Legal IQ


Q. ‘M’ (Munnuswami) gives a brand new coat of Raymond company costing `20,000 to a dry cleaner namely ‘L’ (Lily White) for dry cleaning, but the coat is lost by dry cleaner ‘L’. ‘M’ claimed the full price of coat while the dry cleaner offered only 15% of the price of coat on the ground that conditions printed on the receipt given to ‘M’ provides that only 15% of the price of cloth will be given to customers in case the cloth is lost. Is ‘M’ entitled to full price of coat in this case? Give reasons and also refer case-law on the point.

Civil Services (I.A.S.) Exam. 1974 (Similar problem).

Answer: Yes, ‘M’ is entitled to full price of the coat in this case—Lily White v. Munnuswami, AIR 1966 Mad 13.

Reasons: A standard form of contract (See under the heading Note about “Standard Form of Contract”) is generally subject to some conditions and conditions are binding if reasonable notice of conditions has been given to the party entering into the contract.

But in the famous case of Lily White v. Munnuswami referred above, the court held that conditions of a contract must not be against the public policy. If the conditions are against the public policy, it is unreasonable and not binding.

The facts of this problem is similar to the case of Lily White v. Munnuswami decided by the Madras High Court. In this case the court held that the condition printed on the receipt of giving only 15% of price to the customers in case the cloth is lost by drycleaner is against the public policy because it will encourage dishonesty by providing an opportunity to keep new clothe by giving only a nominal price to the customers, hence the condition is unreasonable and not binding upon the customers. The customer is entitled to full price of the coat.

It is clear from the decision given by the court in Lily White v. Munnuswami that in the given problem ‘M’ is entitled to full price of the coat. As the condition of ‘L’ is against public policy, hence not binding being unreasonable.

Note: Standard form of Contract

Practice of concluding contracts in standarised form is known as standard form of contracts.

A big business organisation like Life Insurance Corporation of India, Reliance Co. etc. has to enter into a large number of contracts every day. It is not only difficult but almost impossible for big business organisations to draw up a separate contract with every individual every day. Therefore, they keep printed forms of contracts. Such standarised contracts contain a large number of terms and conditions in “Fine print” which do not only restrict but often exempt themselves from liability under the contract. In such cases an individual is not in a position to bargain with the massive organizations and he has to simply accept the offer whether he likes its terms and conditions or not.

About the drawbacks of standard form of contract in Thornton v. Shoe Lane Parking Ltd., (1971) 1 All ER 686 CA, Lord Denning pointed out—

No customer in a thousand ever reads the conditions. If he had stopped to do so, he would have missed the train or the boat.
Standard form of contracts provide unique opportunity to the giant companies to exploit the weaknesses of the individual by imposing upon him such terms as often look like a private legislation.

But courts have given protection against unreasonable terms of standard form of contracts by developing following rules in this regard—
(1) Reasonable notice
(2) Notice should be contemporaneous with contract
(3) Theory of fundamental breach
(4) Strict construction
(5) Liability in tort
(6) Unreasonable terms
(7) Exemption clauses and third parties.

Source: Kishor Prasad, Problems & Solutions on Civil Law

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