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WASHINGTON METRO. AREA TRANSIT AUTH. v. GATOIL

May 8, 1985

WASHINGTON METROPOLITAN AREA TRANSIT AUTHORITY, Plaintiff,
v.
GATOIL (U.S.A.), INC., and W. A. BENSON (d/b/a Benson and Associates), Defendants



The opinion of the court was delivered by: GESELL

 This contract dispute is before the Court on cross-motions for summary judgment. Affidavits and documents establish the following undisputed material facts. *fn1"

 Washington Metropolitan Area Transit Authority (WMATA) and Benson and Associates (B&A) executed a contract in June 1983 under which B&A agreed to supply over three million gallons of diesel fuel at a firm fixed price. This contract was awarded to B&A as low bidder for WMATA's annual diesel fuel requirements for its fleet of buses. It contemplated performance between July 1, 1983, and June 30, 1984.

 The full amount of diesel fuel involved was broken into separate contracts covering each of WMATA's governmental jurisdictions. These were forwarded by WMATA on June 15, 1983 with its signature for signature by B&A, along with a statement that "In the event the performance bond is not received prior to June 30, 1983, this contract is null and void." B&A executed the contract on June 24, 1983. The contract itself stated:

 
Effectivity of this contract is contingent upon the submittal of a performance bond in the amount of 15% of the entire bid as submitted in response to Solicitation No. 11800-RS. This bond must be received prior to June 30, 1983.

 WMATA was assured the performance bond would be forthcoming routinely, and other steps were taken looking toward full implementation of the contract, which was to be WMATA's only source of diesel fuel to replace its prior contract expiring on June 30.

 On June 24, 1983, WMATA stated that "In the interest of satisfactorily proceeding with the contract, the date of the bond submitted is extended to July 15, 1983," and said it would not accept full delivery until it received the bond. But on June 28 by hand-delivered letter, WMATA advised B&A that the June 24 letter was mistaken in deferring delivery until after receipt of the bond. The June 28 letter authorized B&A to begin delivery under the contract on July 1, declaring all other provisions of the contract in effect pending receipt of the bond on July 15, 1983. On July 1, 1983, WMATA revised its request, specifying first delivery on July 11, 1983, but again stating "we expect to receive your bond on or before July 15, 1983 absent advice from you to the contrary."

 On July 5, B&A gave notice to WMATA by Western Union Mailgram that it would not accept what it characterized as WMATA's "unilateral attempt to change the contract."

 That was the apparent extent of the joint venture's written contacts with WMATA concerning the performance bond and the contract. Several other developments bear on this course of dealings.

 By letter dated June 21, 1983, Gatoil (U.S.A.) advised B&A that in view of B&A's failure to confirm by June 15, Gatoil (U.S.A.)'s suppliers could no longer supply B&A with the "product," i.e., diesel fuel. *fn2" On June 29, B&A first advised WMATA that it was having trouble obtaining fuel and would not be able to begin deliveries on July 1. From June 29 to July 6, a WMATA procurement official was in regular contact with B&A and was told by B&A that it had contacted various suppliers but could not obtain a source of fuel for the contract. WMATA then concluded that B&A could not supply. WMATA covered its needs by extending its old contract through July 9, obtaining a second supply for the rest of July after B&A appeared unable to deliver, and then rebidding the contract for the remaining 11 months.

 No performance bond was ever supplied. The parties agree that supplying the bond was a condition precedent to the contract. Defendants argue that the contract thus never came into existence and there was no breach. WMATA contends, and the defendants agree, that because performance of the condition precedent was in the power of the defendants, they had a duty to exercise good faith in trying to obtain the bond. *fn3" The courts generally characterize this duty of good faith as an implied promise of the contract. See R.A. Weaver & Associates, Inc. v. Haas & Haynie Corp., 213 U.S. App. D.C. 404, 663 F.2d 168, 176-77 (D.C. Cir. 1980); Bushmiller v. Schiller, 35 Md. App. 1, 368 A.2d 1044, 1048 (1977).

 The key issue thus becomes whether the defendants' acts constituted good faith. Each side contends it is entitled to summary judgment on the facts before the Court. *fn4"

 The performance bond was never required by WMATA's bid solicitation but was offered by the defendants in lieu of a more cumbersome method of demonstrating their ability to perform. Gatoil (U.S.A.) was the party responsible for obtaining the bond. It told WMATA it would get the bond from Marsh and McLennan, a Houston bonding firm. A WMATA official contacted Marsh and ...


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