College Point Boat Corporation v. United States/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 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, 19 L. Ed. 449; United States v. Purcell Envelope Co., 249 U.S. 313, 320, 39 S.C.t. 300, 63 L. Ed. 620. 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 canceled the contract. 58 Ct. Cl. 380. The case is here on appeal under section 242 of the Judicial Code (Comp. St. § 1219).

There is no finding of fact that the contract was canceled. 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, 43 S.C.t. 428, 67 L. Ed. 778, 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. He 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. 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 canceling 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 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 per cent. 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.