Citation Codes

Equivalent Citations

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Case Number

Appeal No. 149 of 1961 and O.S.A No. 116 of 1966.

Advocates

Mrs. K. Rajah Ayyar, K. Sarvabhauman and A.S Raman for Applts.
The Addl, Govt. Pleader and Mr. C. Rangaswamy Ayyanger for Respts.

Judges

Veerarwami, C.J
Somasundaram, J.

Acts

clause (h) of S. 2 of the Indian Contract Act,
S. 2 clause (d) of the Indian Contract Act
Madras Revenue Recovery Act 1864
S. 2 (d) of the Contract Act.

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Smart Summary

Structured Summary of the Judgment (Delivered by Somasundaram, J.)

Factual and Procedural Background

The State of Madras (plaintiff) invited tenders on 25th November 1955 for supply of diet articles to city hospitals for the year 1st April 1956 to 31st March 1957, attaching a schedule of articles and approximate quantities. Manickam Chetty (the respondent/defendant) submitted a tender to supply, inter alia, large quantities of boiled hand-pounded rice, gingill oil and casuarina firewood, and deposited Rs. 9,100 as earnest money. The Director of Medical Services obtained Government permission (G.O. No. 944, Health, dated 12th March 1956) and accepted the defendant's tender on 14th March 1956, directing a security deposit and execution of a stamped agreement.

The defendant alleged delay in acceptance and later declined to supply some items (notably hand-pounded rice and some gingill oil), requested modifications (supply of polished mill rice temporarily) and supplied only part quantities to certain hospitals. The hospitals resorted to departmental/local purchases and informed the defendant that the difference in cost would be recoverable from him. On 25th April 1956 the defendant issued a notice (Ex. P. 25) asserting that no concluded contract existed and demanded return of the Rs. 9,100 earnest money plus the value of materials supplied.

The Director treated the tender as a concluded contract and initiated steps under clause 23 of the tender conditions for non-performance; the Director subsequently cancelled the contract and forfeited the earnest money by notice dated 2nd March 1957, though before receipt of that letter the defendant had instituted O.S. No. 497 of 1957 in the City Civil Court claiming Rs. 17,662—8—3 (earnest money plus value of supplied articles). That suit was dismissed on 1st August 1960 by the Second Assistant Judge, City Civil Court, on the ground of breach by the defendant.

The State thereafter filed C.S. No. 87 of 1961 on the Original Side of this Court to recover Rs. 93,401-5-1 (difference between departmental purchases and contract rates, with interest), after adjusting amounts due to the defendant for supplies made. The defendant contested the State's claim on various grounds. Kunhamed Kutti, J. (trial judge) held the tender created a standing offer (not a concluded contract) and, on calculations confined to indents placed prior to 25th April 1956, concluded that the State's net claim was less than the amounts due to the defendant; the trial judge dismissed the State's suit and directed parties to bear their respective costs.

The State appealed (A.S. No. 149 of 1961) and another appeal is referred to as O.S.A No. 116 of 1966; the present judgment considers those challenges, sets aside parts of earlier decisions and remands the issue of damages to the trial court for further disposal.

Legal Issues Presented

Whether a concluded and enforceable contract between the defendant (tenderer) and the State (through the Director of Medical Services) arose on acceptance of the tender despite non-execution of the formal stamped agreement.
Whether the arrangement constituted only a "standing offer" (unilateral, lacking mutuality) or a bilateral contract binding on both parties.
Whether the contract (if existent) was invalid for non-compliance with Article 299 of the Constitution of India.
Whether the State's claim in C.S. No. 87 of 1961 was barred by Order 2, Rule 2, C.P.C. because it was not raised in O.S. No. 497 of 1957.
The proper measure of damages for the defendant's alleged breach and whether the trial judge applied the correct basis to quantify damages.
Whether the defendant could be penalised both by forfeiture of earnest money and by an award of damages (i.e., double penalty).

Arguments of the Parties

Defendant's Arguments (Manickam Chetty)

The correspondence and tender terms disclose only a standing offer; a concluded contract arises only when the State indents for particular items — there was no complete contract applicable to all supplies.
The supposed stamped agreement was never executed and the contract is not valid or enforceable under Article 299 of the Constitution.
The claim by the State in C.S. No. 87 of 1961 is barred under Order 2, Rule 2, C.P.C. because it was not agitated in O.S. No. 497 of 1957.
The tender conditions were one-sided and unilateral, lacking in mutuality, rendering the contract void or unenforceable as a bilateral agreement.
He demanded return of the earnest money (Rs. 9,100) and payment for value of articles supplied (Rs. 8,568—8—3½) in O.S. No. 497 of 1957.

Plaintiff/State's Arguments (State of Madras)

