ITRODUCTION

Due to enormous increase in the volume and complexities of trade and business, a business
concern may have to enter into a large number of contracts with its customers or clients. When a
large number of contracts have got to be entered into by a person, from a practical point of view
and for the sake of convenience, a standard form for the numerous contracts may be used. The
contracts with standard terms may be drafted by one party and on the same terms contracts may
be made with numerous persons. For instance, an insurance company may prepare a draft of
insurance policy, which may form the basis of contract with a large number of insured persons.
Similarly, the railway authorities may print various terms and conditions in the Time Table,
which may be deemed to be the basis of the contract with thousands of passengers who may be
travelling by rail everyday. In the same way, the same terms and conditions may be printed on
the back of every receipt issued by a dry-cleaner, or every lottery ticket sold by any particular
person or institution. The contract in such a case is not made by the process of negotiation, as
regards its terms and conditions, between the two parties. One of the parties generally prepares
draft of the contract, which the other party is enabled or made to, or sometimes even deemed to,
agree to. Such contracts have become quite common in our everyday life.
When the terms of the contract are prepared beforehand by one of the parties and the other party
does not have much say in the matter, and he, therefore, enters into the contract with those pre-
drafted terms, the question which may, in such a case, arise is as to how far such a contract is
valid and binding. There is no legal bar on such contract being entered into. If the contract has
been properly entered into with the free consent of both the parties, there is full understanding of
the terms of the contract, and there is no attempt on the part of the one party to take an undue
advantage at the cost of the other, there would arise a valid contract.
Exclusion or Limitation of liability by one party
In standard form contracts, generally the terms of the contract are pre-drafted by one of the
parties and the other is supposed to sign on the dotted line, without having any time or
opportunity to get the terms changed. One of the parties being in a greater bargaining position
generally drafts the terms which suit him most, and at times tries to exclude or limit his liability,
without caring for the interest of the other side, who is 1n a weaker bargaining position. In view
of the unequal bargaining power of the two parties, the courts and the legislature have evolved
certain rules to protect the interest of the weaker party. The same are being discussed here under.
1. There should be contractual document
The parties are bound if the terms are contained in a contractual document. In Chapelton v.
Barry Urban District Council, it has been held that if the document is a mere receipt and does
not create a contract, the terms contained in such a document are not binding. In this case the
plaintiff hired a chair from the defendants to sit on a beach. He paid the requisite charge, took
one chair from a pile and also got a ticket from the attendant. Without reading anything written
on the ticket he put that into his pocket. As he sat on the chair, he went through the canvas, as a
consequence of which he received personal injuries. In an action by the plaintiff to claim
compensation for personal injuries, the defendants pleaded exemption from liability because of
the following clause having been printed on the ticket : "The council will not be liable for any
accident or damage arising from hire of chairs." It was held that this ticket was no more than a
mere receipt and the defendant could not claim exemption from liability on the basis of anything
printed on it.
2. There should be no misrepresentation
Even if a person signs a document containing certain terms but there is found to be a different
oral misrepresentation about the contents of the document, the document would not be a binding
one. In Curtis v. Chemical Cleaning and Dyeing Co. Mrs. Curtis delivered her white satin
wedding dress to the defendants for cleaning. She was asked to sign a ‘Receipt’, and she was
orally told by the shop assistant that her signatures were needed because, as printed on the
receipt, the defendants did not undertake any responsibility for damage to beads and sequins. In
fact, there was a clause in the receipt which exempted the defendants from liability for damage to
the articles received for cleaning, however caused, but that was not disclosed to the plaintiff.
When the dress was delivered back it was badly stained. It was held by the Court of Appeal that
as there was misrepresentation as to the contractual terms which misled the plaintiff as to the
extent of the defendants’ exemption of liability, the defendants could not rely on the clause and
they were bound to pay damages.
