ADHESION CONTRACTS AND THE INDIAN LAW OF CONTRACT

Author(s): V. Ramaseshan
Source: Journal of the Indian Law Institute , April-June 1975, Vol. 17, No. 2 (April-
June 1975), pp. 237-256
Published by: Indian Law Institute

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 ADHESION CONTRACTS AND THE INDIAN LAW OF CONTRACT

V. Ramaseshan *

ONE OF the most serious challenges that the modern law of contract has
had to face is the type of a contract called an adhesion contract.1 This type
of contract is found generally in the fields of transport, insurance and simi-
lar others where the operations are on a large scale. It is a concomitant
feature of mass production and is sometimes aptly termed mass contract.
The problem raised by these contracts has been the subject of serious study2
and the increasing volume of literature on the subject shows no sign of
abatement.
In such contracts, one party who is transacting business on a large scale
with a number of individuals presents in stereotyped-standard forms, usually
in print, which the other party- composed usually of individuals - has
merely to accept or go without availing of the goods or services offered by
the first party. Because of its size as well as the number of the same type
of transactions it enteres into, the large-scale business concern is able to
have expert advice and formulate the terms in the printed form most favour-
able to itself. The other party, constituted, in practice, usually by indivi-
duals separately dealing with the concern and who are, therefore, in the
majority of cases disorganised, simply adopt even those terms to which they
may not perhaps agree, had they choice to do so. Because of the monopo-
listic or semi-monopolistic position of the big business organisation, the
individual has little choice, let alone freedom, left in the matter.
The law of contract as it developed in England and was given
statutory form in India in the Contract Act, 1872, is, it is well known, the
product of a social philosophy whose basic tenet was freedom of the indivi-
dual. No doubt, in the last hundred years or so, that freedom has been
cribbed and confined so as to render that freedom a reality to all, parti-
cularly to those whose bargaining power was less than that of others. The

* M.A., M L., Lecturer in Mercantile Law, University of Madras, Madras.

1. Also called standard form contracts. They are so called because one party has
merely to 'adhere' to what has been proposed by the other. In contrast the normal type
of contracts may be called 'negotiated contracts'.
2. Prausnitz, The Standardisation of Commercial Contracts in English and Continental
Law , 1937(Llewellyn, Review of Prausnitz's book in 52 Harv. L.R. 700)(1939);Kesseler; Con-
tracts of Adhesion - Some Thoughts About Freedom of Contract 43 Col. L. Rev. 629; (1943)
Friedmann, Law in a Changing Society 101 (1959); Brian Coote, Exception Clauses (1964);
H.B. Sales, Standard Form Contracts, 16 Mod. Law Rev. 318 (1953); N.S. Wilson, Freedom
of Contract and Adhesion Contracts, 172, 14 Int. and Comp. Law Quarterly (1965); Eike Von
Hippel 'The Control of Exempion Clauses - A Comparative Study, 16 Int. and Comp. Law
Quarterly 591 (1967) are among the leading treatments given to the subject.

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238 JOURNAL OF THE INDIAN LAW INSTITUTE [Vol. 17 : 2

Minimum Wages Act, the Money Lenders Act, the Fair Rent Act,
in India or in the United Kingdom, are but a few of the leading il
of the foregoing statement.
Although the problem raised by adhesion contracts is similar t
that previously arose in the history of the law of contract in that
a balancing of rights and interests between a superior and inferio
regards their bargaining strength, yet it is novel and unpreceden
it undermines the presuppositions of that law. The armoury of th
cluded only some special and limited tools which could alleviate
unfair bargains but not a general instrument which could cut div
of contractual clauses to shape clauses, that is, which are one-
also novel in another sense, namely, in the solutions attempted in th
legal systems of the world.
AU the same, neither the existence of the problem nor its solut
to have been fully thought of in India. The chief reason for this
any interest or involvement in such a problem lies apparently in th
the problem is scarcely met with in actuality, unless it takes the for
suit instituted by the aggrieved party. If and when thus confron
suits, the courts adopt some ad hoc solution in response to their i
to do justice between the parties, rather than with reference to an
statutory provision or known principle of law. Such ad hoc conclus
sarily lead to uncertainty and ambiguity, eie.
The following study is undertaken with a view to highlighting
position and assessing the legal machinery available in India to cope
The analysis of the problem in other jurisdictions, particularly in
is, at least, three decades old now.3 Although neither its identific
the resourceful techniques needed to meet it have been found want
still it remains today a burgeoning problem that defies systematic a
alone its logical solution. As already stated, it stretched beyond th
of what Llewellyn called "the general law for filling gaps in the con
gain''4 because contracts are produced by the printing press with th
pen used not for recording thought but for authentication. This "ge
as it emerged at the dawn of this century, centred round the leading pr
of "freedom of contract" and "sanctity of contract''. In the oft-quo
of Sir George Russel in Printing and Numerical Registering Co . v. S

[I]f there is one thing which more than another public policy
quires it is that men of full age and competent understanding s
have the utmost liberty of contracting, and that their contracts, wh
entered into freely and voluntarily, shall be held sacred and sha
enforced by Courts of justice.5

3. Supra note 2.
4. Llewellyn, supra note 2 at 701.
5. (1875) L R. 19. Eq. Case. 462 at 465.

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1975] ADHESION CONTRACTS 239

