Seaward Construction Co. v. City of Rochester
118 N.H. 128, 1978 N.H. LEXIS 357, 383 A.2d 707 (1978)
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Rule of Law:
When a contract makes a party's payment obligation contingent upon receiving funds from a third party, that party has an implied duty of good faith and fair dealing to make a reasonable effort to secure those funds.
Facts:
- Seaward Construction Company, Inc. (Seaward) contracted with the City of Rochester (City) to install sewer pipe.
- The contract set two payment rates: $19 per foot for pipe laid at a depth of zero to ten feet, and $60 per foot for pipe laid at ten to eighteen feet.
- The agreement stipulated that the City's obligation to pay Seaward was contingent upon the City receiving funds from the Federal Housing and Urban Development Agency (HUD).
- The contract also expressly stated that the City was under no obligation to use its own funds for the project.
- During the project, Seaward submitted claims for over 1,000 feet of pipe at the higher $60 rate for deeper installation.
- The City disputed the depth of 920 feet of this pipe, claiming it was laid at the shallower depth qualifying for the lower $19 rate.
- Seaward made a formal claim for the disputed amount, totaling $37,638.
- The City refused to pay the disputed amount and did not seek additional funds from HUD to cover Seaward's claim, citing the ongoing dispute over the pipe's depth.
Procedural Posture:
- Seaward Construction Company, Inc. filed a suit in assumpsit against the City of Rochester in the New Hampshire trial court.
- The City of Rochester filed a motion to dismiss the lawsuit.
- The trial court granted the City's motion to dismiss.
- Seaward, as the plaintiff, filed an exception to the trial court's ruling.
- The case was transferred to the New Hampshire Supreme Court for a ruling on the plaintiff's exception.
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Issue:
Does a contract provision making payment contingent upon receiving funds from a third party excuse a party from its implied duty of good faith to seek those funds, particularly when it disputes the underlying performance claim?
Opinions:
Majority - Per curiam
No. A contract provision making payment contingent on third-party funding does not excuse a party from its implied duty of good faith to seek those funds. Every agreement contains an implied covenant that parties will act in good faith and deal fairly, an obligation from which a city is not exempt. While the contract's express terms shield the City from using its own funds, an implied obligation exists for the City to make a good-faith effort to obtain the necessary funds from HUD. The City cannot use the underlying factual dispute about the pipe's depth as a reason to shirk this duty, as doing so places the plaintiff in an 'impossible position' where it can never prove its claim to trigger the City's obligation. Therefore, the plaintiff must be given an opportunity to prove its case, which would then require the City to demonstrate it made a good-faith effort to secure the funds.
Analysis:
This case reinforces the principle that the implied covenant of good faith and fair dealing is a powerful tool that can impose affirmative duties on contracting parties. It establishes that a condition precedent to payment (receiving third-party funds) does not give the obligor a license to actively or passively prevent that condition from occurring. The decision protects parties in a weaker bargaining position whose payment depends on the actions of the other party. It sets a precedent that a party cannot use a dispute over performance as a shield to avoid fulfilling its own good-faith obligations related to enabling payment.
