Textbook on LAW OF CONTRACT & SPECIFIC RELIEF AVTAR SINGHas. 8) Agreement, Contract, Proposal and Acceptance i Memorandum of understanding ‘The binding nature of a memorandum of understanding depends upon offer and acceptance, consideration and intention to be legally bound.” The law of contract has had to face a problem which is assuming new and wide dimensions. The problem has arisen out of the modern practice of concluding con- tracts in standardised forms, The Life Insurance Corporation of India, for example, hhas to issue thousands of insurance covers every day and the railway administra- ‘tion has to make innumerable contracts of carriage, It would be difficult for such large organisations to draw out a separate contract with every individual, They have, therefore, printed forms of contract. Such standardised contracts contain a large number of terms and conditions in “fine print” which restrict and often exclude li bility under the contract. The individual can hardly bargain with the massive organ- isations. His only function is to accept the offer whether he likes its terms or not, This gives a unique opportunity to the giant company to exploit the weakness of the individual by imposing upon him terms which often look like a private legis- lation and which may go to the extent of exempting the company from all liability under the contract. The courts have found it very difficult to come to the rescue of the weaker party particularly where he has signed the document. In such cases the courts have been constrained to hold that he will be bound by the document even if he never acquainted himself with its terms. This has come to be known as the rule in L Estrange v Graucob Ltd. Mrs J signed an agreement without reading it under which she purchased a cig- arette vending machine, The agreement excluded liability for all kinds of defect in the machine. The machine was totally defective. The court found it as a fact that the supplier had made no effort to bring the sweeping exemption term to the notice of Mrs Z, Even so the court held: “Where @ document containing contractual terms is signed, then, in the absence of fraud, or misrepresentation, the party signing it is bound, and it is wholly immaterial whether he has read the document or not.” The individual, therefore, deserves to be protected against the possibility of tation inherent in such contracts. The following modes of protection have been the courts. It is the duty of the person delivering a doc- give adequate notice to the offeree of the printed terms and conditions. Where this is not done, the acceptor will not be bound by the terms. This was laid down by the House of Lords in Henderson v Stevenson. In this case a steamer ticket carried a printed term on the back excluding liability for damage to luggage put in the cloak room, without any warning on the face. The House of Lords observed that the plaintiff could not be said to have accepted a term “which he has not seen, of 43. Enkon (P) Lid Bhubaneswar Smart City Ltd, 2017 SCC OnLine Ori 97. 44, (1934) 2 KB 394. A Supreme Court decision to the same effect is in Grasim Industries Led v Agarwal Steel, (2010) 1 SCC 83: (2010) 1 SCC (Civ) 23.n Textbook on Law of Contract and Specific Relief [5.8] fc Chip stensibly connected wi -pothing, and which is not in any Way 0% wa stich he knell ten upon the face of the contract presented to hi hay, which is pi ded as sufficient only if it will “convey to the minds of otice will be rega : A noti Ai that the ticket contains conditions”. A warning on the face Of a token, eee room was held to be not sufficient" Where g ve deposit of luggage in a cloak: ; ; 5 ee was re over to a passenger and the conditions printed on it were by a stamp in red ink" and where, in another case, the words coat sone see back”, were obliterated by the date stamp." it was heldis ser ase that prope notice ofthe erm had been en. A notice may be gag Fit is in a foreign langu ati ais eat hie ae is the possibility of the passenger not having read the contract or not having demanded a copy of the contract. The court said that even if the terms in question are not within the knowledge of the passenger, they ‘cannot be ignored. The passenger is to be considered as bound by the terms.® “Similarly, it has been held that where reasonably sufficient hotice of the: existence ofthe terms is given, it would be no defence to say that the plaintiff was illiterate o¢ ise unable to read.”® oo Snaie peat of this principle the courts have had to distinguish contractnal documents from mere receipts and vouchers. A document is said to be contractual if it embodies the contract, that is to say, if the persons to whom it is delivered should know that it is supposed to contain conditions. But where the paper is not supposed to express the conditions of the contract, it will be regarded as a mere voucher, ete, and extra care will have to be taken to communicate its terms than mere warning upon the face. A receipt for payment of charges of hiring sea-side resort furniture was held to be not a contractual document. A warning on the face excluding liability could not protect the lender from liability for injuries caused in the normal use of the furniture.” ¢ plaintiff delivered a white satin wedding dress to the defendants for clean- In being asked to sign a receipt, she enquired why she was to sign it and was told that she was to take responsibility for any damage to beads and sequins. The plaintiff then signed the receipt without reading it. The receipt, in fact, contained a condition excluding liability for any damage howsoever caused, When the dress was returned there was a stain on it. To the plaintiffs action for damages, cleaners, pleaded the exemption clause. But they were held liable. 