The concept of freedom of contract c

tracts derived their source as well as val
they were the result of free choice of the
tract, the importance of this mutual as
idealist approach to what Cheshire and
sive mental element' is a catechism that
elusive, it has often been proclaimed th
objective one and not a subjective one.
the classic case of Bardell v. Pickwick
the approach; the verdict of the jury t
accordance with the above approach, b
of being understood by a reasonable
though nothing could have been farther
proposal.
The other related idea that contract is the result of free choice of
parties was similarly subject to the overriding considerations of public
policy. Legislative interference with that freedom of choice in the form of
whether labour welfare legislation or other regulatory measures like Rent
Acts or Moneylenders Acts, etc., is legion. But subject to such limiting con-
ditions the area of negotiation and bargain was free and the whole develop-
ment of the law of contract in the latter half of the 19 th century was chara-
cterised by the great importance that courts attached to the intention of the
parties. Parties' intention was the guiding principle in case of dispute. As is
well known that the doctrine of frustration is an out-standing example of
both the theoretical importance of that principle and the lack of its touch
with reality. The 'implied term' was the basis of holding a contract frustra-
ted but it was a term implied by the courts in circumstances which the
parties did not foresee and consequently could never have thought of.
Equally, 'sanctity of contract' tended 'to grow from a sacred principle
to a shibboleth. It was sought to be restrained and mitigated where the evil
was found to be very glaring. Of course, from the earliest times, certain
limits on sanctity of contract were recognised, e.g., fraud, coercion, undue
influence, etc . But they were insufficient in the nature of things to cope up
with the problems arising in our complex modern industrial society. So
there were invented other methods of curbing the evil of holding contracts
absolutely sacrosanct. Chief among those methods were the doctrine of
frustration, the limitation of the amount of damages a party could stipulate
in case of breach of contract and certain grounds of public policy like those
relating to agreements in restraint of trade, etc. There were also legislative
measures like the Carriers Act, 1865; the Carriage of Goods by Sea Act, 1925
which prescribed minimum liability for the carrier which could not be con-

6. Cheshire and Fifoot, Law of Contract , (5th ed.) .

7. P.S. Atiyah, Introduction to the Law of Contract (1961).

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240 JOURNAL OF THE INDIAN LA W INSTITUTE [Vol. 17:2

tracted out. But in all this development the basic idea that con
did not transgress the prescribed and well recognised limits wer
was enduring, and lack of choice and absence of negotiation an
in the particular terms of a bargain were not consideration
avail before a court. With the result, "our courts are loath ind
out a contract clause under the plain justification that it is cont
lic policy".8 Some of the cases which Prausnitz collected are sai
justice shiver and shake."9 Hence the tremendous impact on th
tract which is as yet only being worked out elsewhere. A brief
methods evolved to meet the problem may help us better t
situation in our country.
The methods referred to above may be classified as follows:
1. Legislative measures.
2. Judicial control.
3. Administrative measures.
In the United Kingdom and the United States till recently, the legis-
latures have confined themselves to dealing only with special cases of abuse
by means of adhesion contracts. Examples are to be found in the fields of
transport and insurance.10 Similar legislation can be found in Germany and
France.11 Another example may be found in a provision in Italian Civil
Code under which exemption clauses in adhesion contracts are effective only
if specially approved by the customer.12
In the absence of a general statutory regulation of the problem, judicial
control of adhesion contracts has often been resorted to. A study of this
kind of control reveals both the magnitude of the problem and the inadequacy
of the techniques so far developed to meet it. Particularly in the United King-
dom courts have desisted from openly intervening to assist the aggrieved party
and have chosen, instead, to stretch on the old tools already available in the
law of contract, like the principle of 'construction', a lack of assent due
to failure to give proper notice, consideration and so on. By such stret-
ching, rules like interpretation of contractual clauses contra proferentum, and
the one that the defendant must have done what he contracted to do13 with
its later development in the doctrine of fundamental breach14 have been
formulated.

8. Llewellyn, supra note 2 at 702.

9. Ibid. y see e.g., Hollis Bros . v. White Sea Timder Trust Ltd., (1936) 3 All E.R. 895
(K.B.); L' Estrange v. F. Graucob (1034) 2 K.B. 394.
10. E.g., English Road Traffic Act, 1960.
11. Eike Von Hippel, supra note 2 at 594.
12. Cod'ice Civile, art. 1341, see Gorla Standard Conditions and Form Contracts in
Italian Law, 11 Am. Jour, of Com. Law , 1 (1962).
13. Gibaud v. Great Eastern Rly. Co., (1921) 2 K.B. 426.
14. See V. Ramaseshan, Fundamental Obligation and the Indian Law of Contract,
10 J.LL.L 331 (1968).

