NEVADA CONTRACT LAW

Editor’s note: This outline was last updated 2013.  Use with caution.

I. CONTRACT REQUIREMENTS

A. Consideration

Failure of Consideration

When a written contract is shown to be a sham, neither party is under an obligation to the other. See Schieve v. Warren, 87 Nev. 42, 482 P.2d 301 (1971).

Benefit conferred or detriment incurred in past is not adequate consideration for present bargain. See Clark County v. Bonanza No. 1, 96 Nev. 643, 615 P.2d 939 (1980).

Past consideration is the legal equivalent of no consideration. See Smith v. Recrion Corporation, 91 Nev. 666, 541 P.2d. 663 (1975).

Homeowners’ contract with insulation company to insulate home was void due to failure of consideration. Company never finished insulation project, never delivered heater blanker and roof turbines, and never used house for advertising and promotional purpose. See Mahaffey v. Investor’s National Security Company, 103 Nev. 615, 747 P.2d 890(1987).

Adequacy of Consideration

Courts may inquire into adequacy of consideration when it is relevant to ascertaining whether fraud, lack of capacity, mistake, duress, or undue influence exists, but inadequacy of consideration standing alone does not justify rescission of the contract or release. See Ooh v. Wilson, 112 Nev. 38, 910 P.2d 276 (1996).

Continued employment in at-will state is sufficient consideration for employee post-hiring, non-competition covenant. SeeCameo Inc. v. Baker, 113 Nev. 512, 936 P.2d 829 (1997).

To constitute consideration, a performance or return promise must be bargained for, and a performance or return promise is bargained for if it is sought by the promissor in exchange for his promise and is given by the promisee in exchange for that promise. See Pink v. Busch, 100 Nev. 684, 691 P.2d 456 (1984).

Consideration is not adequate when it is mere promise to perform that which promissor is bound to do. See Clark County v. Bonanza No. 1, 96 Nev. 643, 615 P.2d 939 (1980).

Consideration for an agreement is not adequate, when it is mere promise to perform that which promissor is already legally bound to do. See Walden v. Backus, 81 Nev. 634, 408 P.2d 712 (1965).

Mutuality of Obligation

County’s promise and indemnity contract to insure access to hotel property leased by other parties to contract complemented duty to maintain County roads in proportion to use; although County had no duty to maintain if roads fell into disuse. County could not thereby breach its promise to insure unrestricted access because no one would be seeking access and thus promise to maintain unlimited access to and from hotel property was not illusory. NRS 403.185, 403.200. See Clark County v. Bonanza #1, 96 Nev. 643, 615 P.2d 939 (1980).

“Mutuality of obligation” requires that unless both parties to a contract are bound, neither is bound. Where purchaser’s obligation to purchase was contingent upon his approval of inventory and accounting within 10 days, contingency was a condition precedent to the existence of contract for sale and purchaser’s purported promise to purchase was illusory. See Sala & Ruthe Realty, Inc. v. Campbell, 89 Nev. 483, 515 P.2d 394 (1973).

Option contract does riot require mutuality of obligation. See Mohr Park Manor, Inc. v. Mohr, 83 Nev. 107, 424 P.2d 101, appeal after remand 87 Nev. 520, 490 P.2d 217 (1967).

Mutuality of obligation requires that unless both parties to the contract are bound, neither is bound. Lack of mutuality of obligation in an option contract may be cured by presence of consideration. See Serpa v. Darling, 107 Nev. 299, 810 P.2d 778(1991).

B. Offer and Acceptance

 Offer and Acceptance

A bid in response to a solicitation constitutes no more than an offer and until it is accepted, a contract does not exist. SeeGulf Oil Corp. v. Clark County, 94 Nev. 116, 575 P.2d 1332 (1978).

Contracts between maker and payee, represented by promissory notes, became complete upon payee’s acceptance which was evidenced by her action to enforce payment. See Charleston Hill National Mines, Inc. v. Clough, 79 Nev. 1982, 380 P.2d 458 (1863).

 Lapse of Offer

If offer specifies time for acceptance, power to create contract by acceptance terminates at that time; if no time is specified, power to create contract by acceptance of offer terminates at the end of a reasonable time. Where offer has expired by lapse of time, attempts to accept are ineffectual to create contract. Acceptance which is late or defective constitutes counteroffer which must be accepted by original offer to create contract. See Morrison v. Revan Investments, Inc., 97 Nev. 58, 624 P.2d 11(1981).

 Acceptance Varying from Offer

Option contract is neither a sale nor an agreement to sell, but is simply a contract whereby an owner of property agrees to allow a person to buy that property at fixed price within certain time limits. See Canfield v. Gill, 101 Nev. 170, 697 P.2d 476(1985).

 Intent of Parties

The making of a contract depends not on agreement of two minds in one intention, but on agreement of two sets of external signs; not on the parties’ having meant the same thing but on their having said the same thing. See Hotel Riviera, Inc. v. Torres, 97 Nev. 399, 632 P.2d 1155 (1981).

Manifestations by the parties of intent to contract are essential to the creation of an express or implied contract. SeeWarrington v. Empey, 95 Nev. 136, 590 P.2d 1162 (1979).

 Necessity of Assent

A contract is founded upon the meeting of the minds of the parties as to ascertainable terms. See Back Streets, Inc. v. Campbell, 95 Nev. 651, 601 P.2d 54(1979).

Both expressed and implied contracts are founded on an ascertained agreement. See Smith v. Racryan Corp., 91 Nev. 666, 541 P.2d 663 (1975)

 Requirements Contract

Requirements contract exists where one party promises to supply the means of the other party during certain period of time at an agreed price, and the other party expressly or implicitly promises that he will obtain his goods or services exclusively from that first party. In construing a contract in which only the seller has agreed to sell, the court may find an implied reciprocal promise on the part of the buyer to purchase exclusively from the seller, at least wherein it is apparent that the binding contract was intended. See United Services Auto Association v. Schlane, 111 Nev. 486, 894 P.2d 967 (1995).

C. Terms and Evidence

Terms of Contract

Terms of an expressed contract are stated in words while terms of an implied contract are manifested by conduct. See Smith v. Recrion Corp., 91 Nev. 666 (1975).

Certainty as to Subject Matter

To be enforceable, the contract must be sufficiently definite. See Chung v. Atwell, 103 Nev. 482, 745 P.2d 370 (1987).

Weight and Sufficiency

In an implied contract, the intent required to create contract is inferred from the conduct of parties and other relevant facts and circumstances. See Warrington v. Empey, 95 Nev. 136, 590 P.2d 1162 (1979).

In manufacturers suit for compensation beyond payment for his own goods, evidence permitted finding that there was no meeting of minds between parties with respect to compensation allegedly payable to manufacturer in connection with contract for furnishing of goods, including goods to be furnished by manufacturer, and the manufacturer failed to prove his case by preponderance of evidence. See Ewing v. Sargent, 87 Nev. 74, 482 P.2d 819 (1979).

Evidence sustained findings that no account stated had been effected as to services and merchandise rendered for and sold to defendant by plaintiffs assignor, that indebtedness due plaintiff had been incurred at request of assignor with payment to be made by future deduction from money defendant would receive from assignor for work and that contract between assignor and defendant was executory and defendant had not breached. See Nevada Credit Rating Bureau, Inc. v. Williams, 80 Nev. 343, 393 P.2d 618 (1964).

In suit to recover damages resulting from defendants breach of a commitment to loan money to finance the construction of plaintiffs’ home, the District Court’s finding of detrimental reliance was supported by substantial evidence and therefore would not be disturbed on appeal. See Mahaffey v. Investor’s National Security Company, 103 Nev. 615, 747 P.2d 890 (1987).

Reaching An Agreement

Generally, performance by party after agreement has been reached but before writing has been prepared is regarded as some evidence that writing was only memorial of binding agreement; however, where evidence clearly shows that party performing did not consider agreement to be binding, the fact that he began performance does not compel contrary conclusion. See Tropicana Hotel Corp. v. Speer, 101 Nev. 40, 692 P.2d 499 (1985).

Rights and duties of parties were fixed by their final written agreement where it appeared that intention of the parties was that there would be no enforceable contract until a written agreement was finally signed. See Widett v. Bond Estate Inc., 79 Nev. 284, 382 P.2d 212 (1963).