The Director's acceptance (with prior Government permission) created a valid, concluded contract enforceable at law; the defendant breached that contract by failing to supply as required.
Under clause 23 of the tender conditions the State was entitled to forfeit the earnest money and to recover damages equal to the difference between contract rates and amounts paid for departmental/local purchases.
The State maintained that the contract was not a mere standing offer but a completed contract giving rise to an action for damages on breach.
In O.S. No. 497 of 1957 the State contended the defendant was not entitled to the amounts claimed because of his breach and forfeiture provisions in the contract.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Seth Sakhraj v. Union of India	Principle that a formal document is not absolutely essential; contracts can be formed by correspondence.	Used to support the proposition that absence of the formal stamped agreement does not prevent a contract arising from acceptance and correspondence.
Union of India v. A.L. Relliaram	Same general principle: contracts by correspondence can be valid without formal document.	Relied upon to confirm that a contract may be enforceable despite non-execution of the formal agreement.
S. Rajan, Proprietor of Murray and Co. v. Union of India	Explains requirements of Art. 299: it is not necessary to have a formal drawn-up document; a contract by correspondence is valid if it is expressed to be made by the Governor and executed on his behalf in manner authorised.	Cited to show that Government permission and authorised execution satisfied Art. 299 requirements in the present case.
Great Northern Railway Co. v. Witham	Illustrates an offer to supply during a period and that such tenders, once accepted, can create binding obligations; addresses the notion of unilateral vs bilateral obligations and consideration arising when orders are placed.	Applied to reject the defendant's contention that the tender was a mere standing offer; showed that acceptance and subsequent orders create binding obligations and consideration.
Percival Ltd. v. London County Council Asylum and Mental Deficiency Committee	Distinguished forms of tenders: (1) firm contract to buy specified amounts; (2) standing offer; (3) intermediate type where parties bind themselves to buy and pay for goods actually needed — such intermediate form can constitute a binding contract.	Used to classify the present contract as the third kind (binding to buy/pay for goods actually needed) and to show that such a contract is enforceable and not merely a standing offer.
Chitty on Contracts (text)	Explains difficulty in construing tenders "such quantities as you may order" and that one may not be bound to place orders unless stipulated; but where the tenderer binds to execute orders placed, he cannot withdraw.	Supported the conclusion that where the tenderer has bound himself to execute orders the tender is not withdrawable and creates enforceable obligations.
Ford and others v. Newth	Authority for the proposition that certain tender/acceptance arrangements can create a contract obliging the purchasing body to order from the tenderer and not treat the tender as a mere price-list.	Cited by the State to support that the arrangement in the instant case created a contract and was not a mere standing offer.
Metropolitan Electric Co. v. Cinder	Holds that an agreement may be a contract by implication that the party will not take from others; the substance may create enforceable obligations (e.g., not to take energy from others).	Used to illustrate that negative covenants (not to buy from others) can constitute sufficient consideration and create enforceable rights between parties.
Venkatachala Pillai v. Sethurama Rao	Demonstrates that a covenant to re-sell (or similar restrictive covenant) can amount to a completed contract and not merely a standing offer.	Relied upon to show that instruments which appear to offer rights of repurchase may nonetheless create completed contractual obligations; analogised to the present facts to counter the standing-offer argument.
Sakalaguna Naidu v. Chinna Munisammi Naicker	Holds that a counter-part document giving an option to repurchase did not merely create a standing offer but a completed contract.	Used to support the proposition that options or rights to purchase/repurchase can be binding contracts and not mere standing offers.
Union of India v. Maddala Thaihayya	Holds that a clause allowing one party to cancel at whim may destroy mutuality and be unenforceable if it renders contract illusory.	Cited by defendant to argue clause 21 negatived contract; Court distinguished it, finding clause 21 must be read with clause 8 (precluding purchases from others) and did not render the contract void in the present facts.

Court's Reasoning and Analysis

The Court undertook a textual and contextual construction of the tender conditions and the surrounding correspondence to determine the true nature of the contractual relation between the parties. Key steps in the Court's analysis were:

Existence of Acceptance and Contract Formation: The Director's written acceptance (after Government permission by G.O. No. 944) of the defendant's tender constituted an acceptance creating a valid contract or agreement enforceable in law. The fact that the formal stamped agreement was not executed did not prevent a contract arising by correspondence (citing Seth Sakhraj, Union of India v. A.L. Relliaram, and S. Rajan).
Article 299 Compliance: The Court examined compliance with Article 299 of the Constitution and concluded that the Government had empowered the Director of Medical Services by G.O. 944 and other orders to accept the tender; Appendix entries in the Madras Financial Code indicated the Director was authorised to execute contracts for the Medical Department on behalf of the Governor. Therefore, non-execution of the stamped agreement did not render the contract bad for non-compliance with Art. 299.
Mutuality versus Standing Offer: The Court analysed the tender terms (notably clauses 2, 4, 8, 11, 17, 19, 20, 21, 23, 29) and considered comparative authorities (Great Northern Railway v. Witham; Percival; Chitty; others). It emphasised that the defendant had bound himself to supply items "as and when ordered" and that the Government undertook not to purchase the relevant goods from anyone else during the contract period. The Court found countervailing mutual promises (supply by seller; abstention from buying by buyer) and held there was mutuality; hence the arrangement was not a mere standing offer but a concluded contract from the moment of acceptance.
Clause 21 (Termination on Notice) Considered: The defendant relied on clause 21 (permitting termination by the Director within three months) to argue the contract was illusory. The Court read clause 21 with clause 8 (which precluded Government purchases from others) and observed that clause 21 had not been exercised to terminate the contract in the exercise of that right; in any event, the presence of clause 21 did not automatically invalidate the contract under the present facts.
Repudiation and Government's Response: The Court addressed the defendant's repudiatory notice (Ex. P. 25) and concluded that the defendant unequivocally indicated he would not supply; when the Government thereafter purchased elsewhere it accepted the breach and treated the contract as breached. The Court rejected the argument that the Government should have continued placing orders after repudiation.
Measure of Damages and Trial Judge's Approach: The Court disagreed with Kunhamed Kutti J.'s approach which treated the case as a standing offer and limited damages to differences in price on indents placed before 25th April 1956. The appellate Court ruled that, having found a concluded contract, the question of damages must be decided with reference to the contract terms and remanded the matter to the trial court to deal with specific issues (issues 6 and 7) in light of the appellate findings.
Double Penalty Issue: The Court considered that although clause 23 permitted forfeiture of earnest money, since the defendant was liable for damages for breach it would be inappropriate to penalise him both by forfeiture and by a damages award. Accordingly, the Court set aside the decree in O.S. No. 497 of 1957 (which had dismissed the defendant's claim) and instead granted a decree in favour of the defendant for Rs. 9,100 plus Rs. 8,281-15-6 (value credited for articles supplied) with proportionate costs.

Holding and Implications

Holding:
The Court held that a concluded, enforceable contract arose on acceptance of the defendant's tender; the defendant repudiated and thereby committed a breach giving rise to a cause of action for damages. The trial judge's characterization of the transaction as merely a standing offer was incorrect and is set aside.

