Elements of Nevada's Theories of Liability

Breach of Implied Covenant of Good Faith and Fair Dealing Contract

Breach of Implied Covenant of Good Faith and Fair Dealing: Contract

Elements

  • Common Law

Where the terms of a contract are literally complied with but one party to the contract deliberately countervenes the intention and spirit of the contract, that party can incur liability for breach of the implied covenant of good faith and fair dealing.
Hilton Hotels Corp. v. Butch Lewis Prods., Inc., 107 Nev. 226, 808 P.2d 919, 923 (1991).
 

[W]hen one party performs a contract in a manner that is unfaithful to the purpose of the contract and the justified expectations of the other party are thus denied, damages may be awarded against the party who does not act in good faith.
Hilton Hotels Corp. v. Butch Lewis Prods., Inc., 107 Nev. 226, 808 P.2d 919, 923 (1991).

  • Statute (UCC)

  • Obligation of good faith. Every contract or duty within the Uniform Commercial Code imposes an obligation of good faith in its performance and enforcement.
    NRS 104.1304
  • “Good faith,” except as otherwise provided in Article 5, means honesty in fact and the observance of reasonable commercial standards of fair dealing.
    NRS 104.1201(t)

 

Example Cases

Nelson v. Heer, 123 Nev. 217, 163 P.3d 420 (2007).

University & Cmty. Coll. Sys. v. Sutton, 120 Nev. 972, 989, 103 P.3d 8, 19 (2004).

Frantz v. Johnson, 116 Nev. 455, 465 n. 4, 999 P.2d 351, 358 n. 4 (2000).

Consolidated Generator-Nevada v. Cummins Engine, 114 Nev. 1304, 1311, 971 P.2d 1251, 1256 (1998).

Hilton Hotels Corp. v. Butch Lewis Prods., Inc., 107 Nev. 226, 808 P.2d 919, 923 (1991).

A.C. Shaw Const., Inc. v. Washoe County, 105 Nev. 913, 784 P.2d 9 (1989).

Proof

  • Question of fact

This court has held that good faith is a question of fact.
Consolidated Generator-Nevada, Inc. v. Cummins Engine Co., Inc., 114 Nev. 1304, 971 P.2d 1251 (Nev. 1998) (citing Mitchell v. Bailey & Selover, Inc., 96 Nev. 147, 150, 605 P.2d 1138, 1139 (1980)).

Damages

“Finally, we conclude that the jury award was within a range justified by Jordan’s claims. Damages need not be determined with mathematical certainty. SeeBader v. Cerri, 96 Nev. 352, 357, 609 P.2d 314, 318 (1980). The costs Jordan incurred in paying Perry’s salary constitute reliance damages recoverable when Perry failed to perform. Furthermore, costs incurred in covering monthly operating losses could be attributed to Perry’s breach and labeled consequential damages which, combined with other damages, total nearly $100,000.00 at the very least. Indeed, because Jordan paid for the clothing store in cash, it is possible that the jury could have awarded a much greater amount. We also note that Jordan was entitled to recover any losses resulting from a breach of the implied covenant of good faith and fair dealing as well. SeeHilton, 107 Nev. at 233-34, 808 P.2d at 923-24. Recovery of this amount under these theories of liability compensates Jordan for her loss (that is, sums Jordan paid), not strictly for the benefit conferred upon Perry. Jordan’s recovery was not, therefore, restitutional in nature.

“In addition, the jury was entitled to draw all reasonable inferences from the evidence to determine that Jordan trusted Perry to establish an appropriate sale price for the clothing store. Although it is true that Jordan does not allege fraud, Perry held a duty to act with the utmost good faith, based on her confidential relationship with Jordan. This duty requires affirmative disclosure and avoidance of self dealing. SeeNorthern Nev. Mobile Home v. Penrod, 96 Nev. 394, 398, 610 P.2d 724, 727 (1980). We conclude that the jury could have reasonably inferred that Perry’s previous attempt to sell the clothing store at a significantly lower price should have been affirmatively disclosed, and that sale at a higher price constituted self dealing. The jury could have therefore awarded the $100,000.00 difference in sale price and an additional $5,000.00 for the computer which Jordan purchased twice.”
Perry v. Jordan, 111 Nev. 943, 900 P.2d 335 (Nev. 1995).

Defenses

  • No breach prior to contract

A party cannot breach the covenant of good faith and fair dealing before a contract is formed.
Larson v. Homecomings Financial, LLC, 680 F.Supp.2d 1230, 1236-37 (D.Nev.,2009).

Misc

  • GFFD in Every Contract

“It is well settled in Nevada that ‘every contract imposes upon the contracting parties the duty of good faith and fair dealing.'”
State, University and Community College System v. Sutton, 120 Nev. 972, 989, 103 P.3d 8, 19 (Nev.,2004)(quoting Hilton Hotels v. Butch Lewis Productions, 109 Nev. 1043, 1046, 862 P.2d 1207, 1209 (1993).