When one party enters upon the performance of a contract and
incurs expense therein, and being willing to perform, is, without
fault of his own, prevented by the other party from performing, his
loss will consist of two distinct items of damage: 1st, his outlay
and expenses, less the value of materials
Page 110 U. S. 339
on hand; 2d, the profits he might have realized by performance,
which profits are related to the outlays and include them and
something more. The first item he may recover in all cases unless
the other party can show the contrary, and the failure to prove
profits will not prevent him from recovering it. The second he may
recover when the profits are the direct fruit of the contract and
not too remote or speculative.
In an action for breach of a contract by wrongfully putting an
end to it, the party committing the wrong is estopped from denying
that the other party has been damaged to the extent of his actual
loss and outlay fairly incurred.
If, in a suit in the Court of Claims for breach of contract by
the United States by preventing the petitioner from performing his
contract, the petition prays judgment for damages arising from the
loss of profits and also for outlay and expenses, the petitioner
may recover for such part of the outlay and expenses as he may
prove, although he may fail to establish that there would have been
any profits.
If a party injured by the stoppage of a contract elects to
rescind the contract, he cannot recover either for outlay or for
loss of profits, but only for the value of services actually
performed, as upon a
quantum meruit.
The case is stated in the opinion of the Court.
MR. JUSTICE BRADLEY delivered the opinion of the Court.
Behan, the appellee and claimant, filed a petition in the court
below setting forth that on the 26th of December, 1879, one John
Roy entered into a contract with C. W. Howell, major of engineers
of the United States army, to make certain improvements in the
harbor of New Orleans (describing the same), and that the claimant
and two other persons named became bondsmen for the faithful
performance of the work; that on February 10, 1881, the contract
with Roy was annulled by the engineer office, and the bondsmen were
notified that they had a right to continue the work under the
contract if they desired to do so and that the claimant complied
with this suggestion and undertook the work; that he went to great
expense in providing the requisite machinery, materials, and labor
for fulfilling the contract, but that in September, 1881, it being
found, by the report of a board of engineers, that the plan of
improvement
Page 110 U. S. 340
was a failure, without any fault of the claimant, the work was
ordered to cease; that thereupon the claimant stopped all
operations and disposed of the machinery and materials on hand upon
the best terms possible, and sent to the War Department an account
of his outlay and expenses, and the value of his own time, claiming
as due to him, after all just credits and offsets, the sum of
$36,347.94, for which sum he prayed judgment.
The claimant afterwards filed an amended petition in which the
various transactions and his operations under the contract were set
forth in greater detail, showing, among other things, that the
amount of his expenses for machinery and tools, for materials, and
for labor and operations carried on, after deducting the proceeds
realized from the sale of the plant remaining when the work was
suspended, amounted to the sum of $33,192.90. The petition further
alleged that the claimant could have completed the work
contemplated by the contract by a further expense of $10,000, and
that the amount which would then have been due therefor would have
been $52,000, leaving a profit to him of $8,807.10.
The petition concluded as follows:
"Your petitioner therefore respectfully shows that his
reasonable and necessary expenditures upon the work above described
amounted to $33,195.92, which sum represents the losses actually
sustained by petitioner by reason of the defendants' breach of the
contract. And petitioner further sets forth that the reasonable and
legitimate profits which he might have obtained but for the said
breach of contract may be properly computed at $8,807.10, assuming
$52,000 as the amount to be paid for the completed work. And
petitioner further shows that he has not received one dollar from
the defendants on account of said work, but that his claim and
accompanying accounts, presented to the engineer department, have
been transmitted to this Court by the Secretary of War."
"Your petitioner therefore alleges that he is entitled to
receive from the United States the sum of forty-two thousand
dollars ($42,000) over and above all just credits and offsets.
Wherefore he prays judgment for that amount."