Where circumstances indicate that particular manner of contract formation is contemplated by parties, a binding contract is not formed in absence of compliance with the contemplated procedure. See Shetakis Distributing Co. v. Centel Communications Co., 104 Nev. 258, 756 P.2d 1186(1988).

When important terms remain unsolved, a binding agreement cannot exist. See Tropicana Hotel Corp. v. Speer, 101 Nev. 40, 692 P.2d 499 (1985).

When important terms remain unresolved, a binding agreement cannot exist. See Estate of Travis v. Special Administrators, 102 Nev. 433, 725 P.2d 570 (1986).

Statute of Frauds

To satisfy the statute of frauds, the contract must contain (1) the names of the parties; (2) the terms and conditions of the contract; (3) the interest or property affected; and (4) the consideration to be paid for the interest. Several writings may be construed together to supply an essential term if there is a reference in one document to another document. Where more than one writing is used to satisfy requirements of statute of frauds, some nexus between writings must be shown. SeePentax Corp. v. Boyd, 111 Nev. 1296, 904 P.2d 1024 (1995).

Full performance by one party may remove contract from statute of frauds. However, part performance standing alone is insufficient to make statute of frauds inapplicable. Whether writing is legally sufficient to comply with statute of fraud presents a question of law. Separate writings may be considered together to establish sufficient writing or memorandum necessary to satisfy statute of frauds, even though one of them was not signed by the party charged and neither was sufficient itself. See Edwards Industries, Inc. v. DTE/BTE Inc., 112 Nev. 1025, 923 P.2d 569 (1996).

Implied Covenant of Good Faith and Fair Dealing

All contracts, including public works construction contracts, contain an implied covenant of good faith and fair dealing. See A.C. Const, Inc. v. Washoe County, 105 Nev. 913, 784 P.2d 9 (1989);  The Covenant of Good Faith and Fair Dealing in Nevada, 1 Nevada Law Review 68 (Spring 1998).

II. UNENFORCEABILITY

A. General

 Adhesion Contract

Distinctive feature of adhesion contract is that the weaker party has no choice as to its terms. An adhesion contract need not be unenforceable if it falls within the reasonable expectations of the weaker or adhering party and is not unduly oppressive. Courts will not enforce a provision limiting duties or liabilities of stronger party to adhesion contract against adhering party absent plain and clear notification of terms and understanding consent. See Obstetrics and Gynecologist, Wixted v. Pepper, 101 Nev. 105, 693 P.2d 1259 (1985).

Classification of a contract clause as an adhesion clause is reserved for cases where one party has unfairly used its superior bargaining power to force inclusion of oppressive and unreasonable clause in contract. See Calloway v. City of Reno, 113 Nev. 564, 939 P.2d 1020 (1997).

Impracticability

Uniform Commercial Code doctrine of commercial impracticability was inapplicable to contractor’s claims to recover increased costs of petroleum-based products, where case involved performance contracts and not sales contracts. NRS 104.2615. See Helms Const. & Development Co. v. State. Ex Rel Dept of Highways, 97 Nev. 500, 634 P.2d 1224(1981).

Doctrine of commercial frustration applies to discharge party’s contractual obligation when expected value of performance to party seeking to be excused has been destroyed by a fortuitous event which supervenes to cause an actual but not literal failure to consideration. However, doctrine of commercial frustration does not apply to relieve party of a contractual obligation, where the contingency affecting the expected value of party’s performance is one which the party should have foreseen or should have provided for.  See Graham v. Kim, 111 Nev. 1039, 899 P.2d 1122 (1995).

 Unconscionability

The contract is unconscionable only when the clauses of the contract and the circumstances existing at the time of the execution of it are so one sided as to oppress or unfairly surprise an innocent party. See Bill Stremmel Motors, Inc. v. IDS Leasing Corp., 89 Nev. 414, 514 P.2d 654 (1973).

 Parol Evidence

Parol evidence is allowed to prove mutual mistake, unilateral mistake, or inadequate consideration. See Russ v. General Motors Corporation, 111 Nev. 1431, 906 P.2d 718 (1995).

B. Mistake

Mistake/Uncertainty

A “mistake” is a state of mind not in accord with the facts. One who acts knowingly that he does not know when certain matters of fact makes no mistake as to those matters. If a person is in fact aware of certain uncertainties, mistake does not exist. One who is uncertain assumes risks that facts will turn out unfavorably to his interest. See Tarrant v. Monson, 96 Nev. 844, 619 P.2d 1210 (1980).

Mistake/Allocation of the Risk

Where mistake of one party at the time the contract was made, as to basic assumption on which he made contract, has material effect on agreed exchange performances that is adverse to him, the contract is voidable by him if he does not bear risk of mistake and other party had reason to know of mistake or his fault caused mistake. See Homesavers Inc. v. United Security Company, 103 Nev. 357, 741 P.2d 1355 (1987).

Mutual Mistake

Mutual mistake of fact may void contract, and mutual mistake is basis for equitable rescission of contract. See Tarrant v. Monson, 96 Nev. 844, 619 P.2d 1210(1980).

Mutual mistake occurs when both parties at the time of contracting share a misconception about a vital fact upon which they base their bargain and is the basis for equitable rescission of contract. See Gramanz v. Gramanz, 113 Nev. 1, 930 P.2d 753 (1997).

Unilateral Mistake

Unilateral mistake standing alone is insufficient to invalidate release, but it can be the basis of rescission if other party had reason to know of the mistake. See Oh v. Wilson, 112 Nev. 38, 910 P.2d 276 (1996).

Unilateral mistake may be the basis of rescission for an agreement only if the other party had reason to know of the mistake or if the first party’s fault caused the mistake. See Graber v. Comstock Bank, 111 Nev. 1421, 905 P.2d 1112 (1995).

Unilateral mistake can be the basis for a rescission of release if the other party had reason to know of the mistake or his fault caused the mistake. See Chwialkowski v. Sachs, 108 Nev. 404, 834 P.2d 405 (1992).

C. Fraud and Misrepresentation

Generally

A finding of fraud sufficient to support a tort action for deceit will always satisfy the standard of fraud or rescission of a contract if the other predicates for equitable relief are met. See Pacific Mason Inc. v. Wilson, 96 Nev. 867, 619 P.2d 816,Appeal after Remand, 100 Nev. 479, 686 P.2d 235, Modified 714 P.2d 1001 (1980).

Fraud by a third party will not invalidate a contract unless the party against whom the defense is asserted has knowledge that such fraud was the inducement for the contract. See Bill Stremmel Motors, Inc. v. IDS Leasing Corp., 89 Nev. 414, 514 P.2d 654 (1973).

One has an obligation not to speak falsely when inducing another to make a bargain. NRS 686.190. See Violin v. Fireman’s Fund Insurance Company, 81 Nev. 456, 406 P.2d 287 (1965).

Fraud and inducement renders contract voidable, and person defrauded may rescind, or he may, if contract is still executory, refuse to perform and raise defense of fraud when sued. See Havas v. Alger, 85 Nev. 627, 461 P.2d 857 (1969).

Proof

Negligence on the party of the party seeking rescission on the contract will not bar equitable relief when misrepresentation was made intentionally by the other party. See Pacific Maxon, Inc. v. Wilson, 96 Nev. 836, 619 P.2d 816, Appeal after Remand, 100 Nev. 479, 686 P.2d 235, Modified 714 P.2d 1001 (1980).

Total reliance upon a misrepresentation is not required to entitle a party to rescission of a contract, as long as the misrepresentation is part of the inducement to enter into the transaction. Suit in equity for rescission of a contract does not necessarily fail because the party seeking rescission was unreasonable in relying upon the misrepresentation made by the other party. When a party asserts misrepresentation as grounds for rescission of a contract, actual fraud. See Pacific Maxon, Inc. v. Wilson, 96 Nev. 836, 619 P.2d 816, Appeal after Remand, 100 Nev. 479, 686 P.2d 235, Modified 714 P.2d 1001 (1980).

In an action for rescission, once the plaintiff has established the representation is false, and that it was material to the transaction because it was actually relied upon the burden shifts to the other party, to negate some element of the prima facie case. See Pacific Maxon, Inc. v. Wilson, 96 Nev. 836, 619 P.2d 816, Appeal after Remand, 100 Nev. 479, 686 P.2d 235, Modified 714 P.2d 1001 (1980).