Direct consequences and implications for the parties (as set out in the judgment):

The appellate court set aside the trial judge's findings on the nature of the contract and remanded the suit to the trial court for further disposal on issues 6 and 7 to determine the correct quantum of damages in light of the finding that a concluded contract existed.
The decree in O.S. No. 497 of 1957 (defendant's suit) was set aside and a decree was granted in favour of the defendant therein for Rs. 9,100 plus Rs. 8,281-15-6 with proportionate costs.
A.S. No. 149 of 1961 is allowed with costs to the extent indicated; O.S.A. No. 116 of 1966 is also allowed with costs as indicated. The trial court is instructed to provide for the costs in the suit and in the appeal after determining the quantum of damages.
The State is entitled to adjust amounts due under the decree in O.S. No. 497 of 1957 and recover the balance of the total amount to be decreed in its favour in the other suit (i.e., the State may set off amounts and recover net balances after determination of damages by the trial court).
No new legal principle beyond the application of established authorities was laid down; rather, the Court applied established contract law principles (including construction of tenders, consideration, and Article 299 compliance) to the facts and corrected the measure-of-damages approach adopted below.

Note: This summary is based exclusively on the content of the provided opinion and does not add or infer facts beyond that text.

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Manickam Chettiar(Died) And Others v. The State Of Madras, Through The Secretary, Dept Of Public Health, Fort St. George, Madras-9.

JUDGMENT

(Delivered by Somasundaram, J.)

The facts giving rise to these two appeals are these: On 25th November, 1955, the State of Madras (hereinafter referred to as the plaintiff) if presented by the Director of Medical Services, invited tenders for the supply of articles of diet, etc. to the City hospitals for a period of one year commencing from 1st of April, 1966 ending with the 31st March, 1957. This notice had as its annexure, a schedule which showed the articles required and the approximate quantity estimated and needed for each hospital in the city. On an acceptance of the tender, the tenderer had to execute a stamped agreement. Manickam Chetty, the respondent in O.S.A No. 116 of 1966 (hereinafter referred to as the defendant) offered to supply, besides other items (1) 13,33,500 lbs of boiled hand pounded rice at Rs. 0-3-5 per lb; (2) 63960 tons of gingill oil at Rs. 0.12-9½ per lb and (3). 11,151 tons of casuarina fire wood at Rs. 57-14 0 per lb. He had alto sent along with this tender, an amount of Rs. 9100 as earnest money which was liable to be forfeited to Government in the event of failure on his part to fulfil the contract. He also agreed to bind himself to the other conditions prescribed in the tender notification. Since he did not send the certificate of income-tax verification and the certificate showing a clearance of the salts-tax as contemplated by clause 16 of the conditions of tender, by letter dated 25th November 1956 he was called upon to produce these certificates before the 5th February 1956. Meanwhile, the Government, by G.O No. 944. Health, dated 12th March 1956 permitted the Director of Medical Services, to accept the defendant's tender and the latter in his turn on 14th March 1956 accepted his tender for the supply of the above said three items, viz. lard-pounded rice, glngill oil and casuarina fire wood, at the rates quoted by him. He also directed him to make a security deposit of ten per cent of the total value of the supplies undertaken and to enter into a stamped agreement.

On 26th March 1956, after the receipt of the above letter of acceptance from the Director, the defendant wrote to him stating that because of the delay in the acceptance, he was unable to make arrangements in advance for the supply of band pounded rice and that he would only be in a position to supply the other two items as undertaken. The Director, in his turn, drew his attention to clause 23 in the Tender Conditions, which inter alia provided for a cancellation of the contract accompanied by a forfeiture of the earnest money, followed by a claim for damages which would be the difference between the price which was accepted and the price ultimately paid by the hospital authorities for the procurement of the articles concerned. The defendant sent a reply to this latter, stating that it was never his intention to wriggle out of the contract and requesting for a month's time for the supply of the hand pounded rice. He also wanted permission for the supply of polished mill rice of fine quality till then.

Meantime, indents were made to him by the different hospitals for the supply of the articles in respect of which his tender was already accepted. The Kasturba Gandhi Hospital for women and children sent him an indent on 25th March 1955 for 100 lbs of gingill oil and one ton of firewood, and against this, the defendant had supplied only the firewood called for. He did not supply the gingill oil. By a memo dated 3rd April 1956, he was informed, that if he did not supply them before 4th April 1956, they would resort to local purchase which would lead to the recovery of the difference of cost from him. On 19th January 1956, the General Hospital had Indented for the supply of 60 bags of hand pounded rice on or before 4th April 1956. He did not supply this item. So, on 6th April 1956, by Ex. P. 16 he was informed that if the supply was not made immediately, they would resort to local purchases at his risk. On 11th April 1956, after receipt of these indents from these hospitals, the defendant addressed a letter to the Director of Medical Services, intimating him that he had made arrangements to begin the supplies from 12th April 1956, and stating that he had informed this fact to all the local hospitals from whom he had received indents. He further requested the Director to stop the local purchases at his risk.

On 12th April 1956, the Dean of the Stanley Hospital informed him by a letter dated 10th April 1956, that due to his default, departmental purchase of rice of 2000 lbs was made from one Thanikacbala Nadar at Rs. O-4-3 per lb and that as such a sum of Rs. 104-2-3 being the difference in cost was recoverable from him. On 16th April 1956, the defendant supplied 1,929 lbs of hand pounded rice as against a demand of 6000 lbs to the Stanley Hospital, and by Ex. P. 20 he was informed that if the balance was not supplied before the 19th of that month, they would resort to local purchases at his risk. On 2nd April 1956, the Women and Children's Hospital had Indented for the supply of 30 bags of boiled hand-pounded rice and 200 lbs of gingill oil on or before 7th April 1956. The defendant supplied only tea bags of rice and 68 lbs of gingill oil till 24th April 1956. This Hospital informed him that if the articles ware apt supplied before 24th April 1956, they would arrange for local purchases. On 1st April 1956, the Royapettah Hospital made an indent for the supply of hand-pounded boiled rice and this was not supplied. So, this Hospital had purchased four bags of rice on 11th April 1956 departmental and written the letter Ex. P. 24 to him. Meantime, the Director, by Ex. P. 21, permitted the defendant to pay security deposit amount at 5 per cent of the total value, Instead of at 10 per cent as originally required. Thus, during this period, the different hospitals proceeded on the footing that acceptance of the defendant's tenders by the Directors amounted to a con-eluded contract.