The Court of Claims found the material facts to be
substantially
Page 110 U. S. 341
as stated in the petition. The contract of Roy is set forth in
full in the findings, from which it appears that the contracting
party was required to furnish and lay down an artificial covering
of cane-mats over the sloping portion of the riverbed of the
Mississippi in front of the Third District of New Orleans, to
extend outwards to a depth in the river not exceeding 100 feet, and
to be paid therefor at the rate of 65 cents per square yard. The
court finds that Roy prosecuted the work under the contract during
the year 1880, but his progress not being satisfactory to the
engineer officers, the contract was formally annulled and the
bondsmen notified, as stated in the petition. In March, 1881,
Behan, the claimant, gave notice to Maj. Howell that he would
undertake the work, and at his request the major gave him a
description of the work to be done, estimated as not exceeding
77,000 or 80,000 square yards, which at the contract price, would
amount to from $50,000 to $52,000.
The court further finds as follows:
"The contract was of such a character as to require extensive
preparations and a large initial expenditure. The claimant made the
necessary preparations for carrying on the work to completion, and
in procuring boats, tools, materials, and apparatus for its
prosecution. He engaged actively in carrying out the contract on
his part, incurred large expenditure for labor and materials, and
had for some time proceeded with the work when the undertaking was
abandoned by the defendants and the work stopped, without fault of
the claimant, as set forth in the following letters."
Then follows a copy of correspondence between the officers and
the department of engineers showing that a board of engineer
officers was appointed to examine and report upon the plan of
improvement under which the work of the claimant was being carried
on, and that this board, on the 23rd of September, 1881, reported
their unanimous opinion that the object sought to be accomplished
by the improvement had not been attained, and that under the then
existing plan of operations it could not be attained. On the 29th
of September, 1881, the claimant received notice to discontinue the
work, which he did at once, and gave Maj. Howell notice to that
effect, and called his
Page 110 U. S. 342
attention to the exposed situation of the machinery, materials,
and other property on hand, and requested instructions respecting
the same. No instructions appear to have been given. The court then
finds as follows:
"The claimant thereupon closed up his work and sold the
materials which he had on hand. Nothing has been paid to him for
work, materials, or losses."
"The actual and reasonable expenditures by the claimant in the
prosecution of his work, together with his unavoidable losses on
the materials on hand at the time of the stoppage by the
defendants, were equal to the full amount claimed therefor in his
petition, $33,192.20."
"It does not appear from the evidence thereon on the one side
and the other whether or not the claimant would have made any
actual profit over and above expenditures, or would have incurred
actual loss had he continued the work to the end and been paid the
full contract price therefor."
"
CONCLUSION OF LAW"
"Upon the foregoing findings of facts, the court decides as a
conclusion of law that the claimant is entitled to recover the sum
of $33,192.20."
The government has appealed from this decree, and complains of
the rule of damages adopted by the court below. Counsel contend
that by making a claim for profits, the claimant asserts the
existence of the contract, as opposed to its rescission, and that
in such case the rule of damages, as settled is
Speed's
Case, 8 Wall. 77, is
"the difference between the cost of doing the work and what
claimants were to receive for it, making reasonable deduction for
the less time engaged and for release from the care, trouble, risk,
and responsibility attending a full execution of the contract."
And when such a claim is made, they contend that the burden of
proof is on the claimant to show what the profits would have been,
and as the Court of Claims expressly finds that it does not appear
from the evidence whether or not the claimant would have made any
profits, or would have incurred loss, therefore the
Page 110 U. S. 343
claimant was not entitled to judgment for any amount
whatever.
The manner in which the subject was viewed by the Court of
Claims is shown by the following extract from its opinion:
"Whatever rule may be adopted in calculating the damages to a
contractor when, without his fault, the other party, during its
progress, puts an end to the contract before completion, the object
is to indemnify him for his losses sustained and his gains
prevented by the action of the party in fault, viewing these
elements with relation to each other. The profits and losses must
be determined according to the circumstances of the case and the
subject matter of the contract. The reasonable expenditures already
incurred, the unavoidable losses incident to stoppage, the progress
attained, the unfinished part, and the probable cost of its
completion, the whole contract price, and the estimated pecuniary
result, favorable or unfavorable to him, had he been permitted or
required to go on and complete his contract, may be taken in
consideration.