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 1975] ADHESION CONTRACTS 241

But these rules, "semi-covert tec

not been adequate. Three objections are listed by Llewellyn to such
techniques:
(i) Since they all rest on the admission that the clauses in question are
permissible in purpose and content, they invite the draftsman to renew the
attack;
(ii) since they do not face the issue, they fail to accumulate either expe-
rience or authority in the needed directions - -that of marking out for any
given type of transaction what the minimum decencies are which a court will
insist upon as essential;
(iii) since they purport to construe and do not really construe, nor are
they intended to, but are instead tools of intentional and creative miscons-
truction, they seriously embarrass later efforts at true construction.
The net effect is unnecessary confusion and unpredictability together
with inadequate remedy and evil persisting that calls for remedy. Covert
tools are never reliable tools.
The above criticism of Llewellyn is illustrated in the rise and fall of the
doctrine of fundamental breach in English law already adverted to.16
Further, how the attachment to the conventional rules dies hard with courts
is borne out in the recent case of Thornton v. Shoe Lane Parking Co. 17
regarding which the learned commentator in the Modern Law Review 18
doubts if this case may not after all be one to be remembered nostalgia-
cally as just another case that sealed the fate of the exemption clause.
Recent experiments in the United States have, however, been more reliable.
It has been observed that the American judges have been in general more
active in fighting the exemption clauses than their English counter parts19
To quote but one of the recent, and leading cases, in Henningsen v. Bloom-
field Motors Inc.,20 the Supreme Court of New Jeresey had to consider the
validity of a clause in a standard form contract for sale of a motor car.
The purchaser of the car and his wife were injured in an accident caused
by a defect in the car's steering mechanism. They sued the manufacturer
and the dealer who pleaded the above clause in defence which limited the
liability for the breach of warranty to the replacement of defective parts.
The court rejected, in strong terms, the defence based on the exemption
clause. It said "An instinctively felt sense of injustice cries out against such
a sharp bargain".21 The clause was held to be void as against public policy

15. Supra note 2 at 702. _ . « - .. » T-. i . _i.i n -

16. Brian Coote, The Rise and hall oi hunaameniai d ream, n usi. i^uw ¿uur. jju
(1966-67).
17. (1971) 2 Q.B. 163 (C.A.).
18. 35 Mod. Law Rev. 179. (1972).
19. Eike Von Hippel, supra note 2 at 598.
20. (1960) 161 A. 2d. 69.
21. Id. at 85.

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 242 JOURNAL OF THE ĪNDĪAN LA W INSTITUTE [Vol. 17:2

and the plaintiffs were awarded damages. Section 575 of the

the Law of Contracts lists the cases in which contractual c
avail a party where he is guilty of a 'wilful breach of duty
gence.' 22 The trend towards greater and greater judicial
exemption clauses is evidenced in the the Uniform Comme
adopted nearly in all the member states in the United States.
of this code provides:

(1) If the court as a matter of law finds the contract or an

of the contract to have been unconscionable at the time it was made
the court may refuse to enforce the contract, or it may enforce
the remainder of the contract without the unconscionable clause,
or it may so limit the application of any unconscionable clause as
to avoid any unconscionable result.

(2) When it is claimed or appears to the court that the contract

or any clause thereof may be unconscionable the parties shall be
afforded a reasonable opportunity to present evidence as to its
commercial setting, purpose and effect to aid the court in making
the determination.

As can be seen from the language used, this section is far-reaching and
intended by the authors of the code squarely to be the remedy for the pro-
blem of standard form contracts. The history of the section as well as the
cases cited in the official comment make the above point clear.23 It is revolu-
tionary in the sense that it violates the principle of freedom of contract and
strikes at the security of transactions by empowering the court to remake a
contract, if it thinks it necessary to do so. But the crucial question is
how to decide any particular contractual clause to be unconscionable. It has,
therefore, been criticised on the ground that it gives courts too wide a discre-

22. It states :

(1) A bargain for exemption from liability for the consequences of a wilfu
breach of duty is illegal, and a bargain for exemption from liability for th
consequences of negligence is illegal if
(a) the parties are employer and employee and the bargain relates to
negligent injury of the employee in the course of the employment, or
(b) one of the parties is charged with a duty of public service, and the
bargain relates to negligence in the performance of any part of its
duty to the public, for which it has received or been promised compen-
sation.

(2) A bargain by a common carrier or other person charged with a duty o

public service limiting to a reasonable agreed valuation the amount of
damages recoverable for injury to property by a non-wilfu! breach of duty
is lawful.
23. 'Unconscionable Contracts and the Uniform Commercial Code* 109 U.P.L.
Rev. 401 (1961).

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 1975] ADHESION CONTRACTS Mí

tion to interfere with agreements and t

so essential for commercial activity.2
support the section on the same grou
out that it applies only where the elem
would help and not hinder the freedo
nomy' within bounds. As stated in th
vention of 'oppression and unfair surp
on the scope of the section.26
The sort of control outside legislati
may designate as administrative regu
been experimented in Israel. The St
in Israel combines, as it were, judicial
the abuse resulting from standard fo
scheme corresponds more or less to se
Code, adumbrating courts' review of
part is more interesting and novel. A
by choosing representatives from the
is vested with the power to entertain
for deciding upon the validity of any
proposes to include in a standard for
decision by the prejudice to the consu
that is likely to be caused by the clau
rounding circumstances. It may recei
clause.

Any clause approved by the board cannot be invalidated by the courts

subsequently for a period not exceeding five years. The contract must indi-
cate on its face the approval of the clause by the board.
The experience of this form of control is reportedly not encouraging and
on a fair assessment it has been observed, "even a moderately successful ad-
ministrative system would be a substantial advance beyond the current mel-
ange of judicial rulings and legislative proscriptions"26 in spite of the volun-
tary nature of the opportunity for control being its greatest defect, as devised
in Isreal.
The foregoing brief survey of the methods adopted elsewhere highlights
the problem in the perspective of two fundamental and opposing principles
competing for supremacy.(l) that it is in the interests of society that contracts
made by persons of full age, understanding and capacity ought to be enforced
and (2) that this principle ought not to be made a tool in the hands of hard

24. 33 Ore. L. Rev. 113 (1954).