7 Ina Canadian case,’ a vendor fraudulently misrepresented the capacity ofa boiler. He was held liable in damages for the fraud, despite the presence of an exemption clause. “A party to a contract cannot rely on an exclusion clause to avoid liability for fraud.” Where a statement accompanies the delivery of a document, an oral assur- ane may prevail over what the document provides. ‘. 45, Parker v South Eastern Rly Co, (1874-80) All ER Rep 166, 46. Richardson, Spence & Cov Rowntree, 1894 AC 217 (HL). 41. Sugary London, Midland and Scottish Rly Co, (1941) 1 AILER 172. 48. Mackillican v Combagnie Marikemes de France, (1880) 6 Cal Series 227. 49. InterGlobe Aviation Lid N. Satchidanand, (2011) 7 SCC 463: (2011) 3 KLT 295: Q011): $0. Thompson v London, Midland & Scottish Rly Co, (1930) 1 KB 41 (CA). 51. Chapelton v Barry Urban District Council, (1940) 1 KB 532 (CA). $2, Curtis v Chemical Cleaning & Dying Co, (1951) \ KB 805 (CA). $3. Chua v Van Pelt, (1977) 74 DLR (3d) 244 (BCSC).IIs.8} Agreement, Contract, Proposal and Acceptance 13 “2, Notice Should be Contemporancous with Contraet./Notice of the terms should be given before or at the time of the int notification will indeed amount to a modification of the original contract and will not bind the other Party unless he has assented thereto. A man and his wife hired a room at a hotel and paid a week's rent in advance. When they went up to occupy the room there was a notice on one of the walls to the effect that; “The proprietors will not hold themselves responsible for articles lost or stolen, unless handed to the managers for safe cus- tody.” Their property having been stolen owing to the negligence of the hotel staff, the defendants were held liable as the court held that the notice was not a part of the agreement.** Where tickets are issued by a machine, notice should be given beforehand, for the ticket comes too late, Explaining this in Thornton v Shoe Lane Parking Ltd. Lord Dennino MR said: In the present case the offer was contained in the notice at the entrance giving the charges for garaging “at owner’s risk”, The offer was accepted when the plaintiff drove up to the entrance... and the ticket was thrust at him. The contract was then concluded and it could not be altered by any words printed on the ticket itself. 3. Theory of Fundamental Breach.—Another means of getting round the injustice of exemption clauses is by means of the doctrine of fundamental breach. It is a method of controlling the unreasonable consequences of wide and sweeping exemption clauses. Even where adequate notice of the terms and conditions in a document has been given, the party imposing the conditions may not be able to rely on them if he has committed a breach of the contract which can be described as “fundamental”.®* Every contract contains a ‘core’ or fundamental obligation which must be per formed, If one party fails to perform this fundamental obligation, he will be guilty of a breach of the contract whether or not any exempting clause has been inserted which purports to protect him, Where a dry cleaner’s receipt stipulated that in case of damage to the garment only three times of the amount of cleaning charges would be payable, it was held that this limitation upon the amount of liability was not appli- cable because damage to the garment was caused by a sub-cleaner to whom the gar- ment was handed over. This was quite outside from the scope of contract. The cleaner was liable for the full amount of loss.” In Alderslade v Hendon Laundry Ltd,* on the other hand, the plaintiff’s handkerchiefs were lost in the laundry itself and, therefore, the exemption clause effectively limited the defendant’s liability to twenty times the charge made for laundering. Where a ticket of parcel office of a railway station contained a condition which exempted railway executive from liability for misselecting or loss of any article ‘exceeding £5 in value, it was held that they could not rely on the exemption clause because they had committed a fundamental breach of contract in allowing a stranger (though plaintiff’ friend) to take away the goods.” 54, Olley v Marlborough Court Ltd, (1949) 1 KB S32 (CA). $8. (1971) 20B 163 (CA), 56, See the decision ofthe Supreme Court in B.V: Nagaraju v Oriental Insurance Co Ltd, (1996)4 SCC 674, explaining fundamental breach. $7. Davies v Collins, (1945) 1 AILER 247, $8, 1945 KB 189 (CA). 