Question:
I know there is a term for when a contractor enters into a contract on a project knowing that the bargain isn’t right, but I can’t recall what it is. I’m specifically talking about a contractor who signed a contract to build a house for $800,000 knowing that the house would cost well over 1.5 million to complete, but entered into the contract anyway feeling that the owners would pay any amount in order to keep the home. Now he’s in the middle of a lawsuit.

Answer:
This is a very good question because it is not frequently asked, but should be on every contractor’s mind.The term you’re looking for is the covenant of good faith and fair dealing. All contracts contain an implicit covenant of good faith and fair dealing.A covenant is a promise. The promise of good faith and fair dealing in contracts is implied because language is not actually or literally written into the contract. Acting in good faith is the corner stone of contracts and is so integral to the deal that proof to the contrary may void a contract or allow it to be avoidable. Fair dealing means that the parties are not with motive to deceive the other party. If a contractor entered into a contract to build a residence for $800,000, but actually knew that the project was under bid is acting in bad faith. Having a “feeling” that in the end the owner would pay any amount is not acting in good faith and fair dealing. Not disclosing the variance in cost is acting in bad faith.

Thanks for asking,
Fred Gray