Evidence supported conclusion that homeowners were fraudulently induced to sign a contract where (1) homeowners were told that fuel consumption would be cut in half, that home would be used for advertising and promotional purposes, that homeowners would be compensated for use, and that total cost would be $5,289; (2) none of these promises were ever fulfilled; and (3) another salesman subsequently pressured homeowners to sign a completion certificate, note, and deed of trust. See Mahaffey v. Investor’s National Security Company, 747 P.2d 890 (1987).

Public Policy

Life policy purchased by Nevada resident from Pennsylvania insurer that did not include for notice prior to the termination of coverage for failure to pay a premium when due was against public policy of Nevada and unenforceable despite insurer’s claim that the policy should be governed by Missouri law. See Daniels v. National Home Life Assurance Co., 103 Nev. 674, 747 P.2d 897 (1987).

Statute stating that any company who willfully does anything intended to prevent any person who left or was discharged from its employment from obtaining employment elsewhere shall be punished did not invalidate a non-compete agreement. See Jones v. Deeter, 112 Nev. 291, 913 P.2d 1272 (1996).

D. Void Contract

Contravention of Law

Generally, contracts made in contravention of the law do not create a right of action. See Vincent v. Santa Cruz, 98 Nev. 338, 647 P. 2d 379 (1982).

Where contract consists of several agreements, one of which is illegal, the illegal portion can be severed if it does not destroy the contract. See Vincent v. Santa Cruz, 98 Nev. 338, 647 P.2d 379 (1982).

Public Policy

All contracts where the purpose is to create situations that tend to operate to the detriment of public interest or against public policy are void. See Weston Cab Co. v. Kellar, 90 Nev. 240, 523 P.2d 842, Appeal Dismissed, Cert. Denied. 420 U.S. 914 (1974).

An agreement by an employee not to compete with an employer after termination of employment is a restraint of trade and contrary to public policy of state; such agreements will not be enforced by the courts unless terms of restriction on employment are reasonable. See Hotel Riviera, Inc. v. Torrez, 97 Nev. 399, 632 P.2d 1155 (1981).

Because of loss of person’s livelihood is a very serious matter, post employment, anti-competitive covenants are scrutinized with greater care than are similar covenants incidental to sale of business. Where patients in need of orthopedic services would be forced to travel great distances at considerable risk and expense in order to avail themselves of such services if surgeons were not permitted to practice in community where the clinic of the former employer was located, the restrictive covenant in a surgeon’s employment agreement with clinic was unreasonable. See Ellis v. McDaniel. 95 Nev. 455, 596 P.2d 222 (1979).

The substantial risk of the employer losing patients to former employee is of itself an adequate basis for reasonable covenant. See Hansen v. Edwards, 83 Nev. 189, 426 P.2d 792 (1967).

An agreement of an employee not to compete with his employer after termination of employment is a restraint of trade and will not be enforced in accordance with its terms unless the same are reasonable. Where public interest is not directly involved, test for determining validity of post employment restrictive covenant is whether it imposes upon employee any greater restraint that is reasonably necessary to protect business and good will of employer. See Hansen v. Edwards, 83 Nev. 189, 426 P.2d 792 (1967).

The medical profession is not exempt from post employment restrictive covenant provided that the covenant meets test of reasonableness. See Hansen v. Edwards, 83 Nev. 189, 426 P.2d 792 (1967).

The period of time during which restrictive covenant is to last and the territory that is included are important factors to be considered in determining reasonableness of agreement. See Hansen v. Edwards, 83 Nev. 189, 426 P.2d 792 (1967).

Even when consideration tends to benefit the public in a contract with a public body to locate public facilities or highways in certain place, any contract that influences exercise of official discretion is contrary to public policy and unenforceable because public is entitled to free and unconstraint public officers. County’s promise to resist claims and to ensure unrestricted access to hotel property were not improper restraints on official discretion and void as against public policy where widening of access road, unrestricted access to hotel property, and costs of condemnation being borne by private parties were to the benefit of public. NRS 403.180, 403.200. See Clark County v.

A provision in a guaranty agreement that the creditor’s records should be conclusive with respect to amounts, times and places of delivery of merchandise, and of balance due, was void as contrary to public policy. See Adelson v. Wilson & Co., 81 Nev. 15 (1965).

The provision of non-competition clause of employment agreement which restricted former management employees from competing in any area within 15 miles of area targeted for corporate expansion by employer was unreasonable and unenforceable. See Cameo Inc. v. Baker, 113 Nev. 512, 936 P.2d 829 (1997).

Restrictive covenant on employment will be upheld only if it is reasonably necessary to protect business and goodwill of employee. To determine whether a restrictive covenant is reasonable, the court will consider factors such as (1) the time the covenant lapsed; (2) the territory it covers; and (3) the hardship imposed upon the person restricted. Restrictive covenant prohibiting an employee from competing with the employer within a 100-mile radius for five years after leaving his employment was per se unreasonable. See Jones v. Deeter, 112 Nev. 291, 913 P.2d 1272 (1996).

Agreements Relating to Actions and Other Proceedings.

Agreement where insurance carriers accepted a proposal of the plaintiff that the carriers pay up to $20,000 if jury awarded less than $20,000 and plaintiff would not execute against the insured physicians if a verdict exceeded $20,000, and would not oppose motion for directed verdict in their favor on condition that plaintiff agreed to prosecute his action against another defendant and not settle, without consent, for less than $20,000 was contrary to law and public policy. SeeLum v. Stinnett, 87 Nev. 402, 488 P.2d 347 (1971).

Contract to pay witness for testifying, which included a condition that the compensation depended upon the result of the suit is contrary to public policy and void because it would tend to lead to perjury and perversion of justice. SeeWestern Cab Co. v. Kellar, 90 Nev. 240, 523 P.2d 842 App. Dis., Cert. Denied, 420 U.S. 914 (1974).

III. INTERPRETATION

A. Generally

Rules of Construction.

In its interpretation of a contract, trial court may examine both words and action of parties. See Fox v. First Western Savings & Loan Association, 86 Nev. 469, 470 P.2d 424 (1970).

In construing ambiguous contract, court should place itself as nearly as possible in the situation of the parties. SeeBarringer v. Gunderson, 81 Nev. 288, 402 P.2d 470 (1965).

A court has no power to create a new contract for the parties. See Old Aztec Mine, Inc. v. Brown, 97 Nev. 49, 623 P.2d 981 (1981).

In interpreting an agreement, the court may not modify it, or create a new contract. Court is not at liberty to revise agreement while professing to construe it. See Mohr Park Manner, Inc. v. Mohr, 83 Nev. 107,424 P.2d 101, Appeal after Remand, 87 Nev. 520, 490 P.2d 217(1967).

A court should not interpret a contract so as to make its provisions meaningless. See Phillips v. Mercer, 94 Nev. 279, 579 P.2d 174 (1978).

To the extent that County’s obligation in a contract with a private party is ambiguous, the court must construe it to avoid conflict with public policy. See Clark County v. Bonanza No. 1, 96 Nev. 643, 615 P.2d 939 (1980).

If logically and legally permissible, a contract should be construed give effect to valid contractual relations rather than rendering agreement invalid or rendering performance impossible. See Mohr Park Manner, Inc. v. Mohr, 83 Nev. 107, 424 P.2d 101, Appeal after Remand, 87 Nev. 520, 490 P.2d 217 (1967).

Any ambiguity in a written contract is to be construed against the party who prepared the agreement or selected the language used. See Consolidated v. Consolidated Realty & Management Co., 99 Nev. 635, 668 P.2d 284(1983).

If contract is ambiguous, then it will be construed against the drafter. Interpretation which results in fair and reasonable contracts preferable to one that results in a harsh and unreasonable contract. See Dickenson v. State Dept. of Wildlife, 110 Nev. 934, 877 P.2d 1059 (1994).

Contractual provisions should be harmonized whenever possible and construed to reach a reasonable solution. SeeEversole v. Sunrise Villas VIII Homeowners Association, 112 Nev. 1255, 925 P.2d 505 (1996).

Where two interpretations of contract are possible, the court will prefer interpretation which gives meaning to both provisions rather than an interpretation which renders one of the provisions meaningless. See Ouirrion v. Sherman, 109 Nev. 62, 846 P.2d 1051 (1993).