2. There should be a reasonable notice of the contractual terms
In order that the terms of a contract become binding, all that is necessary to draw the other party
to those terms should be done by the party who has pre-drafted the terms of the contract. If the
attention of a party to the contract has been drawn to the terms of the can by a sufficient notice.
for example by printing on a ticket, "For see back” or obtaining his signatures on the document
containing turns, or otherwise explaining the terms to him, there arises a binding contract as
regards such terms. If. on the other hand, reasonably sufficient notice about the terms of the
contract has not been given, there is no binding contract as regards such terms.
In M/s Prakash Road Lines (P) Ltd. v. H.M.T. Bearing Ltd.,” it has been held that the carrier is
bound to deliver the goods consigned at the appointed destination or else he will be liable to pay
compensation for the same.
Merely printing on the lorry receipt that the goods are transported at the owner's risk will not
absolve the transporter from his duty unless it is proved that such term was brought to the notice
of the plaintiff. Mere printing on the lorry receipt cannot be deemed to be the term of the contract
unless the plaintiff's knowledge and the consent about the same is there.
In Parker South Eastern Railway Co.,a0 the plaintiff deposited a bag in a cloakroom managed by
the defendants at a railway station. In return he got a ticket. on the face of which it was stated :
"See Back". One of the conditions printed at the back stated that the liability of the defendants
for any package was limited to £ 10. Plaintiff’s bag valued at S". 24 and 10 shillings was lost, for
which he brought an action against the defendants. The plaintiff, in his action to recover the
whole of the loss amounting to it 24-10 sh. contended that the term limiting defendant’s liability
to £ 10 should not be binding on him because he had actually not head the terms. It was held that
the defendants had made reasonably sufiicient efforts to draw the attention of the plaintiff to the
terms and, therefore, the terms were binding and the liability of the defendants was to pay £ 10
only.
In Special Secretary, Government of Rajasthan v. V. V. Seshaiyar,‘n the question for
consideration before the Andhra Pradesh High Court as to whether the purchaser of a lottery
ticket was bound by the terms and conditions printed on the reverse of lottery ticket in small
print. In that case the plaintiff purchased one Rajasthan State Lottery ticket for Re. 1/-. The ticket
was lost through pickpocket. On that ticket first prize of Rs. 2,50,000 was declared, which the
plaintiff claimed. The defendants refused to pay the amount, inter alia, contending that as per the
printed conditions on the back of the ticket, the original ticket had to be produced in order to
claim the prize. The High Court drew distinction between the formation of contract by
negotiation between the parties and the mere passing over a ticket or receipt containing
contractual terms. It was observed that unless the terms of the contract were arrived at after due
negotiations, they cannot be held binding merely because a ticket is later issued containing the
said terms.
In this case it was found that the agreement was not negotiated, the terms on the ticket were in
small print and they were not brought to the notice of the plaintiff either before or at the time of
purchase of the ticket. Moreover, it was proved that the plaintiff had purchased the said ticket
and nobody else had claimed the prize on that ticket. It was, therefore, held that the plaintiff was
not bound by the terms printed on the reverse of the ticket, and he could claim the prize even
without producing the original ticket.
In Richardson Spence & Co. v. Rowntree,83 the plaintiff was a passenger in the defendant’s
steamer. The passage ticket which was given to her contained a term limiting the liability of the
defendants to $ 100 for any injury to the passenger or his luggage. The ticket was given to the
plaintiff folded up. Moreover, some of the conditions on the ticket got obliterated by a stamp
being put over them. The plaintiff sustained injuries during the voyage and she brought an action
against the defendants to recover more than $ 100 as compensation. The defendants wanted to
limit their liability to $ 100 on the basis of the clause printed on the ticket. It was held that
reasonably suficient notice of the terms had not been given to the plaintiff and, therefore, she was
entitled to recover compensation for the whole loss.