25. Bargaining Power and Unconscionability : A Suggested Approach to t/cc
section 302, 114 U. Pa. L. Rev. 998 (1966).
26. Administrative Regulation of Adhesion Contracts in Israel, 66 Col. K.L. uw ai
(1965) 1350; see also A.L. Diamond, The Israeli Standard Contract Law, 14 Int. and Com.
law Quarterly 1410 (1965).

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244 JOURNAL OF THE INDIAN LAW INSTITUTE [Vol. 17 : 2

bargainers who are able by virtue of their superior bargaining streng

impose unconscionable terms on the less favourably situated parties,
other words, the conflict between freedom of contract and the restra
should be placed on such freedom to ensure its availability to all the
bers of the society. It has been stated:
In actual life real freedom to do anything, in art as in politic
depends on acceptance of the rules of our enterprise. As has be
remarked elsewhere, the rules of the sonnet do not hamper real poe
but rather help weak ones. Real or positive freedom depends upon
opportunities supplied by institutions that involve legal regul
tion.27

Position in India

The statutory regulation- if not negation of the right to make a contract

or contractual clause - in particular fields is now, at least, a century old, star-
ting perhaps with the Carriers Act, 1865 and through similar legislation in the
law of carriage by sea in 1924.28 The minimum liabilities prescribed for a
carrier of goods and passengers is the example par excellence of statutory
regulation of adhesion contracts in India. There have been similar regulatory
provisions in the fields of money-lending, leases of houses and latterly of agri-
cultural lands in the various states of the Indian Union. But the law of con-
tract contained in the Indian Contract Act does not seem to contain a general
provision which the courts can invoke to deal with these contracts which fall
outside the statutes passed in particular fields such as those mentioned above.
In the absence of such omnibus provision, the judicial treatment of these con-
tracts provides an interesting case study which may well indicate the lines of
development in the future.
However, certain sections of the Contract Act have been of some use to
the courts.29 Clause 3 of section 1 6 says:

Where a person who is in a position to dominate the will of another,

enters into a contract with him, and the transaction appears, on the
face of it or on the evidence adduced, to be unconscionable, the
burden of proving that such contract was not induced by undue in-
fluence shall lie upon the person in a position to dominate the will of
the other.

The words used in this clause may well be used to cure the evil of stand-
ardised contracts. But judicial interpretation and use of this clause seems to
have been constricted for two reasons:

27. Morris C. Cohen, The Baiis of Co itract, 45 H irv. L.R. 553 at 591 (1932-33).
28. Carriage of Goods by Sea Act, 1925. Similarly the Railways Act, 1890 as
amended by the Amsndmsnt Act in 1961 and the Carriage By Air Act, 1934, etc .
29. Clause 3 of s. 16. See also ss. 23, 28, 74 and 151.

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 1975] ADHESION CONTRACTS 24$

1. Both the elements, narnely the do

the will of the other and the 'unconsc
be insisted upon by the courts as nece
apply.30 As Sir Richard Garth, C.J., s
of Mackintosh v. Wingrove , "If peop
and knowingly to enter into unconscio
protect them."31 It goes without sayin
the party as to the contractual term
that clause 3 of section 16 has seldom
Mere unconscionability is no ground f
result of one party having abused his d
other. For example the inadequacy of c
sale of certain properties - is no groun
less it be of itself evidence of fraud.32

2. Further the clause itself having be

ment in 1899 was designed apparently
tions, as the illustrations (c) and (d) to
of clause 3 show. And, rarely, if ever
unconscionable bargains.33
The clause34 relating to public polic
deal with adhesion contracts if it were n
the doctrine of public policy is known
has been followed in India.35 It is know
cherous ground' on which to found a
proposition that public policy will not
covered by it; no court can invent a n
can be no doubt, therefore, that obnox
not be invalidated on ground of oppos
policy set out in section 23 of the Contra
authorities.37

Under section 28 of the Contract Act

tractual clause absolutely from enforc
tribunals or disabled from seeking his

30. Pollock and Mulla, The Indian Contract

31. I.L.R. (1878) 4 Cal. 137 at 140.
32. Sundarambal v . Yogavama Gurukkal,
33. Supra note 30 at 117 citing Tharukji M
34. The clause says, "The consideration or
the court regards it as. ..opposed to public pol
35. Shrinivasdas Lakshmi Narain v. Rama
Bom. 6.
36. Janson V* Driefontein Consolidated Mines t (1902) A.C. 484, 491*
37. Supra note 30 at 179 et seq. . r

