Sylvan Crest Sand & Gravel Co. v. United States
150 F.2d 642 (1945)
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Rule of Law:
A contract term allowing a party to cancel 'at any time' does not render the agreement illusory if the power to cancel is interpreted to require notice of cancellation within a reasonable time, as this alternative course of action constitutes sufficient consideration to form a binding contract.
Facts:
- Sylvan Crest Sand & Gravel Co. (plaintiff) owned and operated a trap rock quarry.
- The United States (defendant), through its Treasury Department, invited bids for trap rock needed for an airport project.
- Sylvan Crest submitted four bids to supply different sizes of trap rock.
- On June 29, 1937, the U.S. accepted all four bids, creating four separate agreements.
- The agreements specified that the rock was 'To be delivered to project as required' and that Sylvan Crest should await 'definite delivery instructions.'
- Each agreement contained a clause stating, 'Cancellation by the Procurement Division may be effected at any time.'
- After the agreements were made, the U.S. failed to request delivery of the trap rock for what Sylvan Crest considered a reasonable time.
Procedural Posture:
- Sylvan Crest Sand & Gravel Co. sued the United States in the U.S. District Court for damages for breach of contract.
- The United States moved to dismiss the complaint or, alternatively, for summary judgment, arguing the contracts were illusory.
- The District Court (trial court) granted summary judgment in favor of the United States.
- Sylvan Crest Sand & Gravel Co., as the appellant, appealed the judgment to the U.S. Court of Appeals for the Second Circuit.
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Issue:
Does a government contract that gives the government the power to cancel 'at any time' create an illusory promise, thereby rendering the contract unenforceable for lack of mutuality of obligation?
Opinions:
Majority - Swan, Circuit Judge
No. The contract is not rendered unenforceable because the government's power to cancel 'at any time' is not unrestricted; rather, it creates an alternative promise to either request the goods or provide notice of cancellation within a reasonable time. The court presumed that the parties, particularly the government, intended to create a binding and enforceable contract, not a 'skilful trap for unwary bidders.' The phrase 'cancellation may be effected at any time' implies an affirmative act of giving notice, not a passive failure to place orders. To avoid rendering the contract illusory and to give it business efficacy, the court interpreted 'at any time' to mean 'within a reasonable time.' Therefore, the government's promise was not illusory because it had an obligation to choose between two alternatives: either take and pay for the rock or give notice of cancellation within a reasonable time. This alternative promise constitutes sufficient consideration to support a valid contract.
Analysis:
This decision is a foundational case in contract law, illustrating how courts will often imply a term of 'reasonableness' to save a contract from being void for lack of consideration. By refusing to read the 'at any time' cancellation clause literally and absolutely, the court reinforced the judicial preference for upholding agreements that parties intended to be binding. This precedent limits the power of seemingly unrestricted cancellation clauses, requiring the party with such power to act affirmatively (by giving notice) within a reasonable period. It established that an alternative promise, even one that is not burdensome, can serve as valid consideration if it imposes some legal detriment, thereby preventing the entire agreement from being deemed illusory.
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