Sanders v. FedEx Ground Package System

Brief Fact Summary.

Plaintiff sued for breach of contract and the implied covenant of good faith and fair dealing when Defendant did not permit Plaintiff to purchase additional routes from other independent contractors. The jury ruled in Plaintiff’s favor. The court of appeals reversed.

Synopsis of Rule of Law.

The implied covenant of good faith and fair dealing protects benefits that are inferred from the express terms of a contract.

Facts.

In 1995, Ken Sanders (Plaintiff) was hired as an independent contractor for FedEx Ground Package System (Defendant) to make pick-ups and deliveries. According to Plaintiff, Defendant determined Plaintiff’s route, but Defendant indicated during initial negotiations that Plaintiff would be permitted to purchase additional routes from other independent contractors. In 1996, Plaintiff sought to buy the Roswell route from another independent contractor. Although Plaintiff was qualified to handle the route, Defendant did not permit the transfer. In 1998, Plaintiff sought to purchase the Hobbs-Lovington route from another independent contractor. Defendant again refused to allow the transfer. Plaintiff filed suit claiming breach of contract and the implied covenant of good faith and fair dealing, based in part upon Defendant’s refusal to allow the Hobbs-Lovington transfer. The jury ruled in Plaintiff’s favor. Defendant appealed, arguing that improper instructions were given to the jury because there was no express term in the contract granting Plaintiff the right to purchase other routes. The court of appeals reversed.

Issue.

Whether the implied covenant of good faith and fair dealing protects benefits that are inferred from the express terms of a contract.

Held.

Yes. The court of appeals’ ruling is affirmed. The implied covenant of good faith and fair dealing protects benefits that are inferred from the express terms of a contract.

Discussion.

Every contract contains an implied covenant of good faith and fair dealing. This covenant demands that neither party do anything to deprive the other party of the benefit of their agreement, whether that benefit is express or implied. Evidence as to what the parties intended as a benefit cannot be used to override the express terms of the contract, but can be used to clarify ambiguous terms within the agreement. Defendant argues that because there is no express right to purchase additional routes in the contract, Plaintiff does not have a claim for breach of the implied covenant of good faith and fair dealing. However, Plaintiff’s right to purchase additional routes can be inferred from the express term “independent contractor.” Plaintiff might have understood the term to allow for additional routes because, as an independent contractor for Defendant, his income was directly tied to his ability to acquire additional routes. Furthermore, Plaintiff and other Defendant independent contractors testified that Defendant managers represented that independent contractors would be able to purchase additional routes. The contract itself has assignment provisions allowing independent contractors to assign their routes to qualified purchasers, which suggests that such transfers did take place. As a whole, a jury could reasonably infer from the evidence that the parties intended the term “independent contractor” to include the right to purchase additional routes from other independent contractors, and that Defendant did not act in good faith in regards to this intended benefit.