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246 JOUŘNAL OF THE INDIAN LA W INSTITUTE [Vol. 17 : 2

ignore the clause and seek his remedy under the contract.38 This
perhaps be utilised to meet adhesion contract cases but its applic
to have been hemmed in by certain refinements which render its util
above purpose very limited. There is a distinction, it is said, on t
of English law,39 between agreements providing for the relinqu
rights and remedies and agreements providing for the relinquish
medies only and that it is only the latter class of agreements that
the mischief of section 28 and not the former class of agreement
tinction seems to be tenuous at least in the present context. and
be seen how far the courts will be able to call the section in aid in cases where
it is felt that any limitation clause in standard form contracts trenches upon
valuable rights of an aggrieved party.
Section 74 dealing with contractual clauses specifying the amount of
damages payable by the party committing a breach of contract may well pro-
vide the basis for overruling objectionable clauses in standard form contracts
which relate to the quantum of damages. But the section, as drafted, seems
inapposite for the purpose, because it contemplates actions41 by parties who
had stipulated for a certain amount and approach the court for redress. In
typical standard form contract cases, on the other hand, the party who is
aggrieved and who seeks redress is not the one who has stipulated or specified
any amount as payable in the event of breach. This section, too, seems, there-
fore, to have been of little use in these cases now under study.
Under section 151 of the Contract Act which lays down the extent of
duty of care of a bailee, it has been a matter of some controversy whether the
standard of care prescribed in that section is obligatory and whether it can
be lowered by contract or not.42 In the face of such controversy, we cannot
perhaps place too much reliance on this section either, as affording a means
of relief in standard form contract cases so far as they relate to contracts of
bailment like carriage or laundry services.
In the net result, the provisions of the Indian Contract Act, 1872 embody-
ing the general principles of the law of contract do not seem to afford a sure
and reliable guide in dealing with adhesion contracts, as the following sur-
vey of select cases will further show.

38. Section 28 reads :

Every agreement, by which any party thereto is restricted absolutely from enforc*
ing his rights under or in respect of any contract, by the usual legal proceedings
in the ordinary tribunals, or which limits the time within which he may thus
enforce his rights, is void to that extent.
39. Ford v. Beach , (1848) 11 Q.B. 871. Thimbleby v. Baron , (1838) 3 M and W 210*
40. Supra note 30 at 239.
41. The relevant words of the section are :
The party complaining of the breach is entitled... to receive from the party who
has broken the contract reasonable compensation not exceeding the amount or
penalty stipulated for.
42. Supra note 30 at 578. See also supra note 14.

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 1975] ADHESION CONTRACTS 247

A survey of the case law in India

tion of a dual standard by our court
in these types of contracts which exo
them. It can be seen that this dual s
to ambiguity and doubt which may
laid down and followed in these cases.
In the field of carriage by air, for example, the liability of the carrier
under his contract of carriage either with a passenger or a consignor of goods
has given rise to the problem and brought into focus the issues which we
have raised here. Iii the Madras High Court, the validity of an exemption
clause in the printed form in an air-consignment note fell to be considered in
Indian Airlines Corporation v. Jothaji Maniram ,43 Here the respondent Jotha-
ji Maniram, a merchant at Madras, sent a parcel of pen nibs valued at Rs.
1600/- to Calcutta through the petitioner (Indian Airlines Corporation). The .
contract of carriage, namely the air consignment note, had been duly signed
by the respondent's agent. One of the conditions, which were observed by
the court to be 'legibly' printed on the reverse of the consignment note, was
that the carrier (petitioner;
shall be under no liability whatsoever to the consignor or consignee,
etc., for loss, damage, detention or delay to the goods... whether or
not caused or occasioned by the act, neglect, negligence or default
of the carrier or of pilots, flying, operational or other staff or emp-
loyees or agents of the carrier or otherwise...
Another stipulation in the contract was that in so far as

any liability may be imposed on the carr ier by law, such liability
for loss of or damage to the goods, etc., would be limited and agreed
to be limited to be in the aggregate, the actual value thereof or decl-
ared value thereof or Rs.300 /- whichever was the lowest.

The respondent claimed from the carrier the value of the goods not de-
livered as per contract. The questions before the High Court were:
1. Whether the terms and conditions of the contract limiting the carri-
er's liability were brought to the notice of the consignor (respondent) so as to
bind him therewith.
2. Whether the carrier was liable to pay the entire damage claimed not-
withstanding the limitation clause.
On both the above questions the High Court held in favour of thf carr-
ier. The reasons for the decision were: (i) that since the agent of the con-
signor had signed the consignment note (contract) stating that he was
aware of and accepted the conditions printed on the reverse of the note. So
it was for the consignor to show that the clause limiting the carrier's liability
was not brought to his notice. This he failed to show to the satisfaction of
the court; (ii) nor did the consignor show the practice of any fraud or misre-

43» (1959) II Mad. L.J. 373*

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248 JOURNAL OF THE INDIAN LAW INSTITUTE [Vol. 17 : 2

persentation in securing his agent's signature to the consignme

that although there was negligence on the part of the carrier, th
not liable because he had by contract excluded such liability. The above
quoted exemption clause was held to be valid and so the carrier escaped
liability. According to the court, the standard of care laid down in section
16 could be varied by the parties.
In the Rajasthan High Court the same problem of liability of a carrier in
the face of an exemption clause (forming part of the conditions printed on
the back of the receipt given by the carrier on his undertaking to carry the
goods in question) arose in the recent case of Singhal Transport v. Jesaram
Jamumal.u The said receipt had been signed by the booking official on behalf
of the carrier alone but not by the consignor, although it contained a place
with the words "Signature of Consignor". Still the court held the consig-
nor bound by those conditions and the clause in particular which restricted
the claim of the consignor as regards the court in which he could make it
(namely, the court in Udaipur city). The court observed:

Any prudent consignor would read the ticket... a man must be

taken to know that which he has the means of knowing, whether he
has availed himself of those means or not. If he does not he must
bear the consequences of his carelessness.440

