Breach of the Duty of Implied Good Faith in Michigan Construction Contracts

1003 words | 4 page(s)

A Model of Avoiding the Courts and Supporting Dispute Resolution to prove Good Faith and Fair Dealing

One could infer a similar argument in a construction contract, because if it is not “fit for purpose” of meets the deadline the final impact is the end-user (who may have no input at all in the construction contracting). This argument is supported by the good faith principles that the courts have implied in the state of Michigan’s construction contracts. As Frey (2007) identifies:

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“In Michigan, all contracts… have been construed to include an implied duty of good faith and fair dealing. Courts interpret this covenant to mean that neither party will commit any act that will have the effect of destroying or injuring the right of the other party to “receive the fruits of the contract”. Michigan courts, however, have refused to allow an independent cause of action for a breach of the covenant of good faith and fair dealing apart from a claim for a breach of the express contract” (p. 36).

Good faith becomes a cause of action when there is a breach of contractual obligation (i.e. it is not a standalone cause of action). However, a breach of good faith will occur when there is a breach of implied duties within the construction field (Frey, 2007). The “good faith” principle will link to the following implied obligations within Michigan construction contract. These implied duties are:

1) There is an implied warranty that the plans and specification are of reasonable standard and meets the client’s expectation (Walter Toebe & Co v Department of State Highway 144 Mich App 21 (1985));
2) There is an implied duty to share information with all of the parties included in the project, including interested their parties (Valentini v City of Adrian 347 Mich 530 (1956));
3) There is a duty on the parties to co-ordinate and not to cause unnecessary and/or unreasonable delay (Phoenix Contractors, Inc v General Motors Corp 135 Mich App 787 (1984));
4) The general warranty of “fitness” of the works for the end-purpose expected by the client (Weeks v Slavik Builders, Inc 21 Mich App 621 1970));
5) The general warranty of good workmanship to meet industry standards and the client’s expectations (Hammond v United of Oakland, Inc, 193 Mich App 146 (1992)).

The implied warranties are linked to express warranties that will be identified in the contract between the contractor and client (e.g. payment requirements, deadlines to meet and specifications for materials). Additionally, the Michigan model allows intended third parties who have conferred a benefit from the primary contract to sue if there is a breach of good faith (Thornberry V. Grand Trunk Western R.R. Inc. 776 F. Supp. 2d 453 (E.D. Mich. 2011)). Hence, a high and substantive level of co-operation between all of the parties on the construction site that are focused on the requirements and expectations of end-user (which could be an intended third party or owner of the property).

In the Michigan Model there is an implied duty of good faith, which requires fair dealing and co-operation. This duty originates from the case of Hammond v United of Oakland, Inc, which held that all the intended parties will receive the benefits and obligations of the contract (Frey, 2007). This requires that all promises associated with the contract construction and intention of the parties are met. Breach cannot occur when there is “honest belief” because there is an earnest aim by the contractor to work in good faith with the employer (and vice versa) (Belle Isle Grill Group v City of Detroit, 256 Mich App 463 (2003)). It is suggested entering the toxic and combative legal system initially will undermine the purpose of good faith (i.e. co-operation and fair dealing). Thus, when the relationship has not broken down, if there is truly good faith present then the parties should engage in an expedited dispute resolution process.

The best framework for dispute resolution is mediation and/or expert determination. In the event of a non-technical dispute the parties should mediate their differences, in order to preserve their relationship (Hyland, 1994). There are instances where the technical issue will have different expert views, which indicates an appointed expert determination professional is appointed who makes the decision on the dispute where the parties follow the findings (Kendall, 2001).

In the event a dispute remains and the parties want to continue the relationship then arbitration can be accessed, in order to settle the dispute. Under the Michigan model the rights of the intended third party who raises a dispute will be best dealt with in mediation with the parties because it ensures that the main parties confer the appropriate benefit and meet the third party expectation (Thornberry V. Grand Trunk Western R.R. Inc.). This can be achieved through a multi-tier dispute resolution process (Jones, 2009). Nonetheless, arbitration can take an overly-long process, which can be as acrimonious as the court process. The primary difference is that the contract governs the arbitral process, which can be important in an international construction contract (Connerty, 1996), however, the benefit of the Michigan Principles may be lost (unless expressly included into the contract). Therefore, the indication is that engaging the expedited dispute resolution processes of expert determination and/or mediation (dependent on the type of dispute) is the most appropriate approach. The rationale of supporting expedited dispute resolution processes is because they bolster the principles of mutual co-operation and equality, which form the basis of the Michigan Good Faith and Fair Dealing Construction Contract Framework.

  • Connerty, A “The Role of ADR in the Resolution of International Disputes” (1996) 12 Arbitration International Vol 12, pp. 47
  • Frey, W (2007) “Obligations Implied in Michigan Construction Contracts” Michigan Building Journal Vol. 86, pp. 36
  • Hyland, R (1994) “Pacta sunt servanda: a meditation” Virginia Journal of International Law Vol 34, pp. 405
  • Jones, D (2009) “Dealing with Multi-Tiered Dispute Resolution Process” Arbitration Vol 75, pp. 188
  • Kendall, J (2001) Expert Determination 3rd Edition Sweet & Maxell
  • Belle Isle Grill Group v City of Detroit, 256 Mich App 463 (2003)
  • Kisiel v Holz, 272 Mich App 168 (2006)
  • Phoenix Contractors, Inc v General Motors Corp 135 Mich App 787 (1984)
  • Thornberry V. Grand Trunk Western R.R. Inc. 776 F. Supp. 2d 453 (E.D. Mich. 2011)
  • Valentini v City of Adrian 347 Mich 530 (1956)

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