59 Alexander v Railway Bxecutive, (1951)2 KB 882." Textbook on Law of Contract and Specific Rellef 'S.811Chap ce ot's liability to a specified amount was held tg ce ig et cys aa tot applic « wholly unfit for npeene of Appeal! that where the goods are lot Sasboap ab lee (a carpet cleaner in this case) fundamental breach woyig the custody of a counts forthe loss, The bailee must show that the loss had ye Losaeaey a wis ‘uence of a fundamental breach on his part since he is ina be See fer o knoW what had happened tothe Boods whl they were PO aan ie the eleaner could not account forthe Toss, he Was not permite his possession, Hse by which he had limited his liability o a negligible figure, ee Exemption clauses are construed strictly, particulay where a clause is so widely expressed as to be highly ene a ambiguity in node of expressing an exemption clause isresolved in favour of the weaker party, weer the words are capable of bearing a wider as wel as @ narrower construc the narrower construction would be preferred and against the party who has inserteg the exemption clause “contra proferentem”® This doctrine = ah any inthe case ‘ofa commercial contract since the clauses of the contract are bilateral and mutually agreed upon in such contracts"® The Supreme Court held that the power to y terms relating to quantum of work cannot be unlimited. Any clause giving absolute power to one party to modify the contract terms would amount to interfering with the integrity of the contract. Under the general law of contract, once the contract ig entered into, any clause giving absolute power to one party to modify the terms op the contract at his sweet will or to cancel the contract would be in essence a negation of the contract. Purposive interpretation. —A contract has to be interpreted according to its pur- pose. Consistent with the character of purposive interpretation, the Court is required {o determine the ultimate purpose of the contract primarily by looking at the joint interest of the parties. It is not appropriate to put strict construction upon an inter. national commercial contract. Meaningful and purposive interpretation should be given to its clauses. In another decision the Supreme Court deprecated another kind of practice in the use of standard form contracts. It observed that use of such contract forms in a blanket manner without paying attention to the fact that many of its general clauses may be inapplicable to the transaction in hand. The court viewed it with disapproval that the party using its standard form does not take eare to check in the context of a particular contract and to delete clauses which are not applicable to the transaction in hand. The document should be transaction specific. The court 60. Harbun’'s Plasticine Lid v Wayne Tank and Pump Co Lid (1970) 1 QB 447: (1970) 2 WLR 198 CA). 61. Levison y Patent Steam Carpet Cleaning Co Lid, 1978 QB 69 (CA). ‘2. See Professor Brian Coote, Breach and Exception Clauses, (1970) Camb LJ 238. United India Insurance Co Ltd v Pushpalaya Printers, 2004) 3 SCC 694, damage to building by “impact” cov- ted in insurance policy, damage caused by bulldozer moving on the road closely to the building, held, fell within the expression damage by “impact”. Even fits meaning was not clear, it was tobe taken in favour ofthe insured. 63. Export Credit Guarantee Corpn of India Ltd v Garg Sons International, (2014) 1 SCC 686; (2013) 178 Comp Cas 341: (2013) 2 CPI 1; Rashtriya Ispat Nigam Ltd v Dewan Chand Ram Saran, (2012) 5 SCC 306: (2012) 93 ALR 257, 64. National Fertilizers v Puran Chand Nangia, (2000) 8 SCC 343. 65. DLF Universal Lid v Town & Country Planning Deptt, 2010) 14 SCC 1: (2011) 4 SCC (Civ) 391. 6. Sumitomo Heavy Industries Lid v ONGC Ld, (2010) 11 SCC 296. (2010) 4 SCC (Civ) 459.HIS. 8) Agreement, Contract, Proposal and Acceptance 15 thas to ignore the inapplicable clauses to find out the intention of the parties and the hature of the transaction, ¢.g, to know whether the transaction is simply that of subro- gation of assignment of subrogation-cum-assignment, etc, Even where the document was meant to apply to carriage of goods by road, the document seemed to pertain to carriage by air or rail. Claims and remedies against a road carrier were not even mentioned, When all superfluous matter was excluded, the document seemed to be purely one of subrogation.” S. Liability in Tort. Even where an exemption clause is exhaustive enough to exclude all kinds of liability under the contract, it may not exclude liability in tort. In White v John Warwick & Co Ltd. The plaintiff hired a eycle from the defendants, The defendants agreed to maintain the cycle in working order and a clause in the agreement provided: “nothing in this agreement shall render the owners liable for any personal inju- ries. ...” While the plaintiff was riding the cycle the saddle tilted forward and he was thrown and injured, It was held that although the clause exempted the defendants (even if they were negligent) from their liability in contract, it did not exempt them from liability in negligence. Itis, however, open to the parties to exclude liability even for negligence by express words or necessary implication. For example in Ruiter v Palmer.