The case of a passenger's loss of life and consequent claim for damages
against a carrier, here again, by air, fell to be exhaustively treated by the Cal-
cutta High Court in Indian Airlines Corporation v. Madhuri Chawdhuri 45 with
the same conclusion upon an exemption clause as in the foregoing cases. It
arose out of an air crash at Nagpur in which the husband of the plaintiff was
killed, while he was a passenger in the plane service operated by the defendant
corporation. The damages for which the suit was filed amounted to Rupees
twenty lakhs, the person killed being a young and prosperous businessman
of Calcutta. The defendant, the Indian Airlines Corporation, pleaded inter
alia an exemption clause printed on the passenger ticket in its defence, which
was in the following form:

The carrier shall be under no liability whatsoever to the passenger,

his/her heirs, legal representatives or dependents or their respective
assigns for death, injury or delay to the passenger or loss, damage,
detention or delay to his baggage or personal property arising out of
the carriage or any other services or operations of the carrier whe-
ther or not caused or occasioned by the act, neglect or negligence or
default of the carrier, or of pilot, flying operational or other staff

44. A.I.R. 1968 Raj. 89,

44ä. îd. at 93.
45. A.I.R. 1965 Cal. 252*

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1975] ADHESION CONTRACTS 249

or employees or agent of the carr

the carrier shall be held indemnifi
proceedings, damages, costs, charg
arising out of orin connection wi
or operations of the carrier.

The trial court having held this ex

to the plaintiff; the defendant cor
reversed the trial court's decree; it
the exemption clause elaborately
complete bar to the plaintiff's righ
was held to be erroneous and agains
against decided authorities".46 The p
1. The Indian Airlines Corporat
relationship between the parties to
verned by the English common l
having then been applied to interna
under section 4 of that Act to be is
apply in this case.47
2. The liability of a common ca
English common law; the court c
Bhagwandas .48 The Carriers Act, 1
apply to a carrier by air.
3. Under the English common law
a bailee only but that of an insurer
law allows the carrier almost an equ
contract with the consignor. The ter

could be very far-reaching and in

even if the loss was occasioned
misconduct of its servants or even
by any other circumstance whatso
or lower amount of freight charg
of this kind may appear to be, y
the law as recognised by the com
by the Courts in India.49

4. The Indian Contract, Act 1872

case, therefore, np question of test
with reference to section 23 of the

46* Id * at 258 i
47. The Act has since been applied to in
48. (1891) 18 I.A. 121.
49* Supra note 45 at 260*

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250 JOURNAL OF THE INDIAN LAW INSTITUTE [Vol. 17:2

5. Consequently, in the absence of any statutory prohib

such exemption clauses, the court held the "exemption cla
and legar'.
It is needless to multiply instances where the court had at
tity to the bargain and held an exemption clause therein as v
ing. In certain other cases however, with similar fact-situatio
yardstick is found to have been applied for approving or rath
down, such clauses. In Lily White v. Munuswami,00 the action
up by a person who gave a saree for dry cleaning to the d
defendants never returned it. The plaintiff sought to recover
the saree (about Rs. 220/-) from the defendants. They pleaded
condition found in the receipt given by them to the plaintiff
that "the customer was entitled to claim only 50 per cent of th
or value of the articles, in case of loss". The trial judge de
for the full value of the saree lost. The High Court in rev
consider whether the above condition was valid. Anantanar
he then was) held the condition to be opposed to "public
the fundamental principles of the law of contract... The c
enforce such a term which is not in the interests of the
which is not in accordance with public policy."51 Similarly in
v. Natraj52 the court had to deal with a clause in a launderer's
stated:

All articles for cleaning and dyeing are accepted on condit

the company shall incur no liability in respect of any
which may occur and for delay or in the event of loss for w
company may accept the liability which shall in no cas
eight times the cleaning charges.

The launderer (dry cleaner) was sued by the respondent fo

respect of two silk sarees given for dry cleaning. He invo
clause in defence. The trial court decreed the suit ignoring
revision, the Mysore High Court confirmed the trial court's d
the said clause to be against section 151 of the Contract Act wh
said was not capable of being contracted out. The court, per N
J., observed:

The question whether any public policy is involved or not

in my opinion, arise. The petitioner is, undoubtedly, a baile
pect of the sarees given to him and there is a minimum dut
imposed upon all bailees under Sec. 151 of the Contract Act

50. A.I.R. 1966 Mad. 13.

51. Id. at 13-14.
52. A.I.R. 1970 Mys. 154*

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 1975] ADHESION CONTRACTS 251

which they cannot contract them

any contract to the contrary be
section in all cases of bailments, t
care of the goods bailed to him
would in similar circumstances tak
bulk, quality and value as the go
duty is imposed upon the bailee by
undoubtedly clothes the party aff
damages commensurate with the co

The decision that section 151 is no

matter not absolutely free from dou
contrary to what Sarjoo Prasad, C.J,
described as the " beaten track of pre
persuasive reasons given by Sankara
Sheik Mohamad's case.56 In fact th
to favour the majority in Sheik M
contracted out.57

These two sets of cases show that

the standard of enforceability of a
place in the contractual document r
latter they adopted the standard of
section 151 of the Contract Act for
should be nullified. In the former, th
of life or goods agreed to be carried
liability although provably negligen
the latter, the claim was by persons
and redelivered by the defendant an
for the full value of the goods lost, i
liability. This double standard for fi
anything, there is all the more reaso
by air should be held liable- where
rable loss of life or damage of val
clothes given for dry cleaning. There
between these two sets of cases whic
arrived at in them.

