Neil a Goldwasser, Doing Business as Century Offset Company v. The United States

JONES, Chief Judge

(dissenting in part):

I agree with the first part of the majority opinion that this was a requirements contract, subject to defendant’s prescribed right of termination under either of the two provisions in the contract which conferred that right. Each of these provisions gives the defendant the specific right to terminate.

The first of these provisions is in part as follows

“22. TERMINATION FOR CONVENIENCE OF THE GOVERNMENT

“(a) The performance of work under this contract may be terminated by the Government in accordance with this clause in whole, or from time to time in part, whenever the Contracting Officer shall determine that such termination is in the best interests of the Government. Any such termination shall be effected by delivery to the Contractor of a Notice of Termination * *

The second provision authorizing termination is set out in Article 11, which is in part as follows:

“(a) The Government may, subject to the provisions of paragraph (c) below, by written notice of default to the Contractor, terminate the whole or any part of this contract in any one of the following circumstances :

“(i) if the Contractor fails to make delivery of the supplies or to perform the services within the time specified herein or any extension thereof; or

“(ii) if the Contractor fails to perform any of the other provisions of this contract, or so fails to make progress as to endanger performance of this contract in accordance with its terms, and in either of these two circumstances does not cure such failure within a period of 10 days (or such longer period as the Contracting Officer may authorize in writing) after receipt of notice from the Contracting Officer specifying such failure.”

Paragraph (c) excuses the contractor for failure to perform for unforeseeable causes such as fires, floods, acts of God, etc.

After some other provisions, paragraph (e) of Article 11 is as follows:

“(e) If, after notice of termination of this contract under the provisions of paragraph (a) of this clause, it is determined that the failure to perform this contract is due to causes beyond the control and without the fault or negligence of the Contractor or subcontractor pursuant to the provisions of paragraph (c) of this clause, such notice of default shall be deemed to have been issued pursuant to the clause of this contract entitled “Termination for Convenience of the Government,” and the rights and obligations of the parties hereto shall in such event be governed by such clause. (Except as otherwise provided in this contract, this paragraph (e) applies only if this contract contains such clause.)”

These, then, are the only two provisions in the contract which give the defendant the right of terminating the contract.

The majority opinion takes the position that no notice of termination for convenience of the Government was given. Here we part company. There is no question that notice of cancellation was given. That right could only be exercised under one or both of the two listed articles.

In the letter of October 4, 1960, after making some complaint of the quality and appearance of the work, the letter ended with these words, “consequently we are compelled to take steps to cancel our contract with you for printing of the *727 Shipworker.” This was followed with a later oral statement that the contract would be cancelled and further information to the effect that the contract for the printing of the next issue would be let to a different contractor was conveyed to plaintiff. When the quoted provisions of the two letters in the record are given their natural interpretation, it becomes clear that they constituted notice that the defendant was exercising its privilege of terminating the contract under one or the other article of the contract which gave the defendant the privilege of termination. I have not the slightest doubt that both parties so understood it. This is especially true when the letters and oral notice were followed by defendant letting additional work to other parties. Plaintiff admits knowledge of this action.

No doubt in many instances termination is based on the fact that the defendant may not be pleased with the work of the contractor. It may terminate a contract for convenience of the Government with or without assigning a definite reason for doing so. It may terminate under Article 11 for any of the listed reasons. In the event the latter termination was unjustified, the defendant must account to the plaintiff on the same basis as if the termination had been under Article 22.

The majority concludes that because the notice was for cancellation rather than termination, proper notice of termination was not given. This we are persuaded to believe is a strained construction. According to both legal and standard dictionaries, one of the meanings of “cancellation” is “to terminate or end.” Also, one of the meanings of “terminate” is “to end, cancel or stop.” Thus, the fact that the word “cancel”, rather than the word “terminate” was used is simply a play on words and a distinction without substantial difference. There may be a breach of the contract without cancellation or termination, e. g., a failure to comply with the terms of the contract, the interference by one party with the operations under the contract, unreasonable delays, and various other reasons. A cancellation may also constitute a breach.

On the other hand, cancellation necessarily means a termination. The two words are almost interchangeable. And yet because, forsooth, the word “cancellation” was used rather than “termination”, the majority has undertaken to read out of the contract the reserved rights stipulated in the contract. Such a position will stand neither the light of reason nor the logic of analysis.

One article authorized termination simply when in the judgment of the contracting officer it was for the best interests of the Government. No specific reason was required. The other article provides for cancellation for either of two specific reasons, one of which includes the assigned reason given in the letter from the defendant to the plaintiff, dated October 4, 1960. Item 3, page 8 of the contract specifications states that the work “shall be of the best commercial quality and workmanship.” Article 11 (e) states that if after the contract is terminated under paragraph (a) it is determined that the failure to perform is due to causes beyond the control or negligence of the contractor such default shall be deemed ' to have been issued pursuant to the clause entitled “Termination for Convenience of the Government”, and the rights and obligations of the parties hereto shall in such event be governed by the termination clause if the contract contains such a clause.