When the matters thus stood, on 25th April 1956, the defendant suddenly issued the notice, Ex. P. 25, stating that the entire matter was only at the stage of negotiation, that the contract was not concluded, that the contemplated stamped agreement was not executed, that the conditions were one-sided and unilateral, lacking in mutuality. He farther called upon the Director to return to him the amount of Rs. 9100 deposited as tender deposit, besides Rs. 8568—83 ½ being the value of the materials already supplied by him to the different hospitals. On 15th May 1956, the Government passed an order directing the Director to send the reply to the defendant's advocates asking them to show cause within a specified time as to why action should not be taken under clause 23 of the conditions of Tender for the non-performance of the contract, f he defendant sent another letter on 24th July 1956 and by Ex. P-29 the Director again lnformed him that there was a concluded contract because the tender was accepted by the department on 14th March 1955 and that pursuant to this acceptance, the defendant himself had commenced supply of goods as undertaken by him The defendant then Issued the notice Ex. P-30 on 7th September 1955 under S. 80 C.P.C demanding Rs. 17,668—8—3, the earnest money plus the value of the articles supplied. The State informed him that the threatened suit was awaited, and by notice dated 2nd March 1957, the Director cancelled the contract, forfeited the earnest money and informed him that the damage suffered by the Department would be recovered from him after the same was ascertained. But, before this letter reached him, the defendant instituted the suit O.S No. 497 of 1957 in the City Civil court, Madras, claiming the sum of Rs. 17662—8—3 as due to him. The State resisted this claim, stating that the contract was a concluded one, that there was a breach of the contract by the present defendant that under clause 23 they were entitled to forfeit the earnest money and recover the damages sustained by them from the local purchasers and that as such he was not entitled to any decree as prayed for by him. The Second Assistant Judge City Civil Court, agreed with the contentions thus advanced by the State and on 1st August, 1960 dismissed the suit filed by the present defendant. This decision is now challenged by him In A.S No. 149 of 1961.

Subsequent to the dismissal of this suit, the State on 23rd November, 1961 filed the present suit, C.S No. 87 of 1961, on the Original Side of this court for recovering an amount of Rs. 93,401-5-1 with interest at 6 per cent from the date of suit. The basis of this claim was the difference in the departmental purchases for the several hospitals, from the rates at which they were purchased and the rates at which the defendant offered to supply. The amounts due to the defendant for the supplies actually made by him, were deducted from the amount thus arrived at. The defendant in the written statement resisted this claim on the following grounds: (1) The claim is barred under O. 2, R. 2 C.P.C because it was not made and agitated in O.S No. 497 of 1957. (2) The contemplated stamped agreement did not come into existence and the contract is also not valid and enforceable, because it is not in consonance with the provisions of Art. 299 of the Constitution of India. (3) Factually and legally, there was no concluded and enforceable contract, because there was only an invitation for an offer and counteroffer and everything was only in the stage of negotiation. (4) The terms and conditions are wholly one-sided and unilateral and as such it is valid.

Kunhamed Kuttl, J. held that this is a case of a standing offer, where the contract comes into existence as and when the State indents with the defendants for the supply of any particular item undertaken by him and that as such the defendant would be liable only for the non-supply of the articles thus indented for by the local hospitals during the period. He further held that the contract is not bad for any non-compliance with the provisions of Art. 299 of the Constitution of India. He also held that the claim is not barred under O. 1, R. 2, C.P.C On his finding that the State would be entitled only to the difference between the contract rate and the market rate of the articles purchased by the department under the indents placed with the defendant prior to 25th January, 1956, calculation memos were filed, and these memos showed that the defendant had incurred an additional expenditure of Rs. 4303-15-4 on account of the hand pounded rice, Es. 557-11-9 on account of the gingill oil and no excess on account of the casuarina firewood. For the supplies already made, the defend est was to be paid an amount of Rs. 8281-15-6, Since this was in excess of the amount payable by the State by way of damages, the learned Judge did not pass any decree in favour of the State as prayed for, but he dismissed the suit with a direction that parties should bear their respective costs. The correctness of this decision is new canvassed by the State in O.S.A No. 116 of 1966.

For deciding the contentions raised, it is necessary to construe the true nature of the contract between the parties. The relevant conditions of tender, as found in Ex. B-2, at page 78 of the printed papers, are as belew:

1. ……………

2. Though the Schedule of the articles gives separately the estimated requirements of each hospital, a single tender should be submitted in respect of each article for the consolidated requirement of all the City hospitals taken together.

3. ……………

4. The number or quantity entered in the schedule is the probable number or quantity which the Dean/Superintendent of the hospital may require to be supplied and may be more or less according to actual requirements. Notwithstanding the estimate of the probable quantity or number, the Dean/Superintendent has the right to order any quantity or number, of the articles mentioned in the schedule as may from time to time be required or not to order any quantity or number of any such articles at all.

5. ……………

6. ……………

7. ……………

8. During the terms fixed by the contract and except as herein provided, the Government will not purchase from any person or persons other than the contractor or from any company or corporation, all or any of quantity of goods er materials agreed to be supplied by the contractor.

9. ……………

10. ……………

11. Each tender must be accompanied by a deposit equal to 5 per cent of the total aggregate value of the articles tendered for as earnest money.

12. ……………

13. ……………

14. ……………

15. ……………

16. ……………

17. The acceptance of the tender will be communicated to the successful tenderer in writing.

18. ……

19. In the case of a successful tenderer, the earnest money deposited money, at the discretion of the Assistant to the D.M.S be adjusted towards the security deposit payable by him under clause (20) below. The successful tenderer will also be required to deposit on or before the date herein fixed for the execution of the agreement, a security of ten percent of the total value of the supplies undertaken.

