City of San Antonio v. Forgy

• Decision Date: 22 March 1989
• Docket Number: No. 04-88-00092-CV,04-88-00092-CV
• Citation: 769 S.W.2d 293
• Parties: CITY OF SAN ANTONIO and City Water Board, Appellants, v. Dee FORGY d/b/a Forgy Construction Company, Appellee.
• Court: Texas Court of Appeals

Page 293

769 S.W.2d 293

CITY OF SAN ANTONIO and City Water Board, Appellants, v. Dee FORGY d/b/a Forgy Construction Company, Appellee.

No. 04-88-00092-CV.

Court of Appeals of Texas,

San Antonio.

March 22, 1989.

Rehearing Denied April 26, 1989.

R. Gaines Griffin, Elizabeth Lindell, Sawtelle, Goode, Davidson & Troilo, San Antonio, for appellants.

Albert M. McNeel, John K. Boyce, III, McCamish, Martin, Brown & Loefler, San Antonio, for appellee.

Before BUTTS and CARR, JJ., and CHADICK, Assigned Justice. ^*

ON APPELLEE'S MOTION FOR REHEARING

T.C. CHADICK, Assigned Justice.

Reconsideration of the basis of the original opinion delivered February 15, 1989, has been given careful consideration. As is often true, the basis of the decision is not entirely free of doubt. The conclusions stated are thought to be in harmony with established precedent and control disposition of the case.

Advantage is taken of the motion for rehearing to restate with greater accuracy the factual record and the original opinion is amended to that end. The amended opinion is ordered substituted for the original and the motion for rehearing is overruled.

Appellee and plaintiff in the trial court, Mr. Dee Forgy, a contractor, sued the appellant and defendant, City of San Antonio, Texas. Plaintiff's trial pleading alleged negligence, gross negligence, misrepresentation, breach of a duty of good faith and fair dealing, and breach of contract as grounds of recovery. Defendant answered by general and specific denials, and affirmatively pled negligence and contributory negligence on the part of plaintiff, as well as governmental immunity.

Thirteen special issues were submitted for jury determination. Both parties moved the court to disregard specific but different jury findings and for judgment on the jury's response to issues each left unchallenged and the City moved alternatively for judgment non obstante veredicto. All such motions were overruled by the trial judge. But the judgment entered recited that judgment was rendered on the jury verdict and awarded Mr. Forgy a recovery of $341,744.64 with both pre- and Mr. Forgy, as prime contractor, entered into an agreement with the City, acting by and through its Water Board, to drill and complete a water well, known in the record as Lackland 6A. Besides the provisions of the written instrument signed by the parties, terms of the contract are found in numerous documents referred to therein and plans and specifications attached. The documents referenced included the Invitation and Instruction to Bidders, the Proposal, the Performance and Payment Bonds, the General Conditions of the Contract, the Special Conditions of the Contract, the Construction Specifications, the Standard Drawings, Addenda, and Change Orders.

post-judgment interest, costs, etc. The facts, pleading and trial procedures will be recited in necessary detail as discussion proceeds.

In addition to advertising for bids, the City especially invited some half-dozen contractors to bid, including Mr. Forgy and Mr. Thomas Johnson. Mr. Forgy's bid was accepted by the City, and he subcontracted the actual work to Johnson Wells Service, Inc., hereafter referred to as Johnson, which was operated by the mentioned Mr. Thomas Johnson. Mr. Forgy and Mr. Johnson had extensive experience in drilling water wells for the City and there was a long acquaintanceship, previous business dealing, and respect between them and the City's representative handling the well project.

Mr. Forgy's performance under the well contract was without question or incident until it was nearing contractual completion when metal casing was being set and the casing ruptured in the process. Immediate effort by Johnson to save the well or salvage the casing proved futile and it was abandoned and another well drilled and completed some fifteen feet distant from the original. Mr. Forgy claimed $406,876.00 additional expense attributable to the contract. He requested the City to issue a change order for that sum as extra work expense under the provisions of the contract and thereby authorize the additional expense and its payment. The City denied Mr. Forgy's request.

