By: Alexander A. Miuccio Published: August 2014

Supplier Liable to Subcontract for Breach of Promise of Good Faith and Fair Dealing

Courts have traditionally recognized that in every contract an implied duty of good faith and fair dealing exists between the parties that govern their respective contract performance and enforcement.

Despite the efforts of the courts in determining when and how the covenant of good faith and fair dealing is violated, the definitions of “good faith” and “fair dealing” remain obscure. In the recent case of Helmar Construction v 1198934 Ontario, Inc., however, the court found that a supplier’s conduct in dealing with a subcontractor constituted a breach of the covenant of good faith and fair dealing.

Background

Prior to 2004, Helmar undertook to perform certain curtain wall installation at the construction of the Queens Ambulatory Pavilion at Queens Hospital Center. In 2004, Helmar contracted with Ontario for it to supply materials required for Helmar to perform its own subcontract which included, among other items, certain items of aluminum curtain wall, storefronts, glazing, windows and other hardware. Ontario was also required to supply shop drawings and complete field measurements.

From the beginning of the project there were issues with Ontario’s performance, including its delays in delivering its materials and its delivery of defective, damaged and otherwise nonconforming materials. Helmar had repeatedly attempted to discuss these issues with Ontario by making numerous telephone calls and sending repeated letters and faxes. Helmar’s repeated attempts to resolve these issues often went ignored and unanswered. As a result, Helmar sustained backcharges from the general contractor. Helmar sued Ontario for breaching the contract, and Ontario claimed that its slow delivery and lack of responsiveness was justified by Helmar’s withholding of a disputed 10% retainage.

Decision

After a trial, the court held that under the circumstances of Ontario’s failing to respond to Helmar’s concerns about problems with Ontario’s materials, Ontario had breached the contract by breaching the covenant of good faith and fair dealing. The court held that even assuming that Helmar was not justified in withholding 10% retainage, Ontario’s failure to respond to Helmar’s calls and correspondence went well beyond any resulting cash flow problem and was well outside of what could be considered good faith or fair dealing.

Comment

Although the duty of good faith and fair dealing between the parties is implied in every contract, it is rarely used by the courts in contract litigation. In this case, however, the Court made it clear that parties to construction contracts have not only the obligation to live up to the obligations under that contract, but to attempt to resolve problems that arise in a timely fashion, and in good faith. Parties to such contracts would accordingly be well advised that when a problem arises they should not ignore repeated written requests from the other party and should respond to the other party’s requests within a reasonable time otherwise they face the possibility of liability for breaching the covenant of good faith and fair dealing.

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