Similar was the position in Thornton v. Shoe Lane Parking Ltd.84 In this case the plaintiff
parked his car at an automatic car park. When he approached for parking, a ticket came out of a
machine, then a barrier rose and he could get in to park his car. It was printed on the ticket that it
was being issued subject to the conditions displayed in the parking premises. One of the
conditions displayed on the premises exempted the defendants from liability for injury to their
customers. When the plaintiff came back to take his car, he was injured due to the negligence on
the part of the defendants. In an action by the plaintiff the defendants pleaded exemption from
liability on the basis of the printed terms on the ticket. It was held that it was not practicable for
each of the persons parking his car to go and read the conditions subject to which the. ticket had
been issued and as such the terms were not sufficiently conveyed to the plaintiff to entitle the
defendants to be exempted from the liability, they were, therefore, liable to pay compensation.
4. Notice should be contemporaneous with the contract.
If a party to the contract wants to have exemption from liability, he must give a notice about the
exemption 'while the contract is being entered into and not thereafter. If the contract has already
been entered into without the exemption clause, subsequent notice about the exemption from
liability will be ineffective. In Olley v. Marlborough Court Ltd.,85 the plaintiff and her husband
hired a room in the defendants’ hotel and paid for one week’s boarding and lodging in advance.
When they went to occupy the room, they found a notice displayed there which stated : "The
proprietors Will not hold themselves responsible for articles lost or stolen, unless handed to the
manageress for safe custody." Due to the negligence of the hotel staff, their property was stolen
from the room. In an action against the defendants to recover compensation for loss, they sought
exemption from liability on the basis of the notice displayed in the room. It was held that the
notice in the room did not form part of the contract, and the defendants were, therefore, liable for
the loss.
5. The terms of the contract should be reasonable
It is not enough that the terms of contract have been brought to the knowledge of the other party
by a sufficient notice before the contract is entered into, it is also necessary that the terms of the
contract themselves should be reasonable. If the terms of the contract are unreasonable and
opposed to public policy, they will not be enforced merely because they were printed on the
reverse of a bill or a receipt or have been expressly or impliedly agreed upon between the parties.
In Central Inland Water Transport Corporation Ltd. v. Brojo Nath,86 one of the clauses in a
contract of employment provided that the employer (Corporation) could terminate the service of
a permanent employee .by giving him a 3 months’ notice or 3 months’ salary. In accordance with
the above clause, the services of the respondent BrojoNath and another were terminated instantly
by giving them the notice, accompanied by a cheque for 3 months’ salary. It was held by the
Supreme Court that such a clause in the service agreement between persons having gross
inequality of bargaining power was wholly unreasonable and against public policy and was
therefore void under Section 23 of the Contract Act.
In Lilly White v. Munuswami,87 an action was brought by a customer of a firm of launderers
and dry-cleaners, M/s Lilly White, to whom the customer had given a new saree costing Rs. 220
for cleaning but the same was lost. The plaintiff claimed full price of the saree, i.e., Rs. 220 but
the defendant offered to pay only 50% of the price on the ground that there was a printed term on
the back of the receipt given to the customer stipulating that in case of loss of a garment, the
customer would be entitled to only 50% of the market price or value of the same. It was held that
such a term of the contract was unreasonable and against public policy and therefore
unenforceable, because if such a condition is enforced, any laundry owner will try to
misappropriate new clothes.
In R.S. Deboo v. Hindlekar,88 the receipt given against garments given for dry-cleaning
restricted launderer’s liability to 20 times the service charges or 50% of the value of the
garments, whichever was less. It was held that the condition printed in the receipt was
unreasonable, arbitrary and opposed to public policy, and hence the same was void.
Similar was the position in Levison v. Patent Steam Carpet Cleaning Co Ltd.89 In that case the
plaintiffs, Mr. and Mrs. Levison, who owned a Chinese carpet of the value of £ 900, gave the
same for cleaning to the defendants, the Carpet Cleaning Co. At the time of delivery Mr. Levison
signed an order form containing "Terms and conditions of processing." Two of the clauses
contained in the form require a mention.
(i) "Clause 2(a) read : The maximum value of any carpet, mg or tapestry delivered to the
company for any purpose whatsoever shall, if the area thereof exceeds four square yards be
deemed to be £ 2 per square yard, and if the area does not exceed four square yards shall be
deemed to be £ 10."
