## Facts

- FedEx recruited Ken Sanders and his company to provide package pickup and delivery on a designated New Mexico route under a FedEx-drafted, integrated agreement labeling Sanders an “independent contractor.”
- The written agreement did not expressly grant Sanders a right to purchase additional routes.
- Sanders testified that FedEx representatives stated he could grow his business by acquiring routes from other contractors as they became available.
- Sanders initially operated a route between Carlsbad and Artesia.
- In 1996, Sanders attempted to buy a Roswell route from another contractor; FedEx refused to allow him to own both routes and required him to exchange his original route for the Roswell route.
- In 1998, Sanders negotiated to purchase the Hobbs–Lovington route; FedEx refused to approve the transfer, ran the route itself for a period, and later sold it to someone else.
- After FedEx declined to renew Sanders’ contract, Sanders sold his route; he alleged FedEx then interfered with the buyer’s ability to operate (including alleged failures regarding insurance, payment, and driver hiring).
- Sanders sued for breach of contract and breach of the implied covenant of good faith and fair dealing, asserting FedEx’s conduct deprived him of the expected ability to expand his business through route acquisition.

## Issues

1. Whether the implied covenant of good faith and fair dealing protects benefits reasonably inferred from a contract’s express terms, even if not expressly stated, without contradicting the contract’s language.
2. Whether the trial court’s jury instructions improperly allowed the jury to rely on extrinsic evidence of the parties’ expectations to find breach despite the absence of an express “right to purchase routes” provision.

## Decision

- The New Mexico Supreme Court reversed the Court of Appeals and reinstated the jury verdict and district court judgment for Sanders.
- The court held the implied covenant protects reasonable expectations arising from the contract’s terms, including benefits inferred from those terms.
- The court approved using extrinsic evidence to identify reasonable expectations tied to the contract’s express terms, so long as it does not alter or contradict the written agreement.
- The court concluded the challenged instructions correctly stated New Mexico law and did not authorize the jury to rewrite the contract; sufficient evidence supported the verdict.

## Legal Principles

- Every contract includes an implied covenant of good faith and fair dealing requiring that neither party act to deprive the other of the benefits of the agreement.
- The covenant protects reasonable expectations that arise from the contract’s terms; protected benefits may be express or implied.
- The covenant may protect benefits inferred from express terms but cannot be used to override, contradict, or add terms inconsistent with the contract’s language.
- Extrinsic evidence may be considered to clarify the parties’ reasonable expectations connected to the contract’s express terms and the context of formation.
- A party’s exercise of contractual discretion can breach the covenant when used to frustrate the other party’s justified expectations grounded in the contractual relationship.

## Conclusion

The court upheld liability based on the implied covenant where the jury could find that FedEx’s control over route transfers was exercised in a manner that deprived an independent contractor of contract benefits reasonably inferred from the agreement’s express terms and the relationship the contract created.


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