The points of error, counter-points and cross-points of the parties will be discussed out of regular order. The City's second point of error questions the application of good faith and fair dealing as a theory of tort action in this case. This contention will be examined from the standpoint of Mr. Forgy's second counter-point which states affirmatively that the trial court properly entered judgment for him for breach of this duty by the City under an implied covenant in this respect.

In a pre-bid conference attended by Mr. Thomas Johnson and Mr. Forgy's son, as his father's representative, and other prospective bidders, one such bidder called attention to the probability that the wall of the specified casing was "too thin." This prospective bidder testified that a few days afterwards, in a telephone conference, one of the City's representatives stated a contractor could install the size he found necessary.

Following the conference, the City's engineers made additional calculations that revealed vulnerability to casing collapse in the cementing phase. The City's project director decided to proceed with the bidding on the basis of the plans and specifications furnished to the bidders and to make any necessary allowance for heavier casing by a change order under the provisions of the contract if the successful bidder used casing heavier than specified.

The jury, in response to two issues, found the City breached a duty of good faith and fair dealing by not telling Mr. Forgy of the result of the after-conference recalculation and that the breach of that duty caused Mr. Forgy to do extra work for which he should be compensated under the contract.

RESTATEMENT (SECOND) OF THE LAW OF CONTRACTS § 205 (1981) lays down the broad rule that: "Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement." The language of the Restatement rule is limited by comment and illustration that accompany and interpret it. These limitations are essentially a summarization of case law from various The majority opinion in English v. Fischer, 660 S.W.2d 521 (Tex.1983), rejected an implied covenant of good faith and fair dealing as an obligation in all contracts as a novel theory of law originating in California courts. The conclusion is expressed that adoption of the theory would abolish the Texas system of government according to settled rules of law and let each case be decided upon which might seem fair and in good faith by each factfinder. Justice Spears' concurring opinion calls attention to the many Texas cases where Texas courts have read good faith and fair dealing into contractually based transactions. The authorities cited in the Spears concurring opinion are too well established to be ignored. A rule that will accommodate these authorities as well as the majority's pronouncement must be formulated.

jurisdictions channeling the operation and purpose of the good faith and fair dealing cause of action.

Justice Spears' citations foreshadow an emerging Texas rule that when a duty of good faith and fair dealing is not imposed upon the parties to a contract by its terms or by statute, a covenant to that end may be implied when certain special relationships exist. The special relationships prerequisite to the implied covenant of duty arises, in the words of the concurring opinion, either "from the element of trust necessary to accomplish the goals of the undertaking, or ... because of an imbalance of bargaining power." Id., at 524 (Spears, J., concurring). The vigor and sweep of the majority opinion at least precludes an expansion or extension of the doctrine beyond its present scope and reach as the Spears' citations detail it.

Mr. Forgy has narrowed the issues to the special relationship recognized by the Spears concurring opinion. The facts and circumstances will be examined to determine if the element of trust or imbalance in bargaining power that underlies the rule was raised in the record.

TRUST ELEMENT

The plans prepared by the City were approved by a registered engineer, as required by TEX.REV.CIV.STAT.ANN. art. 3271a, § 19 (Vernon 1968), and furnished to Mr. Forgy. The plans specified that the metal casing for the well was to have a wall thickness of one-half inch. Within a few days after the pre-bid conference, the City's engineers recalculated the specified casing's ability to withstand anticipated pressures in the performance of the work and determined wall thicknesses might not be sufficient under anticipated methods of cementing the casing in place. The City did not inform Mr. Forgy, prior to or after his bid was accepted, of the recalculation or warn him the wall thickness specified was vulnerable to collapse by use of a standard method of completion the City's agents knew the subcontractors proposed to use and did use in performance of the contract.

It will be assumed that Mr. Forgy had a right to rely upon the sufficiency of the plans the City prepared. ¹ However, his Mr. Forgy had been a licensed professional engineer for fifty years and was engaged in the construction business for forty-two. He had completed seven prior water well projects for the City dating from 1979. The contract delineated the rights and the role of each party. It fixed the relationship as that of an owner and an independent contractor. Mr. Forgy was obligated by it to examine the drawings,...