In this case the area of the carpet was 5 yards by 4 yards, Le., 20 square yards, and according to
this clause, the maximum value of carpet was deemed to be only £ 40.
(ii) "Clause 5 read” : All merchandize is expressly accepted at the “owner’s risk."
The carpet was lost, and therefore, not returned to the plaintiff. The plaintiffs brought an action
to recover £ 900, being the value of the carpet lost by the defendants.
The defendants tried to exclude their liability for negligence under clause 5, or limit the same to
£ 40 under clause 2 (a). Their plea was rejected and they were held liable to pay damages
amounting to £ 900 to the plaintiffis. As regards the plea for exemption or limitation of the
defendants’ liability under the above stated clause, it was held that it was not reasonable for the
cleaning company to stipulate that all the merchandize should be "at owner’s risk."
6. Strict interpretation of the exemption clause
Sometimes the courts have resorted to the device of strict construction of the contract to give
protection to the weaker party in cases where the parties to the contract do not have bargaining
equality or one of the parties is likely to have an undue advantage at the cost of the other. This
may be illustrated by referring to the case of Wallis v. Pratt.90
In that case there was a sale by sample of the seeds described as "English sainfoin" by the
respondents to the appellants. The contract was made subject to an exemption clause saying :
"The sellers give no warranty, express or implied, as to growth, description, or any other
matters.” The respondent supplied an inferior quality of seeds known as "giant sainfoin . The two
kinds of the seeds were indistinguishable and the fact could be known only after the seeds were
sown and the crop was ready. The appellants, who had sold the seeds further, were forced to pay
compensation to their buyers and they in their turn brought an action against the respondents to
recover the compensation paid by them. The respondents pleaded exemption from liability on the
basis of the clause in the agreement as stated above. It was held that there was a breach of an
implied condition that the goods shall correspond not only to sample but description as well for
which the respondents must pay compensation. It may be noted here that the exemption clause
had excluded liability for breach of warranty and not for breach of conditions and in this case
there was breach of condition.
7. Fundamental Breach of Contract
Another device which has been adopted to protect the interest of the weaker of the parties to the
contract when they have an unequal bargaining position, is to see that enforcing the terms of the
contract does not result in the fundamental breach of contract. In a standard form contract it is
likely that the party having a stronger bargaining power may insert such exemption clause in the
contract that his duty to perform the main contractual obligation is thereby negatived. But the
main obligation under the contract is not allowed to be negatived by any term of the contract. No
exemption clause is allowed to permit the non-compliance of the basic contractual obligation. If,
for example, a contract said : '3We will deliver your goods : we promise to deliver your goods at
such and such a place, and in the condition in which we receive them : but we are not liable if
they are lost or damaged from any cause whatsoever". That is not in law a contract at all. It is
illusory to say' : "We promise to do a thing, but are not liable if we do not do it."91
In Alexander v. Railway Executive,92 the plaintiff deposited his luggage in the defendant’s
cloak-room and in return received a ticket. A term printed on the ticket exempted the defendant
from liability for loss or misdelivery of the luggage. Plaintiff’s luggage was delivered to an '
unauthorized person without the production of the ticket. It was held that non-delivery of the
luggage to the plaintiff amounted to fundamental bunch of contract for which the defendant was
liable.
In Davies v. Collins,93 an Army Officer delivered his uniform to the cleaners for cleaning and
some repairs. The cleaners gave the same to the sub-contractors for doing the job and it was lost.
The cleaners denied responsibility because of the exemption clause, which read, "Whilst every
care is exercised in cleaning and dyeing garments, all orders are accepted at owner’s risk entirely
and we are unable to hold ourselves responsible for damage, shrinkage, colour or defects
developed on necessary handling. The proprietor’s liability is limited to ten times the cost of
cleaning it.‘ It was held that the cleaners were liable as there was a fundamental breach of
contract on their part in so far as they did not exercise reasonable care by getting the job done
from the servants under their control, and instead passed on the uniform to the sub-contractors.

