Union of India vs Maddala Thathiah case provides the concept of standing offer, also called continuing offer. Standing offer refers to when an offer is allowed to remain open for acceptance over a period of time, such as tenders. Advertisement inviting tender is an invitation to offer, and it is not an offer.
The person by an advertisement inviting such an offer is not the offeror but the person who reads the advertisement can become an offeror if he places the bid to the party who invited the tender by advertisement. If the advertiser accepts the offer, then it becomes an agreement. Therefore, the person who reads the advertisement and places the bid for tender is the offeror in these types of cases. In cases of standing or continuing offer, it remains open for a specific period and the offer will be accepted by the offeree (original advertiser) from time to time for the supply of goods, therefore for each order placed there will be a different acceptance and hence a different contract. If the offeree (advertiser) accepts the tender, that doesn’t mean the contract is legally binding until and unless the required quantity is ordered by the offeree (advertiser or acceptor). The contract only exists when the terms and conditions are fulfilled.
Union of India i.e. Madras and Southern Railways are actually:
- Original defendant.
- Appellant in this petition.
- Advertiser of the tender to get the jaggery.
- The acceptor of the offer.
Maddala Thathiah is actually:
- Original plaintiff.
- Respondent to this petition.
- Bidder to the advertisement of the tender to sell the jaggery.
- The offeror, i.e. Jaggery supplier.
BENCH: In the Supreme Court of India.
Hon’ble Justice Raghuvar Dayal [Delivery of the Judgement], Hon’ble Justice K. Subba Rao, and Hon’ble Justice J. R. Mudholkar.
- Mental acceptance is no acceptance.
- Section 4 of Indian Contract Act 1872 states that acceptance should be communicated to the offeror
- Acceptance must be absolute and unqualified.
FACTS OF THE CASE:
- Appellant i.e. Madras and Southern Railway invited to tender by an advertisement for the supply of 14,000 imperial pounds Cane Jaggery to the railway grain shops.
- Respondent i.e. Maddala Thathiah read the advertisement (which was an invitation to offer) and placed the bid for that invitation to tender by depositing Rs. 7,900 as a security fee. In other words, the respondent after reading the invitation to the tender in an advertisement offered the tender to the Railways, i.e. Appellant.
- As per the terms and conditions, jaggery was to be transported in four installments, i.e. 3,500 maunds each. During the contract, the appellant said that they have the power to cancel the contract anytime.
- Deputy General Manager of Railways informed the respondent that they have canceled an order for the supply of Jaggery and the contract was closed according to them.
- Respondent protested against the Appellant took the defence that the right to cancel the contract was reserved with them only.
- Finally, Respondent-Plaintiff (Maddala Thathiah) instituted the suit for claiming the damages on breach of contract.
- The Trial Court dismissed the suit on the grounds that the railway administration had the authority to cancel the contract at any point in time without making itself liable to pay damages. This decision was in favor of the appellant herein.
- The High Court held that the clause granting the appellant’s authority to cancel the contract was void and the Trial Court was wrong in not deciding on the damages and dismissing the suit for settlement. The appellant was according directed to pay the damages for the breach of contract.
- The appellant now filed this appeal herein against the order of the High Court.
CONTENTION BY THE APPELLANT:
Appellant took the defence that the right to cancel the contract was reserved with them only.
- Whether there was no enforceable obligation to purchase the entire quantity or not?
- Whether the appellant was at liberty to end the contract at any stage of the duration of the contract regarding the outstanding obligations under it or not?
The impugned clause refers to a right in the appellant to cancel the agreement for such supply of jaggery about which no formal order had been placed by the General Manager with the respondent.
However, it doesn’t apply to such supplies of jaggery about which a formal order had been placed specifying a definite amount of jaggery to be supplied and the definite date or definite short period for its actual delivery.
Once the order is placed for such supply in such dates, the order amounts to a binding contract making it incumbent on the respondent to supply the jaggery in accordance with the terms of the order and also making it incumbent on the General Manager to accept the jaggery delivered in pursuance of that order.
The Court construed the contract between the parties in the instant case where the respondent had not made a definite offer but standing or open or continuing offer because of the tender requiring a deposit of security and placing of the formal order.
A standing offer may be revoked at any time provided that it has not been accepted in the legal sense and acceptance in the legal sense is complete as soon as a requisition for a definite quantity of goods is made. Each requisition by the offeree is an individual act of acceptance that creates a separate contract.
Therefore, the appeal was dismissed and the order of the High Court regarding the remand of the suit to the trial court for deciding the issue about damages was restored.