In construing contracts, every word must be given effect if at all possible. See Royal Indemnity Company v. Special Service Supply Company, 82 Nev. 148, 413 P.2d 500 (1966).

When document is clear and unambiguous on its face, the court must construe the document according to its language. SeeRenshaw v. Renshaw, 96 Nev. 541, 611 P.2d 1070 (1980).

Courts are bound by language which is clear and free of ambiguity and cannot, using guise of interpretation, distort plain meaning of agreement. See Watson v. Watson, 95 Nev. 495, 496 P.2d 507 (1979).

Where document is clear and unambiguous, the court must construe the document from its language. See Southern Trust Mortgage Company v. K & B Door Company, Inc., 104 Nev. 564, 763 P.2d 353, Rehearing Denied (1988).

Unambiguous contract is construed from the language of the document. See Chwialkowski v. Sachs, 108 Nev. 404, 834 P.2d 405 (1992).

Where language in a document is clear and unambiguous on its face, the court must construe it based on this plain language. See Love v. Love, 114 Nev. 572, 959 P.2d 523 (1998).

Contracts are construed from written language and enforced as written. See Ellison v. California State Automobile Association, 106 Nev. 601, 797 P.2d 975 (1990).

Construing Instruments Together.

Writings which are made a part of the contract by annexation or reference will be so construed, but where the reference to another writing is made for a particular and specified purpose it is a part of the contract for the specified purposes only. Parties intended to incorporate prime contract into subcontract where (1) the subcontract was a one-page, short-form document that expressly required subcontractor to furnish work in conformity with the plans and specifications of prime contracts; (2) subcontractor was acquainted with the plans and specifications embodied in the voluminous prime contract; and (3) subcontractor had to refer to the prime contract in order to formulate his bid. See Lincoln Welding Works Inc. v. Ramirez, 98 Nev. 342, 647 P.2d 381 (1982).

Two separate writings may be sufficiently connected by internal evidence without any express words of reference of one to the other. The fact that they refer to the same transaction and state terms thereof may appear from character of subject matter and firm nature of terms. See Haspray v. Pasarelli, 79 Nev. 203, 380 P.2d 919 (1963).

Where referenced in a contract to “plans and specifications” indicates an intention to incorporate them generally, such reference becomes a part of the contract for all purposes. If plans and specifications are express terms made a part of the contract, the terms of the plans; and specifications will control with the same force as though incorporated in the very contract itself. See Lincoln Welding Works, Inc. v. Ramirez, 98 Nev. 342, 647 P.2d 381 (1982).

General presumptions is that where two or more instruments are executed contemporaneously, the documents evidence a single contract if they relate to the same subject matter and one of the two refers to the other. See Collins v. Union Federal Savings & Loan Association, 99 Nev. 284, 662 P.2d 610 (1983).

B. Parties Intent and Conduct

Construction by Intent

The expressed intention of parties as to applicable law in construction of a contract is controlling if parties acted in good faith and not to evade law of real situs of contract. Under choice of law principals, parties are permitted within broad limits to choose law which will determine validity in effect of their contract; however, situs fixed by agreement must have’ a substantial relation with transaction an agreement must not be contrary to public policy of forum state. See Ferdie Sievers and Lake Tahoe Land Company, Inc. v. Diversified Mortgage Investors, 95 Nev. 811, 603 P.2d 270 (1979).

Prime rule in construing contracts is to ascertain intention of the parties. See Barringer v. Gunderson, 81 Nev. 288, 402 P.2d 470 (1965).

If intention of parties is clear from instrument itself, the contract requires no construction. See Barringer v. Gunderson, 81 Nev. 288, 402 P.2d 470 (1965).

In interpreting contracts, court should ascertain intention of parties from the contract’s language considering the subject matter and the context. See Kroeger v. King, 103 Nev. 536, 746 P.2d 630 (1987).

In construing contract, court should ascertain intention of parties considering the subject matter in view of surrounding circumstances. See Mohr Park Manner, Inc. v. Mohr, 83 Nev. 107, 424 P.2d 101, Appeal after Remand, 87 Nev. 520, 490 P.2d 217 (1967).

When parties to a contract foresee a condition which may develop and provide in their contract a remedy for the happening of that condition, the presumption is that the parties intended the prescribed remedy as the sole remedy for that condition. See Gilman v. Oilman, 114 Nev. 416, 956 P.2d 761 (1998).

In interpreting a contract, the court must effectuate the intent of the parties, which may be determined in the light of surrounding circumstances if it is not clear from the contract itself. See NGA#2 Limited Liability Company v. Rains, 113 Nev. 1151 (1997).

Construction by Parties’ Conduct

Where construction contracts stated the unit price should prevail, but also stated that contractor agreed to take full payment as listed for quantities which were subject to variation, the contract was ambiguous. The interpretation of the contract by the parties’ conduct was entitled to great, if not controlling, weight in determining the contract terms. SeeLagrange Construction, Inc. v. Kent Corp., 88 Nev. 271, 496 P.2d 766 (1972).

In determining which of two contracts was in effect, practical construction and interpretation of the parties as evidenced by their conduct is always persuasive, if not conclusive. See Moore v. Prindle, 80 Nev. 369, 394 P.2d 352 (1964).

Construction placed upon contract by the parties is entitled to weight and interpretation of instrument. See Holland v. Crummer Corp., 78 Nev. 1, 368 P.2d 63 (1962.)

If there was lack of common understanding by parties about the meaning of the word “junkett” when they entered into the agreement whereby the plaintiff allegedly was to organize and provide junketts to defendant’s hotel and casino, such misunderstanding was cured by plaintiffs subsequent organization of more than 80 junketts to defendant’s hotel which were all received and for which defendant paid the contract price. See Casino Operations, Inc. v. Graham, 86 Nev. 764, 476 P.2d 953 (1970).

The court may look to circumstances surrounding the execution of the contract and the subsequent acts or declarations of parties to interpret any unclear contractual provisions. See Transwestern Leasing Corporation v. Corrao Construction Company, 98 Nev. 445, 652, P.2d 1181 (1982).

Where the contract is ambiguous or uncertain, it is primarily duty of trial court to construe it after full opportunity to produce evidence of facts, circumstances, and conditions surrounding its execution and conduct of parties thereto. See Fox v. First Western Savings & Loan Association, 86 Nev. 469, 470 P.2d 424 (1970).

Entire or Severable Contracts

A contract is “divisible” where it provides (1) performance of each party is divided into two or more parts; (2) number of parts due from each party is the same; and (3) performance from each party is a great exchange for a corresponding party by the other party. See Dredge Corporation v. Wells Cargo, Inc., 82 Nev. 69, 410 P.2d 751, Appeal after Remand 83 Nev. 311, 429 P.2d 548 (1966).

C. Terms and Agreements

Matters Annexed to or Referred to as Part of Contract

Doctrine of incorporation by implied reference is accepted in Nevada.  See Haspry v. Pasarelli, 79 Nev. 203, 380 P.2d 919(1963).

Terms Implied as Part of Contract

Statement that parties do not “agree to” additional terms does not bear on duties implied by law in the absence of specific agreement. See Davis v. Nevada National Bank, 103 Nev. 220, 737 P.2d 503 (1987).

Duty of good faith and fair dealing is created by law and all contracts, but such duty gives rise to tort liability only in rare and exceptional cases. See Kmart Corporation v. Ponsock, 103 Nev. 39, 732 P.2d 1364 (1987).

In construing a contract, the court must supply those things which it is bound under law to imply in order to carry out the intent of parties so as to make the agreement lawful, effective and reasonable. See Mohr Park Manner, Inc. v. Mohr, 83 Nev. 107, 424 P.2d 101, Appeal After Remand, 87 Nev. 520, 490 P.2d 217 (1967).

All contracts, including public works construction contracts, contain an implied covenant of good faith and fair dealing. SeeA.C. Const, Inc. v. Washoe County, 105 Nev. 913, 784 P.2d 9 (1989).

Indemnity

When indemnitee seeks indemnity for his own negligent acts based on express indemnity clause, indemnity clause must clearly and unequivocally express indemintor’s assumption of liability for negligent acts of indemnitee. See Calloway v. City of Reno, 113 Nev. 564, 939 P.2d 1020 (1997).

D. Choice of Law

Validity

Under choice-of-law principles, parties are permitted within broad limits to choose law that will determine validity and effect of their contract; however, situs fixed by agreement must have a substantial relation with the transaction and the agreement must not be contrary to public policy of forum state. See Ferdie Sievers and Lake Tahoe Land Co. v. Diversified Mortgage Investors, 95 Nev. 811, 603 P.2d 270 (1979).

Generally, if a contract creating a title interest is made in one state concerning land in another state, its validity is to be governed by the law of the state where the land is located, especially if theory of plaintiff’s case is to enforce an equitable right in the land itself; but, if theory if case is not to enforce an equitable right in the land itself, the controlling law will be that which governs the contract as a contract. See Harrison v. Rice, 89 Nev. 180, 510 P.2d 633, Appeal After Remand 92 Nev. 645, 555 P.2d 1325 (1973).

Express intention of parties as to applicable law in construction of a contract is controlling if the parties acted in good faith and not to evade the law of the real situs of the contract. See Costanzl v. Marine Midland Realty Credit Corp., 101 Nev. 277, 701 P.2d 747 (1985).

Colorado law applied to the interpretation of a guarantee in a credit agreement for purchasing merchandise, where (1) the text of the guarantee said it would be governed by Colorado law, (2) the creditor was headquartered in Colorado, and (3) the merchandise was shipped from Colorado. See Pentax Corp. v. Boyd, 111 Nev. 1296, 904 P.2d 1024 (1995).

Absent evidence or argument regarding bad faith or evasion of Nevada law, provision that it was to be governed by Alaska law was valid even though the deed of trust on the Nevada real property securing the note incorporated Nevada foreclosure provisions by reference. See Keybank of Alaska v. Donnels, 106 Nev. 49, 787 P.2d 382 (1990).

Life policy purchased by Nevada resident from Pennsylvania insurer that did not require notice before coverage could be terminated for failure to pay a premium when due was against public policy of Nevada and unenforceable despite insurer’s claim that the policy should be governed by Missouri law. See Daniels v. National Home Life Assurance Co., 103 Nev. 674, 747 P.2d 897 (1987).

Parties, in selecting which states’ law will govern validity and effect of their contract, must act in good faith and not for the purpose of evading the law of the real situs of contract. The state that is selected by the parties to govern the validity of their contract must have substantial relationship to the transaction and the agreement must not be contrary to public policy of the forum. A choice of law provision of certified public accounting partnership agreement that provided that all questions relating to interpretation of the agreement were to be determined by application of Colorado law, was enforceable and governed the interpretation of a clause in that agreement that where partnership was a national accounting firm with headquarters in Colorado, and clause protected legitimate business interest of the partnership. See Engel v. Ernst, 102 Nev. 390, 724 P.2d 215 (1986).

Substantial Relationship

Under substantial relationship tests to resolve conflict of law questions, the state whose law is applied must have a substantial relationship to the transaction, and the transaction must not violate strong public policy of that state. SeeWilliams v. United Service, 109 Nev. 333, 849 P.2d 265 (1993).

State whose law is applied in conflict of laws issue must have substantial relation with the transaction and the transaction must not be contrary to public policy of the form. The fact that an automobile accident occurred in the state was insufficient to apply that state’s law to the insurance contract rather than the law of the state in which the driver obtained the insurance. See Sotirakis v. United Service, 106 Nev. 123, 787 P.2d 788 (1990).

Under substantial relationship test used to resolve conflict of law questions in Nevada, the state whose law is applied must have substantial relationship with the transaction and the transaction must not violate strong public policy of Nevada. SeeHermanson v. Hermanson, 110 Nev. 1400, 887 P.2d 1241 (1994).

E. Evidence

Weight and Sufficiency

Substantial evidence supported a finding that parties in a lawsuit had orally agreed to share equally in total amount recovered, rather than only those proceeds from trial judgment, and to continue to finance litigation by each paying one-fourth of costs and attorneys fees based on testimony of a witness and of three parties to agreement, although contradicted by claim of another party to oral agreement. See Bosburg Equipment v. Zupancic, 103 Nev. 266, 737 P.2d 722 (1987).

In action on landscaping contract, estimate of $2,444 to repair damage caused by faulty workmanship of landscaper was not sufficient to justify trial courts’ reduction of contract price by nearly $20,000 by eliminating ten percent profit and fifteen percent overhead. Landscaping subcontractor was entitled to reasonable value of extra services and materials provided to subcontractor in light of uncontroverted testimony that general contractor requested extra services and materials not covered within an original contract with the understanding that they would not be provided gratuitously. See Day v. West Coast Holdings, Inc., 101 Nev. 260, 699 P.2d 1067 (1985).

District Courts’ finding that parties intended an option contract, rather than a contract for sale of plaintiffs’ business, was not supported by substantial evidence, where defendant herself indicated that she thought she was obligated to pay balance owed as specified in contract, regardless of how successful training period was and that her reasons for not buying the business was her partners opinion that they could operate the same business for half the costs without buying plaintiffs’ business. See Canfield v. Gill, 101 Nev. 170, 697 P.2d 476 (1985).

In suit against contractor for failure to complete performance of a contract to build a hotel and casino on plaintiffs’ property, substantial evidence supported trial courts findings that (1) the parties intended a cost-plus profit contract with no maximum price; (2) the contract was substantially performed; (3) the contractors acceptance of a check marked “final payment” from plaintiffs” bank was not intended to be an accord and satisfaction; and (4) all but one of the promissory notes from plaintiffs to contractor did not represent actual debts between the parties. See Laughlin Recreational Enterprises, Inc. v. Zab Development Company, Inc., 98 Nev. 285, 646 P,.2d 555 (1982).

In proceeding on crossclaim for amount allegedly due on road construction contract, where a portion of the roads difficult to build because of granite outcroppings had not been completed, but easily constructed portions had been completed, evidence sustained finding that parties had not intended that contractor could do the easy portions and be paid the full unit price and leave the difficult portions not completed. See Lagrange Construction Inc. v. Kent Corp., 88 Nev. 271, 496 P.2d 766 (1972).

Evidence supported finding that remodeling supervisor was working as general “contractor” where the supervisor contracted for work, obtained building permits, accepted bids, supervised work, and paid subcontractor. NRS 624.020. It is incumbent upon one seeking to extend personal liability to corporate officer for corporate debt, to show by preponderance of evidence, that officer intended to be personally bound, and that creditor was looking to officer as creditor of the debt. No evidence supported imposition of liability on general contractor for amount owed to electrical subcontractor pursuant to subsequent oral contract between owner and subcontractor. See Trident Construction Corp. v. West Electric, Inc., 105 Nev. 423, 776 P.2d 1239(1989).

It is for a fact-finding tribunal to determine construction parties gave contract by their action. See Holland v. Crummer Corporation, 78 Nev. 1, 368 P.2d 63 (1962).

Substantial evidence supported determination that major medical insurer fraudulently misrepresented policy as being equivalent to insured’s previous major medical policy. See Albert H. Wohlers & Co. v. Bartigis, 114 Nev. 1249, 969 P.2d 949 (1998).

Parol Evidence Rule

Meaning and legal effect of unambiguous contract are generally questions of law, but parol evidence may be considered to determine the true intent of the parties and contract is ambiguous. See Crank v. Nevada Industrial Commission, 100 Nev. 80, 675 P.2d 413 (1984).

Evidence supported finding that oral agreement between contractor and subcontractor concerning setting up and removing beams and girders on construction project was independent of the subcontract and was not contemplated by the parties in the writing and not contradictory to its terms; thus, proof of the oral agreement did not violate the parol evidence rule. See Robert J. Gordon Construction Company, Inc. v. Meredith Steel Construction, Inc., 91 Nev. 43, 537 P.2d 1199(1975).

In an action to recover upon an unconditional written guarantee for payment of a promissory note, the deposition testimony of one defendant tendered to change the guarantee from an unconditional obligation to a conditional one, was inadmissible. Parol evidence rule forbids reception of evidence which would vary or contradict the contract, since all prior negotiations and agreements are deemed to have been merged into the contract. See Daly v. Del Webb Corporation, 96 Nev. 359, 609 P.2d 319 (1980).

Trial court may construe ambiguity in writing by receiving parol evidence. See Wiley v. Cook, 94 Nev. 558, 583 P.2d 1076(1978).

Parol evidence is allowed to prove mutual mistake, unilateral mistake, or inadequate consideration. Court should provisionally receive all credible evidence concerning party’s intentions to determine whether language of release is reasonably susceptible to interpretation urged by the party. If court decides that extrinsic evidence makes language and release reasonably susceptible to interpretation urged, extrinsic evidence should be admitted to aid court’s interpretation. See Russ v. General Motors Corporation, 111 Nev. 1431, 906 P.2d 718 (1995).

District court property looked to parol evidence to determine whether shareholders which formed a corporation intended the stock to be freely transferrable at any time where there was an ambiguity in the stock and management agreements between the shareholders. See Gramanz v. T-Shirts and Souvenirs, 111 Nev. 478, 894 P.2d 342 (1995).

When parties reduce their contract to writing, all oral negotiations and agreements are merged in the writing, and the instrument must be treated as containing the whole contract, and parol proof is not admissible to alter its terms. See Gage v. Phillips, 21 Nev. 150, 26 P. 60(1891).

Parol evidence may only be admissible to resolve ambiguities in a contract. See Lowden Inv. Co. v. General Elec. Credit Co., 103 Nev. 374, 741 P.2d 806 (1987).

The parol evidence rule generally does not preclude proof that establishes fraud. However, it is never proper simply on the allegation of fraud without proof to permit the parties to offer parol evidence to contradict the writing. It is reasoning in a circle to argue that fraud is made out when it is shown by oral testimony. See Tallman v. First Nat. Bank of Nev., 66 Nev. 248, 208 P.2d 302 (1949).

IV. PARTIES TO CONTRACT

A. Standing and Liability

Generally

Corporation officers signature, without a statement acknowledging he was acting for the corporation, was insufficient to support a finding of personal guaranty for debt of corporation, absent evidence that the officer intended to be personally bound, or that creditor was looking to officer as a guarantor of debt. See Trident Construction v. West Electric, Inc., 105 Nev. 423, 776 P.2d 1239 (1989).

Indemnitees lacked standing to seek relief against investor for breach of promise made to indemnitor to execute whatever personal liability documents were necessary to guaranty equipment lease obligations of corporation. Indemnitees’ remedy was against indemnitor for breach of indemnity agreement. See Wyatt v. Bowers, 103 Nev. 593, 747 P.2d 881 (1987).

An individual, though unnamed in a contract or stranger to both parties may bring suit where breach of the contract has caused him injury. See Williams v. City of North Las Vegas, 91 Nev. 622, 541 P.2d 652 (1975).

A corporation formed by unmarried cohabitants was not a party to the contract between cohabitants to acquire and hold property as though parties were married and thus could not be liable for one cohabitant’s breach of that contract. SeeWestern States Construction Inc. v. Michoff, 108 Nev. 931, 840 P.2d 1220 (1992).

B. Third Party Beneficiaries

Agreement for Benefit of Third Person

Indemnitees that indemnitor agreed to indemnify for any and all past and future liabilities incurred pursuant to corporations equipment lease obligation were not third-party beneficiaries of “Master Agreement” between the investor and indemnitor, absent clear showing in “Master Agreement” that investor intended to benefit in indemnitees when the agreement was entered. See Wyatt v. Bowers, 103 Nev. 593, 747 P.2d 881 (1987).

Third party beneficiary of settlement agreement which was ratified, approved, and incorporated as part of divorce decree had standing to enforce provisions which obligated a former husband to pay child support and to pay college tuition until age 22 for child receiving “C” average or better. See Morelli v. Morelli, 102 Nev. 326, 720 P.2d 704 (1986).

Where contract contains promise for benefit of stranger to a contract, third party beneficiary has a direct right of action against promisor. See Gibbs v. Giles, 96 Nev. 243, 607 P.2d 118 (1980).

To obtain status as third party beneficiary, there must clearly appear a promissory intent to benefit third party and ultimately it must be shown that third party’s reliance thereon was foreseeable. See Lipshie v. Tracy Investment Company, 93 Nev. 370, 566 P.2d 811 (1977).

City’s duty to exercise ordinary care in fulfilling terms of contract, which city and power company entered into and which required city to inspect company’s facilities within city’s jurisdiction, extended to the benefit of a person who, while working on billboard, was electrocuted when a piece of metal came in contact with a power line located too close to billboard in violation of city ordinances. See Williams v. City of North Las Vegas, 91 Nev. 622, 541 P.2d 652 (1975).

The plaintiff can maintain action on simple contract to which he is not a party, which he was not consulted, and to which he did not assent, when it contains a provision for his benefit. However, he must prove that there was intent to benefit him. SeeOlson v. Iacometti, 91 Nev. 241, 533 P.2d 1360(1975).

In absence of evidence that Motor Hotel had been sold to defendant that defendant had assumed the vendor’s obligation for rental space on plaintiffs direct wire reservations board and air terminal, plaintiff could not recover from defendant on the basis of a third party beneficiary agreement. See Lucerne Motor Hotel Corporation v. Airways Intern. Reservations Corp., 82 Nev. 11, 403 P.2d 622 (1966).

Contract to Pay Another’s Debt in General

If the promise was from an individual to a corporation to pay debts of the corporation in exchange for the corporate assets, contract, even if oral, would not be voided by statute of fraud. An employee who had not been paid his salary could enforce the promise as a contractual third party beneficiary. NRS 111.220, Subd. 2. See McMillan v. Torre, 84 Nev. 556, 445 P.2d 160(1968).

Escrow agreement, whereby escrow agent was to disburse funds for payment of bills incurred by water company in installation of facilities to make water available to subdivision with developer to land Vi of funds necessary was not unclear, and the supplier of pipe was third party beneficiary. See Ouijada v. Southern Pipe and Casing Company, 78 Nev. 271, 371 P.2d 661 (1962).

Contract to pay debt to a third person is presumed for his benefit unless it appears that the contract was not so intended. Where there is no promise to satisfy maker’s indebtedness, agreement between successor and maker’s president provided only that obligation of maker to payee for an amount of extraordinary loan would survive bankruptcy proceedings. Intent of parties and tenure of agreement made it plain that successor did not assume or intend to assume any obligation to payee. There was no promise to benefit payee and thus it could not be said that successor had expressly or impliedly bound itself to retire remaining debt to payee so as to entitle him to recover against successor as third party beneficiary. See Lipshie v. Tracy Investment Company, 93 Nev. 370, 566 P.2d 819 (1977).

C. Duties and Liabilities

Duties and Liabilities of Third Persons

As general rule, none is liable upon contract except those who are parties to it. If successor does not promise to satisfy its predecessors’ indebtedness or assume predecessors’ obligations, predecessors’ creditors are not entitled to recover against successor. See Clark County v. Bonanza No. 1, 96 Nev. 643, 615 P.2d 939 (1980).

Third-party defendants who took over operation of game room business pursuant to agreement which included outright purchase of portion of property, including game room, and lease of remainder of property, pursuant to deed and lease, neither of which mentioned agreement between business owners and plaintiffs to loan owners money in exchange for exclusive right to place game machines in business, did not assume agreement. See Eaton v. J.H. Inc., 94 Nev. 446, 581 P.2d 14(1978).

Loans and Advances

Provision of loan agreement disallowing banks duty to inspect was not intended by the parties to disavow a duty implied by law to respond to borrowers’ complaints of substantial defects in construction. See Davis v. Nevada National Bank, 103 Nev. 220, 737 P.2d 503 (1987).

Unopened “loan” is the delivery of the sum of money to another under the contract to return at some future time an equivalent amount with or without an additional sum agreed upon for its use. If such is the intent of the parties, such transaction shall be deemed a loan regardless of its form. See Kline v. Robinson, 83 Nev. 244, 428 P.2d 190 (1967).

D. Performance

Reasonable Time

A reasonable time for performance of a contract depends upon nature of the contract and the particular circumstances involved. See Mohr Park Manor, Inc. v. Bank of Nevada, 87 Nev. 520, 490 P.2d 217 (1971).

In determining what constitutes reasonable period of time to be implied in terms of an agreement, the trial court makes it determination from the nature of the contract and the particular circumstances involved. See Tavel v. Olsson, 91 Nev. 359, 535 P.2d 1287 (1975).

Where agreement does not contain a provision as to the period of duration, the court will imply a reasonable time. See Tavel v. Olsson, 91 Nev. 359, 535 P.2d 1287 (1975).

Option to Renew or Terminate Contract

Where the contract provides that either party may terminate the agreement at will, the party so terminated may not recover damages for those profits that he purportedly could have gained over the maximum life of the contract. So-called “bad faith” defense to a termination-at-will clause is limited to those circumstances where it appears that a special element of reliance exists between the two parties. Damages for lost profits could not be recovered for breach of a subcontractor’s agreement that was terminable at will without cause, where there was neither showing nor finding of special reliance, unconscionability, oppression, or intentional concealment or terminable-at-will provisions. See Dalton Properties, Inc. v. Jones, 100 Nev. 422, 683 P.2d 30 (1984).

Conditions Precedent

Promisor’s purpose in attaching a condition precedent to his promise and legal effect in doing so is to nail a promisor’s obligation so that he will not have to perform if event fails and can never happen. See McCorquodale v. Holiday, Inc., 90 Nev. 67, 518 P.2d 1097 (1974).

Reasonable Compensation

Where services are requested, presumption arises that beneficiary promises to pay their reasonable value. See Day v. West Coast Holdings, Inc., 101 Nev. 260, 699 P.2d 1067 (1985).

Extension Agreement under which lienholders, including subcontractor, released liens and received from owner in return 25 percent payment on claims plus unsecured installment notes for balances claimed due subject to right of owner to challenge correctness of lienholders’ claims by suit precluded fixed price contracts with the lienholders and clearly demonstrated that all the lienholders expected to be paid for reasonable value of labor performed and materials furnished. See Bond v. Stardust, Inc., 82 Nev. 47, 410 P.2d 472 (1966).

Testimony concerning a building which guaranteed maximum costs was $1.2 million, cost over $1.5 million, supported trial courts finding that there had been no savings below guaranteed maximum cost, so that there was no savings that contractor could share pursuant to alleged agreement. See Pandelis Construction Company, Inc. v. Jones-Viking Associates, 103 Nev. 129, 734 P.2d 1236 (1987).

V. MODIFICATION

A. Modification

Generally

Where developer made payments for extra work was not solely controlling of whether it waived contractual requirement of written change order for extra work. Where developer made express oral waiver of contractual written change order requirement for extra work and subcontractor performed extra work in reliance thereon, parties mutually intended to waive written change order condition and subcontractor was entitled to recover for extra work performed. See Udevco, Inc. v. Wagner, 100 Nev. 185, 678 P.2d 679 (1984).

Parties to existing contract may enter into valid agreement to extinguish, rescind or modify it. However, it must be made with mutual consent of parties. See Holland v. Crummer Corp., 78 Nev. 1, 638 P.2d 63 (1962).

Although parties to written contract may orally modify it and parol evidence of subsequent agreement is not summarily excluded, all parties must agree to new terms. See Joseph F. Sanson Investment Co. v. Cleland, 97 Nev. 141, 625 P.2d 566 (1981).

Contract provision that agreement could be terminated or modified and user released from liability thereunder only by written endorsement of owner was for benefit of owner only and could be waived by owner. Even a written contract provision against oral modification may be modified by subsequent oral agreement. Parties may not contractually limit or control what they wish to do in future, and even when they include an express provision against subsequent oral modification thereof, their later oral agreement to modify with discharge of written contract is both provable and effective. See Silver Dollar Club v. Cosgriff Neon Company, 80 Nev. 108, 389 P.2d 923 (1964).

Evidence

In order to justify modification of contract, evidence must be clear and convincing. See Clark County Sports Enterprises, Inc. v. City of Las Vegas, 96 Nev. 167, 606 P.2d 171 (1980).

Evidence established that written contracts for installation of canopy and neon display had been orally modified and that such contracts, as modified, has been performed by plaintiff. See Silver Dollar Club v. Cosgriff Neon Company, 80 Nev. 108, 389 P.2d 923 (1964).

In light of vendor’s actions, trial court erroneously reformed vendor’s agreement with purchaser providing that vendor would either acquire and convey easement burdening land within 120 days of agreement or reduce principal amount of note by $40,000. See Transaero Land and Development Co. v. Land Title of Nevada, Inc., 108 Nev. 997, 842 P.2d 716 (1993).

B. Rescission and Abandonment

Contracts Subject to Rescission

One party to an executory contract, in the absence of fraud or a special reason, cannot rescind. See Bates v. Chronister, 100 Nev. 675, 691 P.2d 865 (1984).

For a subsequent agreement to constitute a “rescission” it must be made with mutual consent of parties to original contract. See Bates v. Chronister, 100 Nev. 675, 691 P.2d 865 (1984).

Parties to existing contract may enter into valid agreement to extinguish, rescind, or modify it. For subsequent agreement to constitute rescission, it must be made with mutual consent of both parties. See Holland v. Crummer Corp., 78 Nev. 1, 638 P.2d 63 (1962).

Evidence of Rescission

Substantial evidence supported findings that contract for a construction of home hid been modified but that no abandonment had occurred. See Holland v. Lepire, 99 Nev. 308, 662 P.2d 1332 (1983).

Where the rescission of an executory contract shall be granted on ground of fraud rests largely in sound discretion of court. See Havas v. Aleer, 85 Nev. 627, 641 P.2d 857 (1969).

Only in rare circumstances will changes in course of construction be so extensive as to require conclusion as matter of law that a contract was abandoned. See Rolland v. Lepire, 99 Nev. 308, 662 P.2d 1332 (1983).

Grounds for Rescission

Reformation of agreement can be awarded if one party has knowledge that the other party suffers from unilateral mistake. Complete restoration is not necessary for grant of rescission of agreement if the party that is not fully restored was actually at fault. See Graber v. Comstock Bank, 111 Nev. 1421, 905 P.2d 1112(1995).

Unilateral mistake can be the basis for a rescission of release if the other party had reason to know the mistake or his fault caused the mistake. See Chwialkowski v. Sachs, 108 Nev. 404, 834 P.2d 405 (1992).

Rescission is an equitable at remedy that allows an aggrieved party to a contract to abrogate totally, or cancel, the contract with the final result that the parties returned to the position that they occupied prior to the formation of the contract. Rescission may be accomplished in one of two ways: (1) legal rescission — party unilaterally cancels contract and responds to a material breach; (2) equitable rescission — party brings action to court with equitable jurisdiction asking court to nullify contract. Where there has been a valid rescission of contract there is no longer a contract to enforce and thus no longer is an action for breach. See Great American Insurance Company v. General Builders Inc., 113 Nev. 346, 934 P.2d 257 (1997).

VI. PERFORMANCE AND BREACH

A. Performance

Construction Contracts

Contractor’s duty to perform job for owner in workmanlike manner is non-delegable. See Reid v. Royal Insurance Company, 80 Nev. 137, 390 P.2d 45 (1964).

Where contract for construction of building provides that it is to be constructed in accordance with prescribed plans and specifications, contractor is not permitted to vary from prescribed plans and specifications even if he deems them improper and insufficient. However, contractor cannot be held to guarantee that work performed as required will be free from defects. Where contract specifies what contractor is to do and manner and method of doing it, and he does the work in the manner specified, his engagement is fulfilled and he remains liable to owner only for defects resulting from improper workmanship or other fault on contractors part. See Home Furniture, Inc. v. Brunzell Construction Company, 84 Nev. 309, 440 P.2d 398 (1968).

Contractor’s letter to property owner stating that contractor was being delayed as a result of difficulties caused by mechanical problems with a precase concrete form which property owner was to have supplied and indicating that he disclaimed any liability for the extra cost and intended to bill property owner at a later date, sufficiently complied with notice and claim provision of the parties’ contract. See Eagle’s Nest Limited Partnership v. Brunzell, 99 Nev. 710, 669 P.2d 714, Appeal After Remand, Brunzell v. Lawyers Title Insurance Corporation, 101 Nev.395, 705 P.2d 642 (1983).

Where contractor makes absolute and unqualified contract to construct building or perform a given undertaking, it is a general rule that he assumes risk attending performance of contract and must repair and make good any injury or defect which occurs or develops before completed work has been delivered to owner. However, where contractor makes contract to perform given undertaking in accordance with prescribed plans and specifications, the rule does not apply. See Home Furniture, Inc. v. Brunzell Construction Company, 84 Nev. 309, 440 P.2d 398 (1968).

In Nevada, if a party has substantially performed, it may recover the full contract price minus necessary expenses to complete the bargained for performance. The roofing subcontractor bore the risk of loss for damaged construction material where the subcontract did not contain a risk of loss provision. See Hermann v. Varco Pruden. Buildings, 106 Nev. 564, 796 P.2d 590 (1990).

In Nevada, there is an implied duty to perform in a workmanlike manner. See Daniel Mann Johnson & Mendenhall v. Hilton Hotels Corp., 98 Nev. 113, 642 P.2d 1086 (1982).

Conditions

Condition precedent to obligation to perform calls for performance of some act after contract is entered into, upon which corresponding obligation to perform immediately is made to depend. An individual who voluntarily prevents occurrence of condition established for his or her benefit is estopped from seeking relief from contract on grounds that the condition precedent to his obligation failed to occur. See NGA #2 Limited Liability Company v. Rains, 113 Nev. 1151, 946 P.2d 163 (1997).

B. Excuses for Non-Performance

Generally

If foreseeable contingency is provided for in contract, its occurrence provides excuse for non-performance. See Nebaco, Inc. v. Riverview Realty Company, 87 Nev. 55, 482 P.2d 305 (1971).

Where contractor has followed plans and specifications furnished by owner and owners’ architect, contractor will not be responsible to owner, at least after work has been completed, for any loss or damage which results solely from defects or insufficient plans or specifications, in absence of negligence on part of contractor or any express warranty by him as to their being sufficient or free form defects. See Home Furniture, Inc. v. Brunzell Construction Company, 84 Nev. 309, 440 P.2d 398 (1968).

Nonpayment of an installment when due may constitute a breach of contract justifying suspension of performance by the contractor. See Lagrange Construction, Inc. v. Kent Corporation, 83 Nev. 277, 429 P.2d 58, Appeal After Remand 88 Nev. 271, 496 P.2d 766 (1967).

Purchasers’ mere acceptance and occupation of home could not constitute waiver of rights under contract in absence of showing that they knew or had reason to know that solar heating system was defective. See Epperson v. Roloff, 102 Nev. 206, 719 P.2d 799 (1986).

B. Discharge

Impossibility of Performance

Generally, defense of impossibility of performance is available to promisor where his performance is made impossible or highly impracticable by occurrence of unforeseen contingencies, but if the unforeseen contingency is one which the promisor should have foreseen, and for which he should have provided, the defense is unavailable to him. See Nabaco, Inc. v. Riverview Realty Company, 87 Nev. 55, 482 P.2d 305 (1971).

Destruction of Subject Matter

Generally, one who contracts to erect a structure for a stipulated price enters into an entire contract to complete such work and must bear the losses resulting from its accidental destruction or damage before completion, unless the contract stipulates that he will not be responsible for losses occurring in such manner. Additionally, the subcontract did not contain a risk-shifting provision absolving subcontractor from bearing the risk of loss until the contract was completed to the satisfaction of the owner and architect. See Lincoln Welding Works, Inc. v. Ramirez, 98 Nev. 342, 647 P.2d 381 (1982).

One who contracts to erect a structure for a stipulated price enters into an entire contract to complete such work and must bear losses resulting from its accidental destruction before completion unless contract stipulates he will not be responsible for losses occurring in such a manner. Although electrical subcontractors’ equipment and material were destroyed by fire on the job site before being installed, contractor was obligated to complete written subcontract requiring him to furnish and install all electrical work for building for stipulated price. See Manfield v. Alfred Brown Company, 85 Nev. 654, 461 P.2d 862(1969).

C. Breach

Acts or Omissions Constituting Breach

National organization’s conduct in terminating distributorship, coupled with refusal to repurchase any of former distributors unsold inventory, constituted breach of obligation of good faith and fair dealing. See Overhead Door Company of Reno, Inc. v. Overhead Door Corporation, 103 Nev. 126, 734 P.2d 1233 (1987).

In order to prevail on a breach of contract claim, a party must prove: (1) the existence of a valid contract; (2) a breach of the contract (a failure to render performance of obligations when due); (3) that the breach, if any did not excuse performance by the other party; (4) that the alleged breach was not a result of the other party’s failure to perform a condition precedent; (5) that damages were sustained; (6) the amount of damages are proved to a reasonable degree of certainty; (7) the damages were a foreseeable consequence of a particular breach. See Dachner v. Union Lead Mining and Smelter Co., 65 Nev. 313, 195 P.2d 208(1948).

Where developers were delinquent on taxes and assessments, investment was overdue, and developers redistributed lot densities without securing required approval of lender, thereby creating a potential impairment of security in violation of contract, lender was not in breach when it failed to release portions of secured property under provision of loan agreement. See Ferdie Sievers and Lake Tahoe Land Company, Inc. v. Diversified Mortgage Investors, 95 Nev. 811, 603 P.2d 270 (1979).

Delay will constitute a breach where time is of the essence. See Spinella v. B-Neva Inc., 94 Nev. 373, 580 P.2d 945 (1978).

The law is clear that any affirmative tender of performance is excused when performance has in fact been prevented by the other party to the contract. See Cladianos v. Friedhoff, 69 Nev. 41, 240 P.2d 208 (1952).

Anticipatory Repudiation

A contractual anticipatory repudiation must be clear, positive, and unequivocal. Whether specific conduct or language is sufficiently clear to constitute an anticipatory repudiation of a contract must be decided in light of total factual context of the individual case. See Covington Bros. v. Valley Plastering, Inc., 93 Nev. 355, 566 P.2d 814 (1977).

Anticipatory repudiation applies where substantial portion of contract is repudiated. See Kahle v. Costiner, 85 Nev. 355, 455 P.2d 42 (1969).

Where party bound by executory contract repudiates his obligation before time for performance, promisee has option to treat contract as ended so far as further performance is concerned and to maintain action at once for damages occasioned by such anticipatory breach. See Finnell v. Bromberg, 79 Ney, 211, 381 P.2d 221 (1963).

In order for the party to prevent completion, there must be acts, conduct, or declarations of the party evincing a clear intention to repudiate the contract and to treat it as no longer binding. See Enloe v. Blain, 94 Nev. 198, 577 P.2d 60 (1978).

Failure of Performance

Where there was complete failure of performance for dam construction contract, there could be no recovery contractor under the agreement. See Thompson v. Hermann, 94 Nev. 63, 530 P.2d 1183 (1975).

Breach of covenant to ‘provide liability insurance is actionable. See Coblentz v. Hotel Employees & Restaurant Employees Union Welfare Fund, 112 Nev. 1161, 925 P.2d 496 (1996).

Liquidated Damages

Liquidated damages were not a penalty and could be recovered by vendors and there was no evidence of actual damages. Potential purchaser failed to establish that the amount of actual damages to vendors from the breach was disproportionate to the amount of damages provided by the liquidated damages clause. See Loomis v. Lange Financial Corporation, 109 Nev. 1121, 865 P.2d 1161 (1993).

Liquidated damages awarded for failure to timely perform where contract stated that time was of the essence. See Spinella v. B-Neva Inc., 94 Nev. 373, 580 P.2d 945 (1978).

E. Waiver

Generally

Waiver of contractual right can be implied from contract such as making payments or accepting performance which does not meet contract requirements and can also be expressed verbally or in writing. See Udevco, Inc. v. Wagner, 100 Nev. 185, 678 P.2d 679 (1984).

Express waiver, when supported by reliance thereon, excuses non-performance of waived contractual condition. SeeUdevco, Inc. v. Wagner, 100 Nev. 185, 678 P.2d 679 (1984).

Any inconsistent act, dealing, or expression of intent not to require the doing of the thing suffice as to prevent a forfeiturebased on the non-performance of such thing. See Summa Corporation v. Richardson, 93 Nev. 228, 564 P.2d 181, Appeal AfterRemand, 95 Nev. 399, 596 P.2d 208 (1977).

To establish a waiver, asserting waiver must prove that there has been an intentional relinquishment of a known right. Waiver may be implied through conduct evidencing an intent to waiver rights, or conduct that is inconsistent with any other intention than waiver. See Gramanz v. T-Shirts and Souvenirs, 111 Nev. 478, 894 P.2d 342 (1995).

F. Evidence

Weight and Sufficiency

Substantial evidence sustained at district court’s factual determination that mortgage company had anticipatorily repudiated its contract with development company. State Mortