382 P.3d 975
N.M. Ct. App.2016Background
- MB Oil entered a requirements contract (primary supplier) with the City of Albuquerque in 2010; the contract made MB a “preferred customer” supplier with 12‑hour delivery priority and included a City-only termination‑for‑convenience clause (30 days’ notice).
- MB’s winning bid was unusually low; performance began in March 2010. During summer 2010 MB repeatedly failed or was late in delivering certain fuels; backup vendors supplied the City on those occasions.
- The City sent written notices in July and August 2010 citing unmet delivery requirements, then terminated the contract on September 9, 2010 for default and/or convenience, citing failure to deliver within contract time requirements.
- MB sued asserting breach of contract and breach of the covenant of good faith and fair dealing; after a bench trial the district court found the City wrongfully terminated and awarded roughly $3.8 million in anticipated profits plus preparatory damages.
- On appeal the Court of Appeals reviewed the contract language and trial findings and reversed, holding as a matter of law the City validly invoked the termination‑for‑convenience clause and did not breach.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Was termination for convenience wrongful where the City cited delivery problems but did not state a separate "convenience" reason? | MB: City lacked valid grounds and the termination was a pretext; absence of stated convenience justifies finding wrongful termination. | City: Section 27 permits unilateral termination for convenience with 30 days’ notice; no cause or justification is required. | Held: The City lawfully invoked the clause; plain contract language permits termination without cause. |
| Was termination for default/breach wrongful given MB’s delivery failures? | MB: Failures did not substantially impair City’s contract benefits; termination for default was improper. | City: MB’s repeated inability to meet increasing unleaded demands and frequent late/unavailable deliveries justified termination. | Held: Termination was permissible—MB’s inability to meet requirements supported termination (and, in any event, Section 27 controlled); no breach of good faith. |
Key Cases Cited
- Mark Dunning Indus. v. Cheney, 934 F.2d 266 (11th Cir. 1991) (termination‑for‑convenience permits government to end contract absent breach)
- Krygoski Constr. Co. v. United States, 94 F.3d 1537 (Fed. Cir. 1996) (limits on government termination: bad faith/abuse of discretion standard discussed)
- Smith v. Price's Creameries, 98 N.M. 541, 650 P.2d 825 (N.M. 1982) (enforces express "terminate for any reason" distributorship clause; courts will not read in good‑cause restriction)
- Melnick v. State Farm Mut. Auto. Ins. Co., 106 N.M. 726, 749 P.2d 1105 (N.M. 1988) (courts must enforce bargained‑for contractual terms; implied covenant cannot override express provisions)
- Torncello v. United States, 681 F.2d 756 (Ct. Cl. 1982) (discusses "changed circumstances" limiting termination‑for‑convenience; plurality opinion influential though not universally adopted)
- Nesbitt v. United States, 345 F.2d 583 (Ct. Cl. 1965) (supplier inability to meet increasing government requirements can justify termination under a convenience clause)