ROCKINGHAM COUNTY v. LUTEN BRIDGE CO. United States Court of Appeals 35 F.2d 301 (4th Cir. 1929)
Facts: The Luten Bridge Company entered into a contract with Rockingham County to build a bridge. Although the county initially agreed to the contract, it later attempted to cancel it before the bridge's construction began. The county notified the bridge company of the cancellation, but the company continued with the construction and later sought the full contract price. The county argued it was only liable for damages incurred before the cancellation notice, while the bridge company claimed the full contract amount.
Issue: Is the non-breaching party entitled to continue performance and recover the full contract price after receiving notice of cancellation from the breaching party, or is the recovery limited to damages incurred up to the point of cancellation?
Rule: When one party to a contract breaches by repudiating it, the non-breaching party must mitigate damages by ceasing performance and cannot continue performance and claim full contract damages. The damages recoverable are those incurred up to the point of repudiation, plus any lost profits.
Application:
In this case, the county notified the Luten Bridge Company to stop the construction of the bridge due to the cancellation of the contract. Despite this notification, the bridge company continued building the bridge and later sought the full contract price as damages.
The general rule is that upon receiving notice of repudiation, the non-breaching party (Luten Bridge Company) has a duty to mitigate damages. They should cease performance to avoid unnecessary expenses and increased damages. The court emphasized that continuing to build the bridge after receiving the cancellation notice was unreasonable and led to unnecessary additional costs. The bridge company was entitled to recover costs incurred up to the point of receiving the cancellation notice, including labor, materials, and other expenses, plus any lost profits they would have realized from the contract. The decision to continue building despite the notice meant the bridge company could not claim the full contract price.
The court noted that special damages, such as those arising naturally from the breach or within the reasonable contemplation of the parties at the time of contracting, were not adequately communicated by the bridge company. Although the bridge company was aware of the specific project scope, the county was not explicitly informed that their breach would lead to a prolonged shutdown and additional losses.
Conclusion: The court concluded that the Luten Bridge Company could not recover the full contract price after the county's cancellation notice. They were entitled to damages incurred up to the point of cancellation, including labor, materials, and reasonable profits. The case was reversed and remanded for a new trial to reassess the damages in line with this ruling.
Major breach or minor breach?