20. The successful tenderer will be required to enter into a stamped agreement with the Director of Medical Services, the draft of which may be seen at the office of the Director of Medical Services within 15 days from the receipt of intimation by him that his rates have been accepted.

21. The D.M.S will within a period of three months from the date of commencement of the contract, be at liberty to terminate without assigning any reason whatever, the contract, be at liberty to terminate, without assigning any reason whatever, the contract, either wholly or in part, on one month's notice. The contractor will not be entitled to any compensation what soever in respect of such termination.

22. ……

23. If the successful tenderer falls to execute the agreement and/or deposit the required security within the time specified, or withdraws his tender after the intimation of the acceptance of his tender has been sent to him or fails to comply with condition No. 16 above or owing to any other reason be is unable to undertake the contract, his contract will be cancelled and the earnest money deposited by him along with his tender forfeited to Government, and he will be liable for damages sustained by the Dean/Superintendent by reason of such breach, including the liability to pay any differences between the prices accepted by him and those ultimately paid by the hospital authority for the procurement of the article concerned—Such damages shall be assessed by the Dean 1 superintendent whose decision is final and the amount as assessed is recoverable by proceedings under the Madras Revenue Recovery Act 1864 (II of 1864) as an arrear of land revenue

24 to 28……

29. The loss to Government, If any, incurred on account of the purchases rendered necessary elsewhere by, failure, neglect of refusal on the part of the contractor to the terms of the agreement will be recovered from him.

Page 80 of the printed papers (Ex. B.4) contains the stamped agreement which was to be executed by the defendant, and this agreement is between the Governor of Madras and the contractor. By Ex. B. 5, the defendant had submitted his tender and by clause 3 he had agreed to able by the conditions in the tender notice. He had also agreed for the forfeiture of the earnest money in the event of his failure to undertake the contract. The Government by G.O 944, Health, dated 12th March 1956, had permitted the Director to accept the tender, and the latter had in fact accented it on 14th March 1956. On 2nd April 1956, he had requested for a month's time to supply the hand pounded rice and also prayed for permission to supply mill made rice to them. On 11th April 1956, he had informed the Director that he had made arrangement to begin the supply from 12th April 1956 and he had requsted him to stop the departmental purchases that were being made at his risk. On 16th April 1956, he had supplied 1929 lbs of hand-pounded rice with the Stanley Hospital as against an indent of 6000 lbs. On 2nd April 1956, he had supplied 10 bags of this rice to the Children's hospital. In the letter written by him on 26th March 1956, to the Director, he had complained of delay on the Part the Department to accept his tender and he had stated therein that there was an increase in the price of rice at that time. True, the contemplated stamped agreement which was to be executed on an acceptance of the tender, did not come into existence But, the absence of such a document does not affect the matter in any manner Seth Sakhraj v. Union of India,(1) and Union of India v. A.L Relliaram(2) lays down the principle that there can be a contract by correspondence The execution of a formal document is not absolutely essential, provided the other conditions are satisfied. S. Rajan Proprietor of Mnrray and Co., v. Union of India to which one of us was a party, lays down the principle thus:

“While the requirements of Art. 299 of the Constitution of India are mandatory and should be complied with, in order that an agreement entered into by a private party with the Government in the exercise of its executive power be enforceable, it is not necessary that there should be drawn up a formal document as such. But, there can be a valid contract entered into by correspondence, provided the two requirements, viz, (1). It should be expressed to be made by the Governor of the Province and (2), it should be executed on behalf of the Governor by such parsons and in such manner as he might direct or authorise, are complied with.”

The Government in the instant case before as, have permitted the Director of Legal Medical Services, by G.O 944 Health, dated 12th March 1956, to accept the respondent's tender. By G.O 3574 dated 25th November 1955, the Government have further empowered the Director to redo legate his powers to incur or sanction items of contingent expenditure etc., to his gazetted assistants. One such item was the acceptance of tenders in respect of diet articles referred to in G.O 184 dated 15th January 1953, Appendix III of Volume II of the Madras Financial Code sets out a list of authorities empowered to execute contract deeds etc., on behalf of the Governor as directed by him under Art. 299 (1) of the Constitution. Item 15 therein at page 11 relates to contracts and other instruments relating to the Medical Department, sad they could be executed by the Director of Medical Services. 1 has, when the Director issued notice inviting tenders for the supply of these articles, and when he intimated to the respondent his acceptance as par Ex. B, 11, be was doing so pursuant to the right conferred upon him by the Governor under Art. 299(i) of the Constitution. The contract agreement, Ex. P. 8, which was to be executed, also shows that it was between the contractor and the Governor of Madras represented by the Director of Medical Services “acting for and on behalf of and by the order and direction of the Government of Madras”. Thus, the contract in this case is not had for non-compliance with Art. 90 (1) of the Constitution of India.

Mr. Thyagaraja Iyer appearing for the defendant contends that from the terms and conditions of the Tender notice and the other correspondence, we spell out only a case of a standing offer on the part of the defendant to supply the several items at the rates mentioned by him in his tender and that it becomes a concluded contract on each and every occasion when the State intents upon him for the supply of any particular item or quantity required by them. Kunhamed Kutti J. has agreed with him, and with all respect for the learned Judge we are unable to held that this is a case of a standing offer as contended by the defendant. “Contract” as defined in clause (h) of S. 2 of the Indian Contract Act, is an agreement enforceable at law. The defendant's offer to supply the dietary articles at certain rates, was accepted by the Director after reference to Government. This acceptance created a valid contract or agreement enforceable in law. It is contended that the contract in question is not bilateral, but only unilateral, because there is no obligation on the part of the Government to purchase any of the articles agreed to be supplied by the defendant. There is a clause in the Tender notice to the effect that the Government cannot purchase any of these items from any one else during the period. The rule that an offer in made irrevocable by acceptance, is illustrated by the case, The Great Northern Railway Co. v. Witham. The Railway Company in this case had advertised for tenders for the supply of stores, such as, they might think fit to order for one year. The defendant made a tender offering to supply them for that period at certain fixed prices, in the following manner: “I hereby undertake to supply to the company for 12 months with such quantities……all or any of the several articles named in the attached specification as the company's store, keeper may order from time to time at the price sat opposite to each article respectively.” The company accepted his tender. Some orders were given and they were duly executed by him. He failed to case cute some orders and he sought to excuse himself from the purpose of this agreement by saying that the contract was unilateral, the company not being bound to give him the order. He contended that there was no consideration for the defendant's premise to supply the goods in as much as there was no obligation on the company to give an order to him. Keating, J. held, “the company had given the order end had consequently done something which amounted to a consideration for the defendant's promise.” Brett, J, expressed that there was no substance in the contention that the contract was only unilateral, in the following manner:

