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Goodman v. Physical Resource Engineering, Inc. - 12/28/2011

Arizona Court of Appeals Division Two Holds, inter alia, That (1) a Parties’ Prior Course of Dealing Alone Does Not Create an Implied Contract; and (2) an Agency Relationship Between a Developer and General Contractor Is Not Implied and Must Be Supported by Evidence Establishing Such a Fiduciary Relationship Between Parties.


Defendant, a civil engineering firm, appealed from a judgment entered in favor of Plaintiff for breach of contract.  Plaintiff is a Tucson real estate developer who hired a general contractor to construct luxury duplex buildings.  The general contractor hired the civil engineering firm to stake the property.  As staked and built, the duplex building did not conform to the site plan.  The Developer sued the civil engineering firm for breach of contract.

The engineering firm had argued to the trial court that there was no contract between the parties.  The trial court, however, denied its motions and, after a jury trial, entered judgment in favor of the Developer on his breach of contract claim. 

The Court of Appeals reversed and remanded. 

The Court of Appeals rejected the argument that an implied contract existed between the Developer and the engineering firm.  In order to prevail on a breach of contract claim, the Developer had to prove a contract existed, the engineering firm breached the contract, and that he suffered damages as a result.  Although there was no written or express contract, Plaintiff argued that a contract could be inferred based on evidence of the parties “prior course of dealing.”   Plaintiff presented evidence that the engineering firm was aware that he owned the property and that the firm had worked on other projects of his.  The Court held that the evidence did not establish that either party “intended to enter into a contract with one another on this particular project.”    The Court also rejected the argument that conduct after the fact could serve as a “basis for finding an implied contract existed given that there was an express contract between” the contractor and the engineering firm. 

The Court similarly rejected the argument that there was an agency relationship resulting in a binding contract between the Plaintiff Developer and the engineering firm.  Citing the Restatement (Third) of Agency, the Court noted that “[a]gency is the fiduciary relationship that arises when one person (a ‘principal’) manifests assent to another person (an ‘agent’) that the agent shall act on the principal’s behalf and subject to the principal’s control, and the agent manifests assent or otherwise consents to act.”  Finding no evidence in the record that (1) the general contractor had acted as an “agent” for the Plaintiff Developer or (2) that the engineering firm had notice that the Plaintiff Developer was a party to its contract with the general contractor, the Court held that there was insufficient evidence for the jury to have found a contract based on an agency theory. 

Judge Espinosa authored the opinion; Judges Vásquez and Kelly concurred.

Posted by: Grace Campbell

Posted On: 1/17/2012