Sickels' Case, 1 Ct.Cl. 214;
Speed's
Case, 2 Ct.Cl. 429;
aff'd on appeal, 75 U. S.
8 Wall. 77, and 7 Ct.Cl. 93;
Wilder's Case, 5
Ct.Cl. 468;
Bulkley's Case, 7 Ct.Cl. 543,
86 U. S.
19 Wall. 37, and 9 Ct.Cl. 81;
Parish's Case,
100 U. S.
500;
Field's Case, 16 Ct.Cl. 434;
Moore
& Krone's Case, 17 Ct.Cl. 17;
Power's Case,
decided at this term;
Masterson v. City of Brooklyn, 7
Hill 61."
"The amount of the claimant's unavoidable expenditures and
losses already incurred are set forth in the findings. But we can
give him nothing on account of prospective profits, because none
have been proved. So, for the same reason, we can deduct nothing
from his expenditures on account of prospective losses which he
might have incurred had he not been relieved from completing his
contract. This leaves his expenditures as the only damage proved to
have resulted to him from the defendant's breach of contract, and
are therefore the proper measure of damages under all the
circumstances of the case."
We think that these views, as applied to the case in hand, are
substantially correct. The claimant has not received a dollar,
either for what he did, or for what he expended, except the
proceeds of the property which remained on his bands when
Page 110 U. S. 344
the performance of the contract was stopped. Unless there is
some artificial rule of law which has taken the place of natural
justice in relation to the measure of damages, it would seem to be
quite clear that the claimant ought at least to be made whole for
his losses and expenditures. So far as appears, they were incurred
in the fair endeavor to perform the contract which he assumed. If
they were foolishly or unreasonably incurred, the government should
have proven this fact. It will not be presumed. The court finds
that his expenditures were reasonable. The claimant might also have
recovered the profits of the contract if he had proven that any
direct, as distinguished from speculative, profits would have been
realized. But this he failed to do, and the court below very
properly restricted its award of damages to his actual expenditures
and losses.
The
prima facie measure of damages for the breach of a
contract is the amount of the loss which the injured party has
sustained thereby. If the breach consists in preventing the
performance of the contract, without the fault of the other party,
who is willing to perform it, the loss of the latter will consist
of two distinct items or grounds of damage, namely: first, what he
has already expended toward performance (less the value of
materials on hand); secondly, the profits that he would realize by
performing the whole contract. The second item, profits, cannot
always be recovered. They may be too remote and speculative in
their character, and therefore incapable of that clear and direct
proof which the law requires. But when, in the language of Chief
Justice Nelson, in the case of
Masterson v. Mayor of
Brooklyn, 7 Hill 69, they are "the direct and immediate fruits
of the contract," they are free from this objection; they are
then
"part and parcel of the contract itself, entering into and
constituting a portion of its very elements; something stipulated
for, the right to the enjoyment of which is just as clear and plain
as to the fulfillment of any other stipulation."
Still, in order to furnish a ground of recovery in damages, they
must be proved. If not proved, or if they are of such remote and
speculative character that they cannot be legally proved, the party
is confined to his loss of actual outlay and expense. This loss,
however, he is clearly entitled to recover
Page 110 U. S. 345
in all cases, unless the other party, who has voluntarily
stopped the performance of the contract, can show the contrary.
The rule, as stated in
Speed's Case, is only one aspect
of the general rule. It is the rule as applicable to a particular
case. As before stated, the primary measure of damages is the
amount of the party's loss, and this loss, as we have seen, may
consist of two heads or classes of damage -- actual outlay and
anticipated profits. But failure to prove profits will not prevent
the party from recovering his losses for actual outlay and
expenditure. If he goes also for profits, then the rule applies as
laid down in
Speed's Case, and his profits will be
measured by "the difference between the cost of doing the work and
what he was to receive for it," etc. The claimant was not bound to
go for profits, even though he counted for them in his petition. He
might stop upon a showing of losses. The two heads of damage are
distinct, though closely related. When profits are sought, a
recovery for outlay is included and something more. That something
more is the profits. If the outlay equals or exceeds the amount to
be received, of course, there can be no profits.
