New Jersey Construction Law Decision Examines Role of Good Faith in Construction Contracts

An appellate court recently examined the covenant of good faith and fair dealing in New Jersey construction contracts in the case of Konopka vs. Brown’s Heating, Cooling, Plumbing.

Background

Konopka hired Brown’s as a contractor to install a Carrier gas furnace in his home.  Brown was to supply labor and materials in exchange for the homeowner paying $19,800. The contract provided that change orders had to be in writing.  One-third of the contract price was payable on signing, one-third when work started, and one-third upon completion.  The homeowner paid the first installment.  The job started on August 26, 2015.  The homeowner had not yet paid the second installment, but the contractor wanted to work with him.  However, on September 9, 2023, Brown’s sent an email which terminated the contract.  The Court explained that:

In the email, Dietrich [Brown’s supervisor] explained that his employees were ‘refusing to go to [Konopka’s] home’ because [he] had ‘unrealistic expectations,’ was ‘dictating the design of the system with no knowledge of how it will work,’ making requests that would ‘compromise how the system will work,’ ‘insulting the employees daily,’ and had ‘turned a four-day job into what will end up to be twelve to fifteen days.’ Dietrich advised plaintiff to ‘look for a contractor that will finish the work’ and stated that ‘the furnace and coil’ left at plaintiff’s home were valued at approximately $7,000.

More than eight months later, the homeowner wrote a letter demanding that the contractor remove all the equipment it had left and return his check, and accusing Brown’s of damaging his home.  He also accused Brown’s of failing to bring new equipment in unopened boxes, but rather bringing used equipment.

 

The Trial

Brown’s did not respond, and the homeowner sued it in the Superior Court of New Jersey in Monmouth County for breach of contract and negligence.  Konopka claimed $15,000[1] for return of the deposit, and repair of faulty work and damage to his home.  Brown’s filed a counterclaim also seeking $15,000 for permit fees, labor, and lost profits.

A trial was held.  Brown’s personnel testified that they tried to accommodate the changes requested by the homeowner, but that some of the changes would have required cutting beams and impeded airflow throughout the house.  They testified that the materials left were manufactured specific to Konopka’s house.

The judge found that although the homeowner had made the initial payment, both parties mutually cancelled the contract, and the homeowner did not provide any expert testimony that Brown’s had caused damage or performed negligent work.  The judge found that the value of the goods left at the house plus permit fees was $11,095, which when the deposit was subtracted came to $4,100 being owed to Brown’s, and entered judgment in Brown’s favor in that amount.

 

The Homeowner’s Appeal

The homeowner appealed to the Appellate Division of the Superior Court.  The Appellate Division affirmed the trial judge’s decision.

The Appellate Division found that the homeowner failed to meet his burden of proving breach of contract and negligence, and also failed to prove negligent work because he did not provide expert testimony.

However, the analysis did not end there.  The trial court found, and the Appellate Division affirmed, that the homeowner breached the covenant of good faith and fair dealing.  New Jersey courts have consistently held that every contact in New Jersey has an implied covenant of good faith and fair dealing.  That means that both sides need to cooperate.

The covenant of good faith and fair dealing is contained in all contracts and mandates that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract. In a similar vein, every contract contains an implied condition that each party will not unjustifiably hinder the other from performing, and a contract is breached when one party’s performance is hindered or rendered impossible by the other.  Where the cooperation of one party is an essential prerequisite to performance by the other, … there is not only a condition implied in fact qualifying the promise of the latter but also an implied promise by the former to give the necessary cooperation.

The Court held that because the homeowner breached the covenant of good faith and fair dealing, it had breached a material term of the contract, and therefore Brown’s should recover.

 

The Takeaway

It is not enough for contractors and homeowners to perform only the basics of the contract, such as paying the fees and doing the work.  They need to go beyond that and cooperate in good faith to make sure that each side gets what they bargained for.  In short, they need to work together to make sure the job gets done.

Here, the contractor won the case because the homeowner made it unreasonably difficult for the contractor to perform the work.  However, the requirement to act in good faith and deal fairly is a two way street.  Both homeowners and contractors need to work with each other in order to get the job done.

 

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[1] The suit was filed in the Special Civil Division of the Superior Court, which has a jurisdictional limit of $15,000.  Also, trials are decided by a judge without a jury in the Special Civil Division.