“I do not however understand what objection that is to a contract. Many contracts are obnoxious to the same complaint. If I say to another ‘if you will go to York, I will give you hundred pounds; that is in a certain sense a unilateral contract. He has not promised to go to York. But, if he goes, it cannot be doubted that he will be entitled to receive the hundred pounds. His going to York at my request is a sufficient consideration, for my promise. So, if one says to another ‘if you will give me an order for iron or other goods, I will supply it at a given price’, and if the order is given, there is a complete contract, which the seller is bound to perform. There is in such a case ample consideration for the promise. This is a matter for every day's practice, and I think it will be wrong to countenance the notion that a man who tenders for the supply of the goods In this way is not bound to deliver them when an order is given. I agree that it is judgment does not decide the question whether the defendant might have absolved himself from the further performance of the contract by giving notice. Thus, though there was no binding contract on the pan of the company to order arty goods, there was a sufficient consideration for the defendant's promise to supply the goods. The contract in such a case cannot be void on the ground that it is unilateral.”

In the case Fercival Ltd. v. London County Council Asylum and Mental Deficiency Co. a firm of controverts bad signed a under addressed to the Asylum Committee, whereby they agreed on the acceptance of the under to supply all or any of the goods tarred in the Schedule, if and to the extent the same should be ordered by the Committee and in any quantity. It was also provided that the quantities stated is the Schedule were those which were estimated as the probable requirements for the period of the contract. But, the committee might at their option require the supply and delivery under any item in the schedule of goods in excess of the quantity specified in such it as and the goods were to be delivered at the Assyium in such quantities, and such time an in such manner as the Committee or the steward might order frem time to time. The Committee did not order the amount specified in the schedule to the tender form, and the contractors claimed that they were entitled to supply goods to the full amount therein specified. It was held that on the true construction of the contract contained In the document of tender, the Committee were under no obligation to order any of the goods but that the firm of contractors were bound to deliver the goods specified as and when they obtained orders for them from the Committee. Atkin, J. held that it was not a firm contract to take the whole of the goods that were required. He observed as below:

“These tenders have been the subject of litigation before us new and they vary in form. But, one knows that it is quite common for large bodies that require supplies for an year to ask for tenders and to obtain them, and it sometimes happens that the effect of the form of the tender with an acceptance is to make a firm contract by which the purchasing body Undertakes to buy all the specified material from the contractor. On the ether hand, one knows that these tenders are very often in a from under which the purchasing body is not bound to give the tenderer any order at all. In other words, the cent raster offers to supply goods at a price, and if the purchasing bedy chooses to give him an order for goods during the stipulated time then he is under an obligation to supply the goods in accordance with the order; but apart from that, nobody is bound. There is also an intermediate centralise that can fee made in which, although the parties are not bound, they any specified quantity, yet they bind them salve to buy any pay for all the goods that are in fact needed by them. Of course, in there is a contact such as that, then there is a binding connect, which will be broken if the purchasing bedy in fact had not needed some of the articles, the subject of the tender, and did not take them from the tenderer.”

The contract which he had to consider in that case came within category No. 1. The second item referred to by him will be a case of a standing offer, and the instant case before us will be the case referred to by him as the third kind. The parties here are not bound to any specified quantity. But they bind themselves to buy and pay for all the goods that are in fact needed by them. In such a case, there is a binding contract. He further observes as below:

“I have no doubt that in a case of this kind, where a man is asked to leader in advance for large quantities, he must in the ordinary coarse expose himself to certain liabilities in advance and it may, seem from one side that the contractor should be bound on one side, but that the purchasing body should not be bound on the other. But, the answer is that that is the contract the parties chose to make sad certainly it is not in my experience an unusual contract, because the Great Northern Railway v. Witham and the other cases afforded instances for the last forty years, of this kind of contract being entered Into by business people. No doubt, they rely on the matter going through the ordinary coarse vary much in the terms of the contract. Sometimes it happens they are disappointed. That is a business risk, which, as it seems to me, a person who signs a contract in express language must put up with”.

In his book on Contracts, Vol. I, 23rd Edn. para 53, Chitty deals with the matter thus:

“Great difficulty arises in construing a tender to supplp, for example, ‘such quantities (not exceeding a specified amount) as you may order.’ A person to whom such a tender is submitted, does not incur any liability merely by ‘accepting it’. He only becomes liable when he places an order for goods”—Vide Pereival Ltd. v. London County Cornell Asylum, and he would not to the absence of a stipulation to that effect, be bound to place any order at all—vide C.F Churehword v. R. (3); R. v. Demars(4). The parties submitting the tender can also withdraw before a definite order is placed, if the tender means ‘I will supply such quantities as you may order’—vide Great Northern Railway v. Witham. But, he will not be entitled to withdraw if the tender means ‘I hereby bind myself to execute any orders which you may place and if this promise is supported by some consideration”.