When a party injured by the stoppage of a contract elects to
rescind it, then, it is true, he cannot recover any damages for a
breach of the contract, either for outlay or for loss of profits;
he recovers the value of his services actually performed as upon a
quantum meruit. There is then no question of losses or
profits. But when he elects to go for damages for the breach of the
contract, the first and most obvious damage to be shown is the
amount which he has been induced to expend on the faith of the
contract, including a fair allowance for his own time and services.
If he chooses to go further, and claims for the loss of anticipated
profits, he may do so, subject to the rules of law as to the
character of profits which may be thus claimed. It does not lie,
however, in the mouth of the party who has voluntarily and
wrongfully put an end to the contract to say that the party injured
has not been damaged at least to the amount of what he has been
induced fairly and in good faith to lay out and expend (including
his own services), after making
Page 110 U. S. 346
allowance for the value of materials on hand; at least it does
not lie in the mouth of the party in fault to say this unless he
can show that the expenses of the party injured have been
extravagant and unnecessary for the purpose of carrying out the
contract.
It is unnecessary to review the authorities on this subject.
Some of them are referred to in the extract made from the opinion
of the court below; others may be found referred to in Sedgwick on
the Measure of Damages, and in Smith's Leading cases, vol. 2, p.
36, &c. (notes to
Cutter v. Powell); Addison on
Contracts ยงยง 881, 897. The cases usually referred to, and which,
with many others, have been carefully examined are
Planche v.
Colburn, 5 C. & P. 58;
S.C. 8 Bing. 14;
Masterson v. Mayor of Brooklyn, 7 Hill (N.Y.) 61;
Goodman v. Pocock, 15 Q.B. 576;
Hadley v.
Baxendale, 9 Excheq. 341;
Fletcher v. Tayleur, 17
C.B. 21;
Smeed v. Food, 1 El. & El. 602;
Inchbald
v. Western Coffee Co., 17 C.B.(N.S.) 733;
Griffin v.
Colver, 16 N.Y. 489, and the case of
United States v.
Speed, supra.
It is to be observed that when it is said in some of the books
that where one party puts an end to the contract the other party
cannot sue on the contract, but must sue for the work actually done
under it, as upon a
quantum meruit, this only means that
he cannot sue the party in fault upon the stipulations contained in
the contract, for he himself has been prevented from performing his
own part of the contract upon which the stipulations depend. But
surely the willful and wrongful putting an end to a contract and
preventing the other party from carrying it out is itself a breach
of the contract for which an action will lie for the recovery of
all damage which the injured party has sustained. The distinction
between those claims under a contract which result from a
performance of it on the part of the claimant and those claims
under it which result from being prevented by the other party from
performing it has not always been attended to. The party who
voluntarily and wrongfully puts an end to a contract and prevents
the other party from performing it is estopped from denying that
the injured party has not been
Page 110 U. S. 347
damaged to the extent of his actual loss and outlay fairly
incurred.
The particular form of the petition in this case ought not to
preclude the claimant from recovering what was fairly shown by the
evidence to be the damage sustained by him. Though it is true that
he does pray judgment for damages arising from loss of profits, yet
he also prays judgment for the amount of his outlay and expenses,
less the amount realized from the sale of materials on hand. The
claim for profits, if not sustained by proof, ought not to preclude
a recovery of the claim for losses sustained by outlay and
expenses. In a proceeding like the present, in which the claimant
sets forth by way of petition a plain statement of the facts
without technical formality, and prays relief either in a general
manner, or in an alternative or cumulative form, the court ought
not to hold the claimant to strict technical rules of pleading, but
should give to his statement a liberal interpretation, and afford
him such relief as he may show himself substantially entitled to if
within the fair scope of the claim as exhibited by the facts set
forth in the petition.
We think that the judgment of the Court of Claims was right, and
it
Is affirmed.