A term in a contract which destroys the contract itself according to the earlier terms is void.

Headnote:
CONTRACT - CONSTRUCTION - TENDER FOR SUPPLY OF JAGGERY - NOTE RESERVING RIGHT TO CANCEL CONTRACT AT ANY STAGE - CONSTRUCTION - VALIDITY - DAMAGES.
Fact of the Case:

The appellant, the Dominion of India, invited tenders for the supply of jaggery to the railway grain shops. The respondent submitted his tender for the supply of 14,000 imperial maunds of cane jaggery during the months of February and March 1948. The tender form contained a note in Para. 2 which was meant for the quantity required and the described dates of delivery. This note was: "This Administration reserves the right to cancel the contract at any stage during the tenure of the contract without calling up the outstandings on the unexpired portion of the contracts."
Finding of the Court:

The court held that the note in Para. 2 of the tender form, reserving a right to cancel an outstanding contract is then consistent with the nature of the agreement between the parties as a result of the offer of the respondent accepted by the appellant and a similar note in the formal order, dated the 16th February 1948 had no reference to the actual orders but could refer only to such contemplated supplies of goods for which no orders had been placed.
Issues: 1. Whether the note in Para. 2 of the tender form, reserving a right to cancel an outstanding contract, was valid and binding on the parties? 2. Whether the appellant could rescind the contract only for good and reasonable ground and not arbitrarily?
Ratio Decidendi: 1. The court held that the note in Para. 2 of the tender form, reserving a right to cancel an outstanding contract, was valid and binding on the parties. The court reasoned that the note was consistent with the nature of the agreement between the parties as a result of the offer of the respondent accepted by the appellant. 2. The court held that the appellant could rescind the contract only for good and reasonable ground and not arbitrarily. The court reasoned that any such term in a contract which destroys the contract itself according to the earlier terms is void as in that case there would be nothing in the alleged contract which would have been binding on the appellant.
Final Decision: The court dismissed the appeal with costs.

Judgement

RABHUBAR DAYAL, J.: The facts giving rise to this appeal, by special leave, are these:

2. The Dominion of India, as the owner of the Madras and Southern Mahratta Railway, represented by the General Manager of that railway, invited tenders for the supply of jaggery to the railway grain shops. The respondent submitted his tender for the supply of 14,000 imperial maunds of cane jaggery during the months of February and March 1948. The tender form contained a note in Para. 2 which was meant for the quantity required and the described dates of delivery. This note was:

"This Administration reserves the right to cancel the contract at any stage during the tenure of the contract without calling up the outstandings on the unexpired portion of the contracts.

The Deputy General manager of the Railways, by his letter, dated January 29, 1948, accepted this tender. The letter asked the respondent to remit a sum of Rs. 7,900 for security and said that on receipt of the remittance, official order would be placed with the respondent. In his letter, dated February 16, 1948, the Deputy General Manager reiterated the acceptance of the tender subject to the respondent s acceptance of the terms and conditions printed on the reverse of that letter. Among these terms, the terms of delivery stated: Programme of delivery to be 3,500 maunds on March 1, 1948, 3,500 maunds on March 22, 1948; and 3,500 maunds on April 5, 1948; and 3,500 maunds on April 21, 1948. At the end of the terms and conditions was a note that the administration reserved the right 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 dates for the delivery of the four installments were slightly changed by a subsequent letter, dated February 28, 1948.

3. By his letter, dated March 8, 1948, the Deputy General Manager informed the respondent that the balance quantity of jaggery outstanding on date against the order, dated February 16, 1948, be treated as cancelled and the contract closed. The protests of the respondent were of no avail as the railway administration took its stand against the stipulation that the right to cancel the contract at any stage was reserved to it. Ultimately, the respondent instituted the suit against the Union of India for recovering damages resulting from breach of contract. The trial Court dismissed the suit holding that the railway administration could cancel the contract without giving any reason whenever it liked, without making itself liable to pay any damages. The High Court held that the clause reserving the right in the appellant to cancel the contract was void and in view of the trial Court having not decided the issue about damages, remanded the suit for disposal after dealing with that matter. It is against this decree that the Union of India has filed this appeal after obtaining special leave.

4. The contentions raised for the appellant are two. One is that on a proper construction of the terms of the contract, the appellant had agreed to buy only such quantity of jaggery as it might require, up to a maximum of 14,000 maunds and, therefore, there was no enforceable obligation to purchase the entire quantity. The other contention is that the respondent had expressly agreed to the impugned clause and that, therefore, the appellant was at liberty to terminate the contract at any stage of the duration of the contract with respect to the outstanding obligations under it. The stipulation is valid and binding on the parties and it amounted to a provision in the contract itself for its discharge or determination. On the other hand it is contended for the respondent that the contract was a complete contract of the supply of a definite quantity of jaggery, viz., 14,000 maunds, on the dates mentioned in the order, dated February 16, 1948, to start with, and ultimately on the dates mentioned in the subsequent letter, dated February 28, and that the stipulatio

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