Wyoming Court Upholds Delay Damage Award To Contractor For Owner’s Breach Of Implied Covenant Of Good Faith And Fair Dealing Even Though The Owner Did Not Breach Contract’s Express Terms

City of Gillette v. Hladky Construction, Inc.
2008 Wyo. LEXIS 139 (November 14, 2008)

The Supreme Court of Wyoming upheld an award to a Contractor of more than one million dollars against an Owner for a breach of an implied covenant of good faith and fair dealing even though the Owner did not breach the contract’s express terms.

The City of Gillette (“City”) hired Hladky Construction, Inc. (“HCI”) for the remodel and expansion of City Hall. The project specifications called for the installation of precast concrete exterior panels that matched those on the existing structure. Further, there was a requirement that the plant at which the precast panels were to be manufactured be certified under the Precast/Prestressed Concrete Institute Plant Certificate Program prior to the start of their production. HCI submitted a bid that unknown to it named an precast manufacturer which had not yet received the required certification. Both the City hired architect and structural engineer were aware prior to bid acceptance that HCI’s precast manufacturer was in the process of obtaining certification, but was not yet certified. Despite knowing that HCI’s manufacturer was not certified and a contract provision requiring the architect to notify bidders of any bid objections, no City representative objected or informed HCI about its uncertified precast manufacturer.

At a meeting shortly after HCI signed its contract, HCI was informed by the architect that prior to ordering the precast panels that HCI needed to produce the certification from its manufacturer. This was beyond the limitation of the project specifications. HCI sought to persuade the City’s representatives to permit it to place the order pending certification. When this request was refused, HCI submitted two change order requests to the City to allow substitution of a certified precast manufacturer. The first was ignored and the second was denied. This resulted in a series of delays and increased costs of approximately $1.3 million dollars.

HCI filed suit alleging that the City breached the implied covenant of good faith and fair dealing both when it refused to allow HCI to order the precast panels from its original manufacturer until it was certified and also when it failed to approve the change order requests. The City argued that it was entitled to judgment as a matter of law because it could not have been in breach since the architect making the statements did not have the authority to bind the City under the Contract. The court denied the motion and the jury found in HCI’s favor.

On appeal, the Wyoming Supreme Court examined the implied covenant of good faith and fair dealing. The implied covenant requires that neither party to a commercial contract act in a manner that would injure the rights of the other to receive the benefit of the agreement. It also requires the parties to act in accordance with their agreed common purpose and each other’s justified expectations. The Court found that the City’s actions, through the architect, interfered with and hindered HCI’s performance of the contract. Further, the City concurred in the architect’s the statements refusal to allow HCI to place the order for the panels prior to certification of the manufacturer. The Court also found that the City’s failure to act on HCI’s change orders was a breach of the covenant of good faith and fair dealing. The court held that a party can be liable for a breach of the implied covenant of good faith and fair dealing for conduct which does not breach an express term of the contract.

The court also rejected arguments raised by the City pertaining to notice, “no damage for delay” and proof of damages.

Click here for full text opinion provided courtesy of LexisNEXIS.

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