The Board of Contract Appeals reached the conclusion that this act of cancellation should be treated as a termination for the convenience of the Government. We quote from the Board’s opinion:

“Thus we hold that when the Government without appropriate reasons stopped calling on [plaintiff] for the publication of the “Shipworker” and procured the services from other sources, it thereby effectively terminated the subject contract for its own convenience. The rights and obligations of the parties under these circumstances should now be *728 determined pursuant to the ‘Termination for Convenience of the Government’ article.”

In College Point Boat Co. v. United States, 267 U.S. 12 , 45 S.Ct. 199 , 69 L.Ed. 490 (1925), the Supreme Court, through Mr. Justice Brandéis, stated in effect that the Government had an unconditional right to cancel the contract in suit even though the Government itself had clearly breached the contract and notwithstanding the plaintiff was already in that Court suing the Government for the breach. We quote from that opinion 207 U.S. at pages 15 and 16, 45 S.Ct. at pages 200-201, 69 L.Ed. 490 the following:

“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 le.gal 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. 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. * * * 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.”

It is true that the cancellation in the College Point Boat Co. case was permitted by a special statute then in force which covered the right to modify, suspend, or cancel a contract for the building, production, or purchase of ships or materials. However, in this particular case two provisions in the contract freely signed by both parties gave practically the same rights and are just as binding on the parties as was the statute involved in the College Point Boat Co. case.

In a similar case of Russell Motor Car Company v. United States, 261 U.S. 514 , at page 523, 43 S.Ct. 428 , at page 431, 67 L.Ed. 778 (1923), based on the statute, the Supreme Court stated:

“In cancelling the contract it was not necessary that the statute should be expressly referred to.”

And on page 524 of 261 U.S., on page 431 of 43 S.Ct., 67 L.Ed. 778.

“The contract, we must assume, was entered into with the prospect of its *729 cancellation in view, since the statute was binding and must be read into the contract. The possible loss of profits, therefore, must be regarded as within the contemplation of the parties. The lower court was right in refusing to allow anticipated profits and, there being nothing in the findings to justify the contrary, we must accept the amount fixed on the basis of just compensation as adequate.”

It will be noted that the opinion states in effect that the statute then in effect became a part of the contract the same as if the provision had been written in the contract.

The case of Klein v. United States, 152 Ct.Cl. 8 , 285 F.2d 778 (1961), involved a number of different issues, including the False Claims Act, fraud and other issues, and is clearly distinguishable on the facts from the case at bar.

I agree with the Board that when the contract and the various letters with respect to its operation and suspension are considered together this should be treated as a termination for the convenience of the Government and that settlement should be had on the basis of the termination provisions of the contract.

The two provisions in the contract which give the right to terminate or cancel the contract should not be pitched out of the window merely on a choice of words and a distinction that for all practical purposes does not exist. Both parties knew exactly what was going on, both parties clearly understood the situation, both parties knew the contract was being ended, both parties knew the two provisions for termination, cancellation, or ending of the contract were in the instrument which they had signed and the only ones contained in the contract instrument which gave any authority for cancelling of the contract.

These are important provisions. In a government that is farfiung in its operations, with a vast number of employees, when that government must frequently struggle with the problem of insufficient available funds, where there is always the possibility of a change of policy or a slacking of need for the supplies in question, restrictive provisions are vital.

In a straight breach of contract suit the defendant might be saddled with a large judgment or with none at all, depending on the facts that may develop. The defendant rather than take this chance specially asked that this matter be treated as a termination under the terms of the contract. In all the circumstances and factual developments of this case I do not think the defendant should be denied its contractual right that the damages be thus restricted.

Apparently neither the contracting officer nor anyone representing him has made a determination of the amount, if any, due the plaintiff under the termination clause. So far as the record is concerned, no apparent effort was made by the contracting officer and the contractor to agree on this amount and the contracting officer did not determine the amount which should be paid to the plaintiff under the termination clause.

I would suspend action in this case for 30 days with a proviso that if the plaintiff or defendant desires to have this case referred back to the Board or to the contracting officer for the purpose of having this amount determined, either party may file such a motion during the interim period and it should be granted. If no motion were made during the specified time, I would refer the matter to one of the commissioners of this court for the purpose of hearing and determining the issue.

“2. Carpenter Steel Co. v. Norcross [6 Cir.], 204 Fed. 537, 539-540 ; Farmer v. First Trust Co. [7 Cir.], 246 Fed. 671, 673 [L.R.A.1918C, 1027]; E. H. Taylor, Jr., & Sons v. Julius Levin Co. [8 Cir.], 274 Fed. 275, 282 ; Lubriko Co. v. Wyman [3 Cir.], 290 Fed. 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. 3

. I quote the following from Farmer v. First Trust Co., supra, “Even if the cause assigned for dismissal was not in itself sufficient, if it appears that sufficient cause therefor did in fact exist, the dismissal was justified.”