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of <h1>General cancellation clause cannot void binding supply orders formed by acceptance and formal purchase order; cancellation invalid</h1> <h3>Union of India (UOI) Versus Maddala Thathiah</h3> SC dismissed the appeal and affirmed the HC: a general cancellation clause did not permit unilateral termination of supplies already covered by a formal ... - Issues Involved:1. Validity and enforceability of the contract.2. Interpretation of the clause allowing cancellation of the contract.3. Obligations of the parties under the contract.Detailed Analysis:1. Validity and Enforceability of the Contract:The primary issue was whether the contract between the parties was valid and enforceable. The respondent submitted a tender for the supply of 14,000 imperial maunds of cane jaggery, which was accepted by the appellant (the railway administration). The acceptance was communicated through a letter dated January 29, 1948, which required the respondent to remit a security deposit before a formal order could be placed. This acceptance, coupled with the respondent's compliance, would generally constitute a binding contract. However, the court noted that the acceptance did not specify delivery dates, which was a critical element for the contract to be legally binding. The formal order specifying delivery dates was issued later, on February 16, 1948.2. Interpretation of the Clause Allowing Cancellation of the Contract:The contentious clause in the contract allowed the appellant to 'cancel the contract at any stage during the tenure of the contract without calling up the outstandings on the unexpired portion of the contract.' The appellant argued that this clause gave them the right to terminate the contract at any time, without incurring liability for damages. The respondent contended that the clause was repugnant to the contract and could only be invoked for reasonable grounds, not arbitrarily.The court had to determine whether this clause applied to the entire contract or only to portions of the contract for which no formal order had been placed. The court concluded that the clause referred to the right to cancel agreements for supplies where no formal order had been placed. It did not apply to supplies for which a formal order specifying quantities and delivery dates had been issued. The court stated, 'Once the order is placed for such supply on such dates, that order amounts to a binding contract making it incumbent on the respondent to supply jaggery in accordance with the terms of the order and also making it incumbent on the Deputy General Manager to accept the jaggery delivered in pursuance of that order.'3. Obligations of the Parties Under the Contract:The court examined the obligations of both parties under the contract. The respondent was obligated to supply the jaggery as per the formal order, and the appellant was required to accept the delivery. The court noted that the cancellation clause did not affect the binding nature of the formal order once it was placed. The appellant's attempt to cancel the contract through a letter dated March 8, 1948, was deemed invalid as it sought to cancel a binding order.The court referred to the case of Chatturbhuj Vithaldas Jasani v. Moreshwar Parashram, where it was held that an arrangement for supply becomes a binding contract once an order is placed and accepted. Similarly, the court cited Cheshire & Fifoot's 'Law of Contract' to distinguish between a standing offer and a binding contract, concluding that the contract in question was of the latter type.Conclusion:The court upheld the High Court's judgment, stating that the clause allowing cancellation did not apply to formally ordered supplies and that the appellant was bound by the terms of the formal order. The appeal was dismissed with costs, affirming the respondent's right to recover damages for breach of contract. The court's interpretation emphasized that once a formal order specifying delivery dates and quantities is placed, it constitutes a binding contract that cannot be arbitrarily canceled by invoking a general cancellation clause.
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