The defendant in this case has bound himself to execute any orders which the State might place from time to time. Therefore, in these circumstances he will not be entitled to withdraw the contract. Mr. G. Ramaswami, the learned Additional Government Pleader appearing on behalf of the State, contends, on the authority of Ford and others v. Newth(6) Metropolitan Electric Co. v. Cinder(7) and the Full Beach decision of this court in Venkatachala Pillai v. Sethurama Rao(8), that there can never be case of standing offer as contended by the defendant but there is a clear case of a concluded contract between the parties, giving cause of a action for damages when there is a breach. In Fort and others v. Jewth in an answer to an advertisement. A had offered to supply to the Municipal Corporation for twelve months, certain goods at specified prices and this offer was accepted. Later, he applied to the Committee to release him from the contract, stating that there was no completed agreement. Darling J, held that the advertisement, tender and the acceptance constituted a contract, because there was an obligation to order from A, such of the goods included in his tender as the Council might require during the period of twelve months, and the Council would not be justified in treating his tender as a mere price list and ordering the goods which they required from any one whom they might choose Therefore, there was a contract. In the next case, The Metropolitan Electric Co. v. Cinder, the defendant had signed a form of request to the plaintiff company to supply them with electric energy subject to the following terms: (1) the consumer agrees to take the whole of the electric energy required for the premises mentioned below from the company for a period of not less than five years, and (2) the charges of electric energy be 4 ½d. per Board of Trade Unit. There was no covenant by the company to supply, nor by the defendant to take, any energy. The defence was that the language of the contract was affirmative and cot negative and that there was no enforceable agreement. Buckley J. held as below:

“The technical discretion being made, that if you find the word ‘not’ in an agreement (I will ‘not’ do a thing) as well as the words ‘I will”, even although the negative term might have been implied from the positive, yet the court refusing to act on an implication of the negative, will act on the expression of it. I can only say that I should think it was the safe and the better rule to look in all such cases to the substance and not to the form. The language here is that the consumer agrees to take the whole of the electric energy required for the premises from A. The company was bound to supply under the statute if asked. The consumer asks. The result is that he thereupon had a right as against the plaintiff, to be supplied. They were contracting not affirmatively for the supply of something but negatively that the defendant would not take from somebody else. There is so affirmative contract here to take anything at all. Cinder does not agree that he will take any energy from the plaintiffs. He says that he will take the whole of the electric energy required. It is competent to him to burn gas if be likes and requires no energy. The only thing that he was contracting to do was that if he took electric energy, he would take it from the plaintiffs. It seems to me the whole essence of the contract is that which is not expressed in the words ‘I agree’, but which implication is really the only thing existing, a contract that ho will not take from somebody else. He agrees to take the whole from A, which necessarily implies that he will not take from B, as a matter of consideration there for, not by express words, but by necessary implication. I think there is here an agreement not to take from others”.

With these observations, he held that the request was in substance a contract not to take energy from any other person and that it could be enforced by injunction and that the contract was valid, so far as it created rights between the patties for a term of years. Venkatachala v. Sethurama Rao is a case where a covenant in the sale deed was in the following terms:

“If it happens that you or your heirs have to sell the property to others, then you must sell it to the plaintiff or his heirs for the above price and also for such prices as may be determined by arbitrators in respect of any building that may be constructed upon the hand”.

In a suit by the plaintiff for specific performance, it was held that there was not merely a standing offer to re-sell, which would ripen into a contract only on the buyer accepting the offer to re-sell, and tendering the purchase money, but there was a completed contract to re-sell and purchase even on the date of sale. In the case Sakalaguna Naidu v. Chinna Munisammi Naicker the counter-part of the sale deed provided that the vendee should reconvey the property to the vender after a period of 30 years from that day in case the vendor was to have the property again and upon his paying a sum of Rs. 10,000. It is thus clear that the veador had the option of repurchasing the property or not. Their Lordships held that it was not a case of a mere standing offer by the vendee, which could ripen into a contract, to buy and sell only on the acceptance of that offer by the vendor by tender of the purchase money. On the ether hand, it was distinctly held that there was a completed contract between the parties even on the date of the counterpart document (27th January 1871).

The whole concept of a standing offer is want of mutuality. But, here in the instant case before us, there is mutuality and as such the contract is complete. Therefore, no question of any standing offer arises in this case, and the contract is complete the moment the tender was accepted by the Director of Medical Services.

Clause 21 of the Tender Form enables the Director of Medical Services, within a period of three months from the date of commencement of the contract, to terminate the same either wholly or in part without assigning any reason, by giving one month's notice. This clause farther states that the contractor will not be entitled to compensation whatever in respect of such a termination. On behalf of the defendant, it is urged that the contract in the instant case is had because of this clause, which has the effect of positively destroying the contract altogether at the whim and fancy of one of the parties. Union of India v. Maddala Thaihayya is relied on for this purpose. This is a case where the General Manager of a Railway invited tenders for the supply of jaggery to the railway grain shop. The administration reserved in the agreement a right to cancel the contract at any stage daring the tenure of the contract without calling up the outstanding on the unexpired portion of the contract. The contractor submitted his tender for the supply of 14,000 maunds as mentioned in the Tender. By a letter dated 20th January 1948, the Deputy General Manager accepted it stating that the Official order would be placed on receipt of the remittance of security. There was a note that delivery should be effected on four different dates, viz, (a) 1st March, (b) 22nd March, (c) 5th April and (d) 21st April 1948. But on 8th March 1948 the Deputy General Manager informed the respondent that the balance quantity of jaggery outstanding on date against the previous order was to be treated as cancelled. The contractor then filed this suit for damages. The General Manager in defence relied on the stipulation in the contract that he was at liberty to terminate the contract at any stage. Negativing this defence, their Lordships held that such a clause has the effect of actually or positively destroying the contract altogether at the whim and fancy of one of the parties and that it should be rejected as unenforceable. They farther held that once an order was placed Car supply of such dates, that order amounted to a binding contract, making it incumbent on the respondent to supply the jaggery in accordance with the terms of the order and making it incumbent on the Deputy General Manager to accept the jaggery delivered in pursuance of the order. Thus, it was a case where an order was in fact placed and this case does not help the present case either way. True, clause 21 is there. But, it has to be read along with clause 8 of the Tender, which precludes the Government from purchasing from any person or persons other than the tenderer all or any of the quantites of the goods or materials agreed to be supplied by the contractors. That apart there has become such termination of any contract either fully or partially in exercise of any right conferred by clause 21 of the contract.