® a car was given to the defendants for sale under a contract which provided that while on trial the car would be driven at the customer’s risk. An accident took place while the car was on a trial run. The defendants were held not liable, for they had by express words shifted the risk to the customers The results of such cases should now be different. The [English] Unfair Contract Terms Act, 1977, expressly provides that any clause in a contract which excludes or restricts lability for death or personal injury resulting from negligence shall be abso- Iutely void. The expression “negligence” is defined in the Act to mean the breach of any common law or contractual duty. 6. Unreasonable Terms.— Another mode of protection is to exclude unreason- able terms from the contract. A term is unreasonable if it would defeat the very purpose of the contract or if it is repugnant to public policy. Pointing this out in the Suisse Atlantique case,” Lord Witpexrorce said: “One may safely say that the parties cannot, in a contract, have contemplated that a clause shall have so wide an ambit as in effect to deprive one party's stipulations of all contractual force: to do so would be to reduce the contract to a mere declaration of intent.” Anexample ofan unreasonable term is to be found in Lily White v R. Munuswami!! A laundry receipt contained a condition that the customer would be entitled to claim only 15 per cent of the market price or value of the article in case of loss. The plain- tiff’s new sari was lost. The term would place a premium upon dishonesty inasmuch 61, Economic Transport Organisation v Charan Spg Mills (P) Ltd, (2010) 4 SCC 114: (2010) 3 ALI 281: (2010) | CPI 4. 168. (1953) 1 WLR 1285 (CA). 69, (1922) 2KB 87 (CA), 70, Suisse Atlantique, Société d’Armement Maritime v Ratterdamsche Kolen Cenirale, (1967) 1 AC 361 (HL) at p 422. 71. 1964 SCC OnLine Mad 323: AIR 1966 Mad 13.6 Textbook on Law of Contract and Specific Relief [8.8 ; "0 1 7 «cleaner to purchase new garments 2 15 per cent of their pe: {he cleaner to pul aa ei it 1 be in Pa er the Supreme Court observed: yntracts,, In reference to Partie! te varied, added to, or altered by importing iy A statutory contran! Cr mmercial or mercantile contract between the pag doctrine of eta argalnthy power, and more so in a contract for liquor ver, / tes fy al ad rik big pu nde te Biden of uy the licensee takes as it would enable and that would not julations.”” f Ag cofremoval simpliciter in contract of employment A a i A Sat Power Or being offered by a Government corporation providing Yor the removal employment being \quiry has been regarded by the Supreme Cour yee without int oF ee Court as zoe arte tilt ey down thai C ial affairs, the State and its instrumen. iene SE Ae 14 of the Constitution and cinerea Ce ait and a reasonable selection of the party, including the to be conferred. aul One of the basic principles of the 1 only between the parties to it and no third party can either enjoy any rights or suffer any Liability under it. This shoutd apply to standard form contracts also. The effet would be that where goods are sup. plied or services rendered under a contract which exempts the supplier from lability and a third party is injured by the use of them, the supplier is liable to him notwith- standing that he has purchased his exemption from the other party to the contract, If, for example, a contractor agrees to maintain and repair a lift in certain premises. under contract with the owner which exempts him from liability, that exemption would not avail the contractor against a person who is injured owing to bad repairs, Ifthis were not so, the life and security of millions of people would be in the hands of the two parties to a contract. They would then make law not only for themselves, but also legislate for countless others. Obviously, therefore, in Haseldine v C.A. Daw & ‘Son Ltd;* the above-mentioned lift case, the defendants were held liable for the tort Jaw of contract is that a contract 72, See also M,Siddalingappa v T: Nataray, 1969 SCC OnLine Kar 94: AIR 1970 Mys 154, wherea ‘condition that only eight per cent of the cost of a garment would be payable in case of loss was held to be unreasonable; R.S. Deboo v M.V. Hindelkar, 1994 SCC OnLine Bom 180: AIR 1995 Mad 68, elause providing for 20 percent ofthe dry-cleaning charge or half the value of the garment which- ‘ever was less was held to be void, dissenting from Bansi Dhar v Ajudhia Pd, 1924 SCC OnLine Oudh JC 61: AIR 1925 Oudh 120, to the effect that the court should not interfere in terms and conditions voluntarily settled. 73. Mary v State of Kerala, (2014) 14 SCC 272: (2014) 4 KLT 466. 4, pee Water Transport Corpn y Brojo Nath Ganguly, (1986) 3 SCC 156: (1986) 60 Comp a5 797. 15, Shrilekha Vidayarihi v State of U.P., (1991) 1 SCC 212, Relying on its own earlier decisions in Dwarkadas Mafatia & Sons v Port of Bombay, (1989) 3 SCC 23 the State has to show fairness in evicting its tenants; Mahabir Auto Stores v Indian Oil Corpn, (1990) 3 SCC 752, terminating the ‘agency of a distributor without proper opportunity ike show cause and hearing. In reference tothe life insurance policies issued by the Life Insurance Corporation of India, the Supreme Court has laid down that any unfit, unreasonable or irrational terms would be open to judicial review, LICY Soman Bian Research Centre, (1995) 5 SCC 482, the Supreme Court did not approve 8 d licy which was to be confined to a specie “employees, 76, (1941) 2 KB 343 (CA). nee ing