fundamental duties) which are there in contract. They are treated as the heart and soul of the contract. If they are not there then the whole contract is a waste and is of no use.

Taking the above statement into consideration Flipkart is not taking it into its account. In one of the terms and conditions for the Flipkart i.e. Platform for Transaction and Communication (point number 4 of terms and conditions), they are not and cannot be a party to or control in any manner any transaction.

  1. Flipkart does not have any control or does not determine or advise or in any way involve itself in the offering or acceptance of such commercial/contractual terms between the Buyers and Sellers.
  2. Flipkart is not taking responsibility for any non-performance or breach of any contract entered into between Buyers and Sellers. Flipkart cannot and does not guarantee that the concerned Buyers and/or Sellers will perform any transaction concluded on the Website. Flipkart is not even mediating or resolving any dispute or disagreement between Buyers and Sellers.
  3. Flipkart holds no right, title or interest over the products nor Flipkart have any obligations or liabilities in respect of such contract entered into between Buyers and Sellers. Flipkart even take no responsibility for unsatisfactory or delayed performance of services or damages or delays as a result of products which are out of stock, unavailable or back ordered.
  4. At no time Flipkart hold any right, title or interest over the products nor shall Flipkart have any obligations or liabilities in respect of such contract.

Flipkart is even not having responsibility for unsatisfactory or delayed performance of services or damages or delays as a result of products which are out of stock, unavailable or back ordered.

It means there fundamental duty to control a transaction is totally against this theory i.e. the Theory of Fundamental Breach. They are not ready to take the responsibility of the transaction in any manner. It’s totally against the exception for the standard form of contract.

Strict construction:

In many cases, to benefit the weaker party, the courts of justice have regularly strictly interpreted the exemption clauses. In cases, when there lies a single point of ambiguity the courts gives its favour to the weaker party. It is also very important to give favour of such ambiguity to the weaker party as it is like a flank kept upon by the proposer in its standard form contract and especially in the exemption clause, which can be considered as a most important clause in any contract.

Flipkart also mentions many exemption clauses in its documents. Can there be flank open? But though going after strict interpretation of exemption clause, the theory of fundamental breach can also be taken into consideration.

Liability in tort:

Even when there can be nothing found in exemption clause, one can tend towards moving to claim of tortious liability in its non-contractual liability. For example, as happened in White vs. John Warrick & Co. Ltd.5, the defendants though were exempted by its contractual terms, but the court gave the compensation to plaintiff under the tort of negligence.

Exemption clauses and third parties:

This says that one third can be held liable for the contract between the two contracting parties. The same is claimed by Flipkart in its documents as when a buyer buys a product from Flipkart, there is no contract between Flipkart and buyer but instead a contract is formed between the buyer and seller. The Flipkart only acts as a platform for the buyers and sellers to interact.

Under heading of ‘Platform for Transaction and Communication’ all the clauses exempts Flipkart from any liability arising out of the transaction between the buyers and sellers. Although it is neither a party to contract, nevertheless it owes a responsibility if any breach occurs.

COMPARED TO OTHER PLATFORMS

There have been many complaints to Flipkart about them not taking the responsibility of the transactions performed by the sellers. But as Flipkart in its Terms of Use clearly mentions that it is just a platform for buyers and sellers to come up and transact it with each other, the Flipkart does not get in contact with any of the buyer and exempts itself from any liability occurring therein.

Under heading of ‘Platform for Transaction and Communication’ all the clauses exempts Flipkart from any liability arising out of the transaction between the buyers and sellers. Considering it holding as an important market player and leader of e-commerce industry, making itself off the hook it is not practising customer friendly behaviour.

One customer of the same website placed an order for a combo of wireless mouse and keyboard and was given an estimated delivery time of 10 days. Until the 8th day of delivery, his order was not shipped. After contacting Flipkart’s support, he was assured that the order would be delivered by estimated date. The order was not delivered till 13th day and it was cancelled automatically by the company and refund was directed to the wallet service of the same person. The customer support replied that the product was out of stock and hence was not able to be delivered, while the product was still in stock as was shown on the website. The company got its hand out and said that they could not help the customer as the seller didn’t have the product6. Now, where is the company has gone here? Why should Flipkart be exempted now from the liability? There lies a responsibility of the company, in this competitive market not exempt itself from the liability and practice customer friendly behaviour.

There also has been complaint against Flipkart that they cancel the order by themselves if there is price hike of the same product scheduled next day. Now, again of Flipkart is not getting into the contract, how can they cancel it? Is the customer again to be fooled by the sellers and the marketplace?7If Flipkart is working as a marketplace, the buyers pay the sellers consideration through this platform; shouldn’t Flipkart be equally responsible to the buyers? Yes, it should be made liable otherwise the standard form contracts made between visitors and the marketplace would not hold strong.

When, Flipkart is compared to its competitor Amazon, Amazon has more of a customer friendly approach and accepts its responsibility as a market place. If there has been a refund problem on Amazon i.e. the seller does not make the refund in 3 days, customer can avail ‘A to Z Guarantee Claim’ in which Amazon to promise to stand with the customer to help him recover the refund8. While on the other hand Flipkart in its clause 3 says ‘Flipkart shall not and is not required to mediate or resolve any dispute or disagreement between Buyers and Sellers.

  1. Students of Law, Institute of Law, Nirma University, Ahmedabad []
  2. What are Standard Form Contracts []
  3. [1971] 2 QB 163: (1971) 1 All ER (CA). []
  4. [1875] 2 Sc & Div 470: (1875) 32 LT 709 (HL). []
  5. [1953] 2 All ER 1021: (1953) 1 WLR 1285 (CA). []
  6. Flipkart screwed me over, Here’s How They Could Stick It To You As Well []
  7. Ibid []
  8. Terms, Contract Law, Consumer Rights in e-commerce []

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