Sanders v. FedEx Ground Package System, Inc.

2008 NMSC 040, 188 P.3d 1200, 144 N.M. 449
CourtNew Mexico Supreme Court
DecidedJune 25, 2008
Docket30,278
StatusPublished
Cited by54 cases

This text of 2008 NMSC 040 (Sanders v. FedEx Ground Package System, Inc.) is published on Counsel Stack Legal Research, covering New Mexico Supreme Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Sanders v. FedEx Ground Package System, Inc., 2008 NMSC 040, 188 P.3d 1200, 144 N.M. 449 (N.M. 2008).

Opinion

OPINION

BOSSON, Justice.

{1} The implied covenant of good faith and fair dealing protects the reasonable expectations of the parties to a contract arising from its terms. Here, the jury was allowed to determine those expectations based upon extrinsic evidence that clarified an express term of the contract. The jury then decided whether the parties exercised good faith and fair dealing in addressing those expectations, and from there the jury determined whether one party breached its contractual obligations to the other. Because the evidence supports the instructions given with regard to breach of contract and the implied covenant of good faith and fair dealing, we hold that the trial court committed no reversible error. The Court of Appeals having reached the opposite conclusion, we reverse and affirm the jury verdict.

BACKGROUND

{2} In 1995, FedEx recruited Plaintiff Ken Sanders to be an independent contractor charged with making pick-ups and deliveries along a specified route. Sanders signed an integrated contract drafted by FedEx. Sanders asserts that he was told during initial negotiations that he would have the ability to grow his business by buying routes from other contractors as they became available. Relying on this understanding, Sanders tried unsuccessfully to buy other routes over FedEx’s opposition, which forms the basis for this lawsuit. The contract does not contain any express provision granting a right to buy other routes.

{3} Sanders’ original route was between Carlsbad and Artesia. In 1996, Sanders entered into an agreement with another independent contractor to purchase a route in Roswell. FedEx refused to allow Sanders to purchase the Roswell route even though he was qualified. Rather than allowing Sanders to own both routes, the FedEx terminal manager forced Sanders to give up his original route in exchange for the Roswell route. In 1998, Sanders negotiated with another independent contractor to purchase the HobbsLovington route. Again, the terminal manager refused, opting instead to run the route himself until FedEx offered to sell it to another contractor.

{4} FedEx eventually chose not to renew Sanders’ contract, and he sold his Roswell route. According to Sanders, FedEx made it impossible for the new owner to operate the route successfully. FedEx refused to get insurance coverage for the new owner’s vans, FedEx failed to pay the new owner for more than a month, and FedEx refused to allow the new owner to hire her own drivers. Eventually, the new owner defaulted on her payment obligations to Sanders.

{5} Sanders filed suit against FedEx for breach of contract and tortious interference with contractual relations. Sanders presented five separate claims, including a claim arising from FedEx’s refusal to allow Sanders to purchase the Hobbs-Lovington route. After a six-day trial, the jury returned a general verdict in Sanders’ favor and awarded compensatory damages in the amount of $680,161.00.

{6} FedEx appealed the entire jury verdict to the Court of Appeals, but limited its argument to the claim regarding the HobbsLovington route. Sanders v. FedEx, No. 25,577, slip op. at 2 (N.M.Ct.App. Jan. 19, 2007). FedEx argued that the jury was improperly instructed with respect to that claim, which was submitted to the jury on a theory of breach of contract as well as the implied covenant of good faith and fair dealing. Id. Specifically, FedEx pointed out that its written contract with Sanders made no express representation that Sanders would have a right to buy other routes, and therefore, the contract could not give rise to an implied covenant of good faith and fair dealing with respect to a nonexistent term of the contract. Id. Thus, argued FedEx, the implied covenant claim was not supported by the evidence. Id. The Court of Appeals agreed and remanded for a new trial. Id. at 10.

DISCUSSION

{7} New Mexico courts have held that every contract imposes a duty of good faith and fair dealing on the parties with respect to the performance and enforcement of the terms of the contract. See Cont’l Potash, Inc. v. Freeport-McMoran, Inc., 115 N.M. 690, 706, 858 P.2d 66, 82 (1993) (citing Watson Truck & Supply Co. v. Males, 111 N.M. 57, 60, 801 P.2d 639, 642 (1990)). “The breach of this covenant requires a showing of bad faith or that one party wrongfully and intentionally used the contract to the detriment of the other party.” Id. The implied covenant of good faith and fair dealing “requires that neither party do anything that will injure the rights of the other to receive the benefit of their agreement. Denying a party its rights to those benefits will breach the duty of good faith implicit in the contract.” Bourgeons v. Horizon Healthcare Corp., 117 N.M. 434, 438, 872 P.2d 852, 856 (1994) (citation omitted).

{8} “The implied covenant is aimed at making effective the agreement’s promises. Thus, it is breached only when a party seeks to prevent the contract’s performance or to withhold its benefits from the other party.” Azar v. Prudential Ins. Co. of Am., 2003-NMCA-062, ¶ 51, 133 N.M. 669, 68 P.3d 909. Importantly, the implied covenant of good faith and fair dealing cannot be used to overcome or negate an express term contained within a contract. See, e.g., Cont’l Potash, Inc., 115 N.M. at 707, 858 P.2d at 83 (“[T]he trial court erred as a matter of law in finding and enforcing implied covenants against the defendants that were inconsistent with the provisions of the written agreements.”); Melnick v. State Farm Mut. Auto. Ins. Co., 106 N.M. 726, 731, 749 P.2d 1105, 1110 (1988) (“We align also with those courts that have refused to apply an implied covenant of good faith and fair dealing to override express provisions addressed by the terms of an integrated, written contract.”).

{9} Courts have recognized that “evasion of the spirit of the bargain ... and interference with or failure to cooperate in the other party’s performance” constitute bad faith and may “violate the obligation of good faith in performance.” Restatement (Second) of Contracts § 205 cmt. d (1981). “Good faith performance or enforcement of a contract emphasizes faithfulness to an agreed common purpose and consistency with the justified expectations of the other party____” Id. cmt. a. As one commentator has noted, “[i]t is one function of the good-faith performance doctrine to enforce the spirit of deals, including their unspecified inner logic. Indeed, it has even been said that ‘it is the potential for a lack of clarity and completeness that necessitates the implication of the good faith covenant in every contract.’ ” Symposium: The Restatement (Second) of Contracts, 67 Cornell L.Rev. 810, 827 (1982) (quoting Steven J. Burton, Breach of Contract and the Common Law Duty to Perform in Good Faith, 94 Harv. L.Rev. 369, 380 n. 44 (1980)).

{10} In essence, then, the implied covenant of good faith and fair dealing helps insure that both parties receive the benefit of their respective bargains.

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2008 NMSC 040, 188 P.3d 1200, 144 N.M. 449, Counsel Stack Legal Research, https://law.counselstack.com/opinion/sanders-v-fedex-ground-package-system-inc-nm-2008.