Agrecycle, Inc. v. City of Pittsburgh

• Citation: 783 A.2d 863
• Parties: AGRECYCLE, INC., Appellant, v. CITY OF PITTSBURGH.
• Decision Date: 06 September 2001
• Court: Pennsylvania Commonwealth Court

783 A.2d 863

AGRECYCLE, INC., Appellant, v. CITY OF PITTSBURGH.

Commonwealth Court of Pennsylvania.

Argued May 8, 2001.

Decided September 6, 2001.

Thomas T. Frampton, Pittsburgh, for appellant.

Susan E. Malie, Pittsburgh, for appellee.

Before SMITH, J., LEADBETTER, J., and MIRARCHI, Jr., Senior Judge. MIRARCHI, Jr., Senior Judge.

Agrecycle, Inc. (Agrecycle) appeals from the judgment on the jury verdict entered in the Court of Common Pleas of Allegheny County in favor of the City of Pittsburgh (City) and against Agrecycle pursuant to Rule 227.4(1)(b) of the Pennsylvania Rules of Civil Procedure, Pa. R.C.P. No. 227.4(1)(b),¹ in its action against the City for a breach of contract and a breach of implied covenant of good faith and fair dealing. The ultimate issue is whether Agrecycle is entitled to a new trial. We affirm.

The facts relevant to the resolution of the issue are as follows. In October 1992, the City invited bids from private contractors for composting services consisting of retrieving compostable materials, such as leaves, plant materials, garden residue, herbivore manure, grass clippings and tree limbs, at the drop-off facilities operated by the City, and composting those materials, and selling them to third parties. In the Bid Specifications, the City stated that based on its activities in 1988 and 1989, it expected to deliver approximately 20,000 to 30,000 tons of compostable materials annually to a successful bidder. The City further stated, however, that "the exact quantity or quality of the compostable materials for this contract can not be guaranteed" and that "[u]nder no circumstances are these numbers warranted or guaranteed by the City." Paragraph 2.E of the Bid Specifications. The City also stated:

All processing and/or other operational costs incurred upon or after delivery or pick up of compostables shall be the obligation of the Contractor. The Contractor may reject specific items that are not compostable and remove them from the compostables prior to loading onto the Contractor's trucks at the City's division sites. Otherwise, the compostables shall be accepted by the Contractor `as is' without warranty (express or implied) of any kind, and Contractor shall handle the same at its own risk and shall be responsible for the proper disposal of any and all contaminants or residuals[.].... When bidding on this contract, the bidder is encouraged to consider the possible cost of contaminant and residuals disposal and to adjust for this contingency in the bid.

Paragraph 6.D of the Bid Specifications.

After its successful bid, Agrecycle entered into an Agreement (Agreement) with the City on December 7, 1992, agreeing to provide the composting services to the City for the remainder of 1992 through December 31, 1995. In the Agreement, which incorporated the terms of the Bid Specifications, the City agreed to pay certain fees for Agrecycle's services based on the amount of the compostable materials delivered to Agrecycle. Agrecycle in turn agreed to pay the City a certain percentage of profits earned from selling the processed materials. The Articles of Agreement further provided:

The City of Pittsburgh reserves the right, during the period while this contract is in force, to take bids and award separate contracts for individual jobs where they estimate the cost of any job to exceed FIVE THOUSAND DOLLARS.

....

6. B. QUANTITY OF WORK CONTINGENT UPON NEEDS—It is hereby agreed that the City of Pittsburgh does not in any way guarantee or imply the amount of work or service which may required to be performed under this agreement, it being understood that needs cannot be forecast. The intent of the proposal, and the subsequent award and contract if any be entered into, is to determine the lowest responsible bidder who shall be able, willing and ready to furnish .... materials, qualified men, and/or efficient service as required for special or emergency condition. (Emphasis added.)

During the term of the Agreement, the City delivered to Agrecycle 2512.08 tons of compostable materials in 1993; 1792.73 tons in 1994; and 2575.34 tons in 1995. Upon Agrecycle's request, the City permitted Agrecycle to substantially reduce the amount of the performance bond it was required to procure based on the amount of the compostable materials actually delivered.