The same unjustifiable duality of c

ractual clauses in standard form con

53. Id . at 155.
$4. Supra note 42.
55. A.I.R. 1960 Assam 71,

56. Sheik Muhamad Ravuther v. British India Steam Navigation Co., I.L.R. (1909)
Mad. 95.
57. Thirteenth Report, para 125#

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 252 JOURNAL OF THÈ INDIAN LAW INSTITUTE [Vol. 17 : 2

uation where the impugned clause is one which limits the time
the aggrieved party is to act in the matter of asserting his righ
other party of the contract. In one set of cases58 of which perh
example is a full Bench decision of the Punjab High Court in P
Co. v. Atma Ram,59 a clause in the contract limiting the time wi
aggrieved party was to bring his action was held to be valid. In
decision cited above the question was whether a clause in an in
stating that in no case whatever the insurer would be liable fo
damage after the expiration of twelve months from the happen
or damage unless the claim was the subject of pending action o
was or was not void by virtue of section 28 of the Indian Cont
was a contract of insurance of goods against all risks including
ing. The assured having brought the action after the time spec
above clause, the question fell to be considered by a full Bench
a cleavage of opinion on the validity of such clause usually foun
of insurance, between the High Courts.61 Grover, J., (Bhandar
JJ., agreeing) decided that the said clause must be upheld as v
not rendered void under section 28 of the Contract Act. The r
decision are as follows:

(1) The primary duty of the court of law is to enforce a promise

which the parties have made and to uphold the sanctity of contracts
into Which the parties have an unfettered right to enter provided they
are not opposed to public policy or are not hit by any provision of
the law of the land.

(2) The object and exigencies of insurance are such that promptitude
in asserting or enforcing a claim and also in its settlement was the
essence. The Insurance Companies would thus be justified in put-
ting a time limit within which the claim must be enforced; other-
wise all rights under the policy would come to an end.

(3) A clause of this nature does not provide for a different period of
limitation from the one prescribed by the Indian Limitation Act.
Notwithstanding the existence of the clause, it is open to the insured
to maintain an action within three years as prescribed by the Limita-

58. The Baroda Spinning and Weaving Co. v. Satyanarayen Marine and Fire Insurance
Co*, I.L<R.(1913) 38 Bom. 344; Haji Shakoor v. Hinde & Co.t A J.R* 1932 Bom. 330; Dawood
Tar Mohamed v. Queensland Insurance Co., A.I.R. 1949 Cal. 390; Ruby General Insurance
Co. v. Bharat Bank , A.I.R. 1950 (East) Punj. 352; Nathu Mai Ram Das v. Ram Sarup & Co
I.L.R.(1931, 2 Lah. 692; Westctn India Prospecting Syndicate v. Bombay Steam Navigation
Co. y A.I.R. 1951 Saurashtra 83; Maharaj Singh v. Vulcan Insurance Co ., A.I.R. 1972 Delhi
182.
59. A.I.R. I960 Punj. 236 (F.B.)j
60. Supra note 38.
61. Supra note 58*

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1975] ADHESION CONTRACTS 253

tion Act subject to the Company

the Limitation Act the suit must be dismissed if instituted after the
expiry of the prescribed period and the waiver is wholly ineffective.

(4) A contract may contain within itself the elements of its own dis-
charge express or implied for its determination in certain circum-
stances.

(5) As the clause does not limit the time within which the insured
could enforce his rights and only limits the time during whicht he
contract will remain alive, it is not hit by the provisions of Sec. 28 of
the Contract Act.62

The last mentioned point makes, in other words, a distinction, al-

ready adverted to between extinguishment of a right and that of a remed
alone. Such a distinction however valid in other contexts does not seem to
be so here. The opposition of the disputed clause to section 28 of the Con-
trat Act is very apparent and the attempt to reconcile on the basis of such
a distinction smacks of legal quibbling. The artificiality (of the distinction) is
evident from the learned judge's observation that waiver of the clause by the
insurance company will entitle the assured to file the suit even after the period
stipulated in the clause but not so if the waiver is of the Limitation Act. Who
on earth, will waive a contractual clause which is to his benefit in the dispute
with the other party?

In another comparable situation, however, the court has struck down the
time-limit clause as not valid. In Ramulu v. The Director of Tamil Nadu
Raffle™ a writ petition was filed by the purchaser of a prize winning ticket in
the raffle conducted by (he State of Tamil Nadu, challenging the validity of a
clause in the Raffle rules under which the state purported to forfeit the prize
amount for delayed presentation of the ticket. The said clause inter alia stated
that the "prize amounts not claimed within three months from the date of the
draw shall lapse and be automatically forfeited to the government." The con-
tention of the state that the entire subject matter emanated from a contract to
the terms of which the petitioner had agreed and so he had no remedy that
could be sought by way of a writ petition. The court (Ramaprasada Rao, J.),
however, rejected this contention and held the clause "unconscionable" as
it would cause undue hardship besides offending the salient features of the law
of contracts, namely public policy.61 As the learned judge explained:

If the terms of a contract are so unconscionable and if one of the

terms is in terrorem and without any consideration known to law and

62. Supra note 59 at 240.

63. (1972) II Mad. L.J. 239.
64. Id. at 242.

