Sylvan Crest Sand & Gravel Co. v. United States
150 F.2d 642 · U.S. Court of Appeals · 1945
Facts
Sylvan Crest Sand & Gravel Co. (plaintiff) owned a trap rock quarry. The United States (defendant), through its Treasury Department, invited bids for trap rock needed for the Mollison Airport in Bridgeport, Connecticut. The plaintiff submitted four bids, which were accepted by the Assistant State Procurement Officer on June 29, 1937. The contracts stipulated that the trap rock was "to be delivered to project as required" and included a clause stating, "Cancellation by the Procurement Division may be effected at any time." The plaintiff alleged a breach of these contracts, claiming the defendant refused to request or accept delivery within a reasonable time, resulting in $10,000 in lost profits. The defendant later gave notice of cancellation on July 11, 1939.
Procedural history
The plaintiff commenced an action for damages in the District Court. The defendant moved to dismiss the action or, alternatively, for summary judgment. The District Court granted summary judgment for the defendant, ruling that the alleged contracts were wholly illusory due to the defendant's reservation of an unrestricted power of cancellation. The plaintiff subsequently appealed this decision to the Circuit Court.
Issue
Is a contract illusory and void for lack of mutuality when one party, the government, reserves an unrestricted power of cancellation, specifically through a clause stating "Cancellation by the Procurement Division may be effected at any time"?
Holding
No, the contract is not illusory. The court reversed the summary judgment, holding that the agreement constituted a valid and enforceable contract.
Rule
A contract containing a cancellation clause, such as "cancellation may be effected at any time," is not illusory if the clause implies affirmative action, like giving notice of intent to cancel, and is interpreted to mean cancellation must occur within a reasonable time. This interpretation ensures that the parties' mutual intention to form a contract is upheld and provides sufficient consideration. The implied promise by the promisor to either perform or give notice of cancellation within a reasonable time serves as valid consideration, preventing the agreement from being a nudum pactum.
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