In January 1997, Agrecycle commenced an action against the City claiming a breach of contract (Count I) and a breach of implied covenant of good faith and fair dealing (Count II). Agrecycle alleged that the City failed to deliver the volumes of the compostable materials as represented in the Bid Specifications; sent some compostable materials to landfills, instead of delivering them to Agrecycle; delivered contaminated compostable materials causing damages to its equipment; and failed to provide certain equipment as promised. After a trial, the jury returned a verdict on November 18, 1999 in favor of the City and against Agrecycle. Agrecycle filed a timely motion for post-trial relief. Subsequently on August 3, 2000, eight months after Agrecycle filed the motion for post-trial relief and before the trial court ruled on the motion, the City filed a praecipe for judgment. The prothonotary then entered the judgment on the jury verdict in favor of the City and against Agrecycle pursuant to Pa. R.C.P. No. 227.4(1)(b). Agrecycle's appeal to this Court followed.

Agrecycle contends that it is entitled to a new trial because the trial court erred in charging the jury on the contract principles and responding to the question submitted by the jury during its deliberations.

In examining the jury charge, this Court's scope of review is limited to determine whether the trial court abused its discretion or committed an error of law controlling the outcome of the case. Von der Heide v. Department of Transportation, 553 Pa. 120, 718 A.2d 286 (1998).

Agrecycle first challenges the trial court's refusal to charge the jury on the implied covenant of good faith and fair dealing and the doctrine of necessary implication using the exact language contained in its Suggested Points for Charge (Suggested Charge) Nos. 16 and 17. The City contends, on the other hand, that those contract principles are inapplicable to this matter because the rights and obligations of the parties can be determined by the unambiguous language of the Agreement itself, and that the trial court, therefore, should not have charged the jury on those principles. The City further contends that the trial court adequately charged the jury on those principles, even if they are applicable to this matter.

The Restatement (Second) of Contracts § 205 (1981) provides that "[e]very contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement." The courts have defined the duty of "good faith" as "[h]onesty in fact in the conduct or transaction concerned," adopting the definition set forth in Section 1201 of the Uniform Commercial Code, as amended, 13 Pa.C.S. § 1201. Creeger Brick & Building Supply Inc. v. Mid-State Bank & Trust Co., 385 Pa.Super. 30, 560 A.2d 151, 153 (1989). The good faith obligation may be implied to allow enforcement of the contract terms in a manner that is consistent with the parties' reasonable expectations. Killian v. McCulloch, 850 F.Supp. 1239 (E.D.Pa. 1994).

In Pennsylvania, the courts have recognized the duty of good faith only in limited situations. Creeger; Parkway Garage, Inc. v. City of Philadelphia, 5 F.3d 685 (3rd Cir.1993). More specifically, the duty of good faith may not be implied where (1) a plaintiff has an independent cause of action to vindicate the same rights with respect to which the plaintiff invokes the duty of good faith; (2) such implied duty would result in defeating a party's express contractual rights specifically covered in the written contract by imposing obligations that the party contracted to avoid; or (3) there is no confidential or fiduciary relationship between the parties. Department of Transportation v. E-Z Parks, Inc., 153 Pa.Cmwlth. 258, 620 A.2d 712 (1993), appeal denied, 534 Pa. 651, 627 A.2d 181 (1993); USX Corp. v. Prime Leasing, Inc., 988 F.2d 433 (3rd Cir.1993); Allstate Transportation Co. v. Southeastern Pennsylvania Transportation Authority, 2000 WL 329015 (E.D.Pa., No. Civ.A. 97-1482, filed March 27, 2000).

In asserting that the City's duty of good faith should be implied in this matter, Agrecycle does not dispute that there was no overmastering dominance on one side in negotiating and bargaining for the terms and conditions of the Agreement. Nor does it assert that there was a confidential or fiduciary relationship between the parties.

Moreover, the Agreement expressly and unambiguously provided that the City did not warrant or guarantee the quantity or quality of the compostable materials to be delivered to Agrecycle. The Bid Specifications stated that while the estimated amount of the compostable materials to be delivered by the City would be 20,000 to 30,000 tons a year, the City would not guarantee or warrant the actual quantity and quality of those materials under any circumstances. In the subsequently executed Articles of Agreement, the parties agreed that "the City .... does not in any way guarantee or imply the amount of work or service to be performed under this agreement." Paragraph 6.B of the Articles of Agreement. Agrecycle agreed to accept the materials delivered by the City, "as is," without any warranty as to their quality. The Agreement further provided: "The contract sets forth all the premises, agreements, conditions and understandings between City and Contractor, and there shall be no promises, agreements, conditions, or understandings, either oral or written between them other than those that are set forth in the contract." Paragraph 2.F and 6.D of the Bid Specifications. Finally, the City reserved its right to bid from other contractors for the same services,...