The annexure to the Tender Notice sets not the articles required by each hospital and also the quantity required. The defendant had offered to supply 13,33,800 lbs of hand-pounded rice at Rs. 0-8-5 per lb, 63,960 tens of gingill oil at Rs. 0-12-91 per lb and 1151 teas of easuarlna firewood at Rs. 57-14-0 per ton. He had submitted this tender and the same has been accepted by the Government. He had also supplied as per the contract, some quantities to some hospitals Only on 25th April 1956 be issued the notice Ex. P. 25 stating that there was no concluded contract. Clearly there is a concluded contract between the parties, the contract being, the defendant agreeing to sell the items mentioned by him In the tender at the rates given by him to the different hospitals as and when ordered, and the Government agreeing not to purchase these articles during the period from any one else. The contact entered into between the parties was entire in substance and nature, and it is not severable and divisible. S. 2 clause (d) of the Indian Contract Act states that when at the desire of the promiser the promise has done or abstained from doing, or does or abstains from doing, or premise to do so or abstain from doing something, such act or abstinence or promise is called a consideration for the promise. The Government in this case Invited orders for the supply of the goods and the tenderer offered to supply the goods at specified rates as and when ordered as per the terms of the conditions of the tender notice. This offer is accepted by the Government. The result is that there are mutual sets of premises forming consideration for each other. The seller promises to supply the goods as and when an order is placed. The buyer promises to pay the prices of the goods as and when the goods are supplied and during the period of the contract he promises that he will not buy from any other person, goods required by the hospital. This promise to abstain from buying from anybody is sufficient consideration within the meaning of S. 2 (d) of the Contract Act. On behalf of the defendant., it is further urged that under the terms of the contract, the hospital authorities need not place any order at all for any goods and so there is no mutuality and that this would make it a case of standing offer. This clause should be read along with the clause wherein the Government undertakes not to buy from anybody, the goods required. This means that wherever Government requires the goods and whenever they have to purchase, they have to purchase only from the respondent. Thus, there is a concluded contract even at the inception. When such is the case, no question of any standing offer will ever arise for consideration.

Next it is contended that when the contract was repudiated, the Government did not accept the breach immediately and that they should have continued to place orders till the actual termination of the contract, when a person repudiates his obligation under the contract, two courses are open to the other party, viz, (1) not to accept the breach end wait till the time of performance and enforce it, and (2) to accept the breach and see for damages for breach. In this case, the Government have accepted the breach by not placing orders with the defendant and by buying the goods from others When the defendant, in the termination notice, had made it clear beyond all ambiguity, in unequivocal terms, that he would not supply the goods, it is not now open to him to contend that despite this notice, the Government should have continud to place orders on him.

With respect we disagree with the findings of Kunhamed Kutti J. and hold that there was a concluded enforceable contract between the parties and that the defendant had committed breach, giving a cause of action for damages. The learned Judge has considered the question of damages on the basis that this is a case of a standing officer. He has said that what the plaintiff is entitled to will be the difference between the contract rate and the market rate for the articles purchased by the department under indents placed by the hospital prior to 25th April 1956, though the actual purchase of some of the articles was subsequent to that date. The quantum or quantity of articles totally purchased by the different hospitals from 1st April 1956 till 31st March 1957 were set out in column 2 of the Statement appended to the plaint. Column (3) showed the quantity supplied by the defendant. The excess or smaller expenditure incurred by the Government shown in these statements was arrived at by calculating the difference between the amount paid for purchase from other sources and the expenditure that would have been incurred by the Government if the defendant had made the entire supplies at the contract rate. He farther held that the plaintiff would be entitled to get only the sum total of the above said amounts less the smaller expenditure incurred under firewood. The parties were directed to the memos of calculation in the light of the aforesaid findings given by him. The memo showed the following items: On account of the purchase by the hospitals from outside agencies, the State had incurred an additional expense of Rs. 4303-15-4 on account of hand-pounded rice; Rs. 557-11-0 on account of gingill oil and no excess on account of casuarlna firewood. The defendant had supplied articles worth Rs. 8281.15-6. Since this amount was in excess of the amount payable to the State by way of damages the learned Judge dismissed the suit, directing the parties to bear their respective costs. Thus, the basis adopted by the learned Judge for determining the damages is not correct and we have held that the defendant has committed breach in respect of a contract, complete and concluded. The question of damages will have to be determined and decided with reference to the terms of the contract agreed to between the parties. We set aside the findings of the learned Judge and remand the suit to the trial court for further disposal after dealing with issues 6 and 7 in the light of our findings and observations.

The defendant, as plaintiff in O.S No. 497 of 1957 on the file of the City Civil Court, Madras, had claimed Rs. 9100 paid by him to the plaintiff as earnest money plus Rs. 8568-8-3½ value of the articles supplied to the hospitals as per the indents made. The learned Judge has dismissed his suit stating that he had committed breach of the contract and as such be was not entitled either to the reimbursement or the return of the earnest money. The State has given credit to an amount of Rs. 8281-15-6 towards the value of the articles actually supplied by the defendant. True, the contract provides for the forfeiture of the earnest money. But, since we have held that the defendant is liable to pay damages for the breach, we are of the view that he need not be penalised in both the ways, by forfeiture of the earnest money and by awarding damages for the breach. We set aside the decree passed by the learned Judge In O.S No. 497 of 1957 and grant a decree in favour of the plaintiff therein for Rs. 9100 plus Rs. 8281-15-6 with proportionate costs.

A.S No. 149 of 1961 is allowed with costs to the extent indicated above. O.S No. 116 of 1966 is also allowed as Indicated above, with costs and the trial court shall provide for the costs in the suit and in the appeal after determining the quantum of damages. The State will he entitled to adjust the amounts due from it under the decree in O.S No. 497 of 1957 and recover the balance of the total amount to be decreed in its favour in the other suit.

V.C.S

Manickam Chettiar(Di... v. The State Of Madras,...