1. Claimant's preparations to perform its contract for
furnishing supplies to the Navy were stopped as the result of steps
taken by the Navy Department for the purpose of avoiding useless
production, without manifested intention to cancel the contract and
without giving the notice requisite to the exercise of the
unconditional right of cancellation existing under the Act of June
15, 1917 (
Russell Motor Car Co. v. United States,
261 U. S. 514),
pursuant to which the contract was made.
Held, that there
was no cancellation as a matter of law, and that the stoppage of
performance was an anticipatory breach. P.
267 U. S.
15.
2. The government's right of cancellation, under the above
statute, is continuing, and not lost by delay in exercising it. P.
267 U. S.
16.
3. This continuing right of cancellation, limiting the value of
the other party's right to require performance, curtails his
damages for an anticipatory breach by the government, so that
prospective profits are not recoverable.
Id.
4. There is no general rule that a party cannot exercise a right
to cancel a contract when himself in default.
Id.
5.
Held that a default on the part of the government
was insubstantial, and did not render inequitable delayed exercise
of its right to cancel the contract.
Id.
6. The right to cancel conferred by the Act of June 15, 1917, is
not made dependent on a tender of 75% of the amount offered by the
government in settlement. P.
267 U. S. 17.
58 Ct.Clms. 380 affirmed.
Appeal from a judgment of the Court of Claims rejecting a claim
for loss of profits anticipated under a contract with the United
States, performance of which was stopped by the government.
Page 267 U. S. 13
MR. JUSTICE BRANDEIS delivered the opinion of the Court.
On October 25, 1918, the College Point Boat Corporation agreed
to manufacture for the Navy Department 2,000 collision mats. The
United States agreed to pay therefor $641,200, and to supply the
required canvas. On
Page 267 U. S. 14
November 11, 1918, the Armistice was signed. Soon after, the
Navy Department informed the corporation that the mats would
probably not be needed, suggested that it stop operations, and
asked it to submit a proposition for cancellation of the contract.
This notification and request were received before the process of
manufacture had been begun, but the corporation had expended large
sums in necessary preparations. Negotiations for settlement
followed. They extended over nearly eight months and proved
inconclusive. Without prejudice to the rights of either party, the
United States made a partial settlement by taking over at cost raw
materials which the corporation had purchased or contracted
for.
In November, 1919, this suit was brought in the Court of Claims
to recover the further amounts claimed. The court found that, in
addition to the amounts covered by the partial settlement,
expenditures had been made, services rendered, and charges incurred
aggregating $5,112.42 in cost or value. For that amount it entered
judgment. The claimant contended that the United States was under
the ordinary liability of one who, having contracted for goods to
be manufactured, without cause, gives notice that he will not
accept delivery, and that it was liable also for the prospective
profits.
United States v.
Speed, 8 Wall. 77;
United States v. Purcell
Envelope Co., 249 U. S. 313,
249 U. S. 320.
The court found that the corporation was ready, willing, and able
to perform the contract, and that, if it
"be entitled to prospective profits on the contract work, the
amount of such profits it would be entitled to recover, after
allowing for its release from the care and responsibility which
would have attended full performance of the contract, would be
$123,980."
As a conclusion of law, the court ruled that no part of these
prospective profits was recoverable, because the United States had
cancelled the contract. 58 Ct.Cls. 380. The case is here on appeal
under ยง 242 of the Judicial Code.
Page 267 U. S. 15
There is no finding of fact that the contract was cancelled. Nor
do the facts found warrant the conclusion that there was in law a
cancellation before the suit was begun. The contract did not
contain any clause authorizing cancellation other than for default
by the plaintiff. There was no such default. The United States
actually did have an unconditional right of cancellation. For the
contract was made pursuant to the Act of June 15, 1917, c. 29, 40
Stat. 182. By virtue of the statutory provision, as was later held
in
Russell Motor Car Co. v. United States, 261 U.