Breach of contract--Misrepresentation and fraud

It is the appellants who delayed the payment of sale consideration on the dates stipulated for
payment. For the period of delay they agreed to pay interest to the State Government voluntarily;
they voluntarily paid stamp duty and bore registration charges in the end of December, 1996 and
got the sale deed executed on 7th January, 1997, on which date the possession was delivered to
them and thereafter they voluntarily paid the charges for the approval of building plans with
F.A.R. 1.75 and proceeded with construction work for establishing Hotelcum-Commercial
Complex by demolition of existing structure of Dr. Helligs Bungalow standing on the land in
question, levelling the same, digging deep foundation, constructing basement and thereafter
further raising construction of ground floor and other floors. They cannot now be permitted to
turn round and claim refund of any amount which they allege to have spent including the claim
for the interest. The appellants have voluntarily paid the entire money, entered into possession,
raised construction and incurred expenditure voluntarily and as such they are not entitled to any
refund or any claim and declaration as such, on the ground of frustration or impossibility of
performance of the contract. Every contract including one by auction is subject to provisions of
law. Whenever any action is taken in performance of a contract, it must conform to the law in
force at the time when action is taken. In the instant case, when the appellants applied for
approval of building plans, it is the law that is in force at that time, which would be applicable.
Doctrine of promissory estoppel is not available when any action is desired to be taken in
contravention of the provisions of law. The terms and conditions of the sale as announced when
the property was put to sale were in accordance with law and no guarantee was given (nor could
have been given) that the law would not change, or that the. terms and conditions would be
enforceable even in violation of law which may be in force. F.A.R. was a matter of law and the
F.A.R. was fixed either by the J.D.A. or J.M.C. in exercise of its statutory powers. The contract
when entered into, the F.A.R. approved by J.D.A. was 2 and its subsequent reduction in 1996 to
1.75 would not invalidate the contract or by treating as a breach of the contract nor can it be
treated by the Government. The appellants even after acquiring the knowledge of fact regarding
reduction of F.A.R. from 2.00 to 1.'Z5 and that the land was not ceiling free elected to affirm the
contract by getting their plans approved with F.A.R. 1.75 and started putting up construction.
They started digging the foundations and continued to build even after knowing that the land was
not ceiling free. The appellants are not entitled to any relief in the realm of the law of contracts.
In spite of having acquired knowledge of the true facts assuming that there was any mistake or
misrepresentation to begain with and having learnt that the title which was sought to be
conferred on them by the respondents was not such full title as they had contemplated it to be,
they proceeded to have the sale deed executed and registered in their favour, seeking extensions
of time and paying interest for the period of delay in payment.
The contract stood accomplished into 'a demise and the transaction ended. It is. Wl'it large that
the appellants had elected to stand by the contract by digging the land, Sinking the basement and
raising about 9 floors above, investmg crores of rupees. They have by their own conduct
rendered the position irreversible and restitution impractical. No law or authority has been shown
based whereon the appellants may annul and avoid a eoncluded contract and fix liability on
respondents for the cost of their construction which they have voluntarily chosen to raise in spite
of being aware of all the relevant facts and circumstances.94
3, Non-contractual Liability
In cases where more than one kind of liability arises, exclusion of contractual liability may not
negative any other kind of liability. In White v. John Warrick and Co. Ltd.,“’5 the plaintiff hired
a cycle from the defendants under an agreement stipulating that "nothing in this agreement shall
render the owners liable for any personal injury". While the plaintiff was riding the cycle, its
saddle tilted forward, as a consequence of which he was thrown and injured. In an action by the
plaintiff the defendant pleaded non-liability on the basis of the exemption clause. It was held that
the exemption clause excluded only contractual liability of the defendant, whereas they still
remained liable for negligence under'the law of torts.
9. Liability towards third parties
If A and B enter into a contract under which B tries to exclude his liability by an exemption
clause, such a clause would not exempt any other person, say C, from liability because of the
rule, that C is a stranger to the contract and he cannot take advantage of the contract between A
and B. Thus, if a carrier, by an exemption clause, excluded his liability, that does not mean that
his servants will be able to avoid their liability, if they are negligent.“5 .
In Morris v. C.W. Martin and Sons Ltd.,97 the plaintiff gave her fur garment to a furrier for
cleaning. Since the furrier himself could not do the job, he gave this garment to the defendant for
cleaning, with the consent of the plaintiff. The defendant’s servant stole the garment, for which
the plaintiff brought an action against them. The defendants sought exemption from liability on
the basis of the agreement between the plaintiff and the furrier. The defendants were not allowed
exemption and they were held liable.
10. Statutory Protection So that one party cannot take undue advantage of the unequal bargaining
power of the other, exclusion of liability in many situations has n barred by various statutes in
England. Some instances of such
statutory provisions are as under :
(i) The Misrepresentation Act, 1967 permits compensation even for
(ii) innocent misrepresentation. Prior to this Act, a party to the contract could claim
compensation under law of torts only in case of fraud. Section 2 of the Act recognizes liability
even for innocent misrepresentation. '
Road Traffic Act, 1960 makes any contract for the conveyance of passengers in a public service
vehicle, which restricts or excludes liability for injury to a passenger, void.
(iii) Transport Act, 1962 debars Transport Boards from excluding or
(iv) restricting their liability towards their passengers travelling on tickets, for death or injury
caused to them.
The Sale of Goods Act, 1979 imposes restrictions on the right of the seller to exclude liability for
implied conditions and warranties. Liability for breach of implied undertaking as to title cannot
be excluded. In case of consumer sales liability for breach of some other implied undertaking (as
to description, in sale by sample, and as to quality or fitness of the goods for a particular
purpose) cannot be excluded or restricted by any contract term.
(v) Unfair Contract Terms Act, 1977 severely limits the right of the
(vi) contracting parties to exclude or limit their liability through exemption clauses in their
agreements. Liability for death or personal injury cannot be excluded or restricted through a term
in the contract or notice. Moreover, the manufacturer and distributor cannot exclude their
liability arising out of defective goods or for their negligence, as regards goods supplied for
private use or consumption.
The Consumer Safety Act, 1978 requires the provision of safe goods to the consumers. Breach of
safety regulations is punishable as an offence. There is also a provision for a civil action when
damage is caused by breach of safety regulation. Any agreement which purports to exclude or
restrict such a civil liability will be void.98

Position in India
Unlike England, there is no specific legislation in India concerning the question of exclusion of
contractual liability. There is a possibility of striking down unconscionable bargains either under
Section 16 of the Indian Contract Act on the ground of undue influence, or under Section 23 of
that Act, as being opposed to public policy. In Central Inland Water Transport Corp. Ltd. v.
Brojo Nath,99 the Supreme Court struck down a clause in a service agreement whereby the
service of a permanent employee could be terminated by giving him a 3 months’ notice or 3
months’ salary. It was held that such a clause was unreasonable and against public policy and
void under Section 23 of the Indian Contract Act. Similarly, if a dry-cleaner tried to limit his
liability to 50% of the price of the saree lost on the basis of a term printed on the reverse of the
receipt, the clause limiting the liability was held to be against public policy and, therefore, void.
The Law Commission of India in its 103rd Report (May, 1984), on Unfair Terms in Contract,
has recommended the insertion of a new Chapter IV-‘A’, consisting of Section 67A in the Indian
Contract Act. According to this recommendation, where the Court, on the terms of the contract
or evidence adduced by the parties, comes to the conclusion that the contract or any part of it is
unconscionable, it may refuse to enforce the contract or the part that it holds to be
unconscionable. .A contract, according to this provision, is considered to be unconscionable if it
exempts any party thereto from either the liability for wilful breach of contract, or the
consequences of negligence.