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 254 JOURNAL OF THE INDIAN LAW INSTITUTE [Vol. 17 : 2

is therefore against public policy, then the party affected c

ach the High Court under Article 226 for relief.... The sine
however, in such cases is that the term in the bargain s
unreasonable and against public policy.65

The state, as the learned judge himself described it "as the

pository of all that is good for the subject"650 cannot seek to ai
feiture clause which was held to be "highly unreasonable" howe
contract itself might have been entered into.
This case upholds the right or power of the court to ignor
contractual clause if it offends the conscience of the court hows
termed, like public policy and so on as unjust and enforce the co
the clause. Thus, it goes far towards alleviating a well-known ev
standard form contracts. The question, however, remains wheth
or power inheres in the court under the existing law. 'Publ
not at any rate be the open seasame for drawing upon or justi
power. This is only incidental to what we are presently consider
that the courts have followed different standards for assessing the
time-limit clause with perhaps no other justification than that i
consider the clause as having been "duly made under a contrac
other they consider the same as "unreasonable, or rather unco
A further observation that can be made upon a study of th
the subject is that a power reserved in these contracts by one p
nate them unilaterally has been differently interpreted in cases whe
may not perhaps lend themselves to such differentiation.
For example, in Maddala Thathiah v. Union of India ,66 the
Court held a clause in a contract for the supply of jaggery to
ministration empowering it cto cancel the contract at any stage
enforceable. Any contractual power to rescind can only be exe
and sufficient grounds. The clause was repugnant to the contr
contract stood without the clause struck down by the court
decision has been followed in International Oil Co. v. Indian
it was a contract for the supply of kerosene to the plaintiff by
under what was termed as an agency arrangement, the plain
"dealer for the distribution of kerosene in Madras". It cont
which reserved to the defendant a right to terminate the plaint
without assigning reasons. Finding that the plaintiff was simulta
access to another oil company, the defendant stopped suppl

65. Ibid .
65a. Id. at 241 .
.

66. A.I.R. (1957) Mad. 82. The Supreme Court on appeal in union oj maia v.
Maddala Thathaiah, A.I.R. 1966 S.C. 1724, affirmed it on another point, without going into
the specific question of the validity of the cancellation clause.
67. A.I.R. 1969 Mad, 423,

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 1975] ADHESION CONTRACTS 255

to the plaintiff and eventually terminat

of the right so to terminate under the
The plaintiff filed the suit out of which
straining the defendant from witholdin
tiff. The defence was that the contract
plaintiff could not, therefore, maintain
late courts dismissed the suit. On secon
(Venkatadri, J.), decreed the plaintiff's
a power to terminate the contract was h
and void". The court observed :

It is true that the plaintiff-appellant has

the agreement of the sort of 'Swo
clause. Even then, it is unfair on the
ration to terminate the agency withou
an agent and without just provocation

But in some cases, a similar clause giv

is upheld as valid. The Supreme Court
of India v. Hartford Fire Insurance Co.6
Chandmull Jain ,69 has upheld a clause g
nate the contract (of insurance in thes
found by the court to be a common ter
therefore, have been accepted as reas
Surpreme Court is mainly that it was o
conditions before entering into the con
cannot be called capricious or unreason
the contract, in other words, is here procl
These two set of cases - one upholding
one party the right to terminate unilate
out assigning any reason - serve to sho
court may be, in the absence of a gene
empowering the court to srutinise term
their inherent validity and justifiabilit
use is treated as void because it was r
Bank of India v. Hartford Fire Insur
valid because, it is said, it is a contractu
least, if not for anything else, either th
dered, it is submitted with respect, as v

67a. Id. at 426.

68. A.I.R. 1965 S.C. 1288.
69. A.I.R. 1966 1644.
70. Supra note 68 at 1291 .
71. Although som 3 provisions like s. 153 and clause 3ofs. 16 of the Contrac
might have been of some use in these types of cases, it is feared their potentialities
been little explored by the court in our country so far.

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256 JOURNAL OF THE INDIAN LA W INSTITUTE [Vol. 17 : 2

In the net result, it is a babel of tongues that the judges are speak
Because of a lack of appreciation of the problem and a fair, direct and
quate key to slove it, the courts have been meandering for arguments i
port of the conclusions which they thought just and fair as between th
gants before them. It has led in the process, as we have seen abov
good deal of ambiguity.
The problem raised by adhesion contracts is, therefore, seen to be
merely one of balancing the interests of parties to a bargain but one w
calls for a re-examination of the basic tenets of the law of contract. The
Indian Contract Act modelled mainly on the principles of that law as it pre-
vailed in England in the last century is found to be thoroughly inadequate to
cope with the problem. Springing largely from this inadequacy and the
innate dislike of our courts to proclaim any sudden or far-reaching break
with the past and traditional notions regarding the freedom as well as sanc-
tity of contract, the picture that emerges from the foregoing study is one of
conflicting decisions and doubtful distinctions. Whether the solution lies in
the adoption of a general provision like section 2-302 of the Uniform Com-
mercial Code in the United States or in administrative regulation such as, for
example, the Israeli Standard Contracts Law of 1964 will depend on the con-
clusions that may ,be reached in a fact-finding survey to be undertaken out-
side the law reports which reflect but partially the extent of the evil present
in our country. We feel that the day of such study cannot be long in the
coming, as the evil is likely to grow in its dimensions in the days to come.
Concurrently with such a development, the law of contract, as we have it to-
day, will inevitably have to be restructured undergoing a change not merely
of form but content as well.

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