S. 514, the right to cancel became, by implication, one
of the terms of the contract. But, so far as appears, neither party
knew that the United States had such a right. The Navy Department
failed to give the notice requisite to terminate the contract. Its
sole objective in suggesting that preparations for the performance
of the contract be stopped was to avoid useless production. The
corporation necessarily acquiesced. The parties negotiated, seeking
to find a basis on which they could agree to cancel and liquidate
the obligation of the government. In the negotiations, and in the
agreements which embodied the partial settlement, the Navy used
language inconsistent with an intention to exercise a right of
cancellation. As its efforts to procure consent to cancel proved
futile, stopping the work was an anticipatory breach.
The question remains whether the measure of damages recoverable
for this breach is the same as it would have been if the government
had not possessed the right of cancellation. A party to a contract
who is sued for its breach may ordinarily defend on the ground that
there existed at the time a legal excuse for nonperformance by him,
although he was then ignorant of the fact. [
Footnote 1] He
Page 267 U. S. 16
may likewise justify an asserted termination, rescission, or
repudiation of a contract by proving that there was at the time an
adequate cause, although it did not become known to him until
later. [
Footnote 2] An
unconditional right to cancel can be availed of for the purpose of
terminating a contract even after suit brought, unless some
intervening change in the position of the other party renders that
course inequitable.
Compare Clough v. London & Northwestern
Ry. Co., L.R. 7 Exch. 26, 33
et seq. Ignorance of its
right doubtless prevented the Navy Department from taking, shortly
after the Armistice, the course which would have resulted legally
in cancelling the contract at that time. But the right to cancel
was not lost by mere delay in exercising it -- among other reasons,
because the statute conferred upon the government also the power to
suspend the contract. The right remained effective as a limitation
upon the corporation's right to have the government accept and pay
for the mats. This continuing right of cancellation which was
asserted later in court operated to curtail the damages
recoverable. It limited the value of the plaintiff's right to
require performance, and hence the amount and character of the loss
for which compensation must be made. Prospective profits were not
recoverable.
The corporation contends that the United States had broken its
agreement even prior to its notification to stop preparations for
the performance of the contract, and that a party in default cannot
exercise a right to cancel. There is no such rule of general
application. The default referred to was not substantial. By the
terms of the
Page 267 U. S. 17
contract, the United States was to furnish the canvas within 30
days -- that is, on November 25. It did not do so. Two weeks before
that date, the Armistice had been signed. On December 3, the
corporation requested that the canvas be supplied. On December 6,
it received from the Navy notice that the mats would probably not
be needed. Neither these facts nor any other found render
inequitable a delayed exercise of the right to cancel.
It is also urged that the Navy did not tender to the corporation
75 percent of the amount which it offered in settlement. The right
to cancel conferred by the Act of June 15, 1917, c. 29, 40 Stat.
182, is not made dependent upon such tender. The corporation made
no demand for that amount. Moreover, for aught that appears, it has
actually received a larger percentage. With the amount awarded by
the lower court, it will receive full compensation.
Affirmed.
[
Footnote 1]
H. D. Williams Cooperage Co. v. Scofield, 115 F. 119,
121;
Trinidad Asphalt Mfg. Co. v. Trinidad Asphalt Refining
Co., 119 F. 134, 138.
[
Footnote 2]
Carpenter Steel Co. v. Norcross, 204 F. 537, 539, 540;
Farmer v. First Trust Co., 246 F. 671, 673;
E. H.
Taylor, Jr., & Sons v. Julius Levin Co., 274 F. 275, 282;
Lubriko Co. v. Wyman, 290 F. 12, 15;
Boston Deep Sea
Fishing & Ice Co. v. Ansell, L.R. 39 Ch.Div. 339, 352;
In re London & Mediterranean Bank, Wright's case, L.R.
7 Ch. App. 55;
Baillie v. Kell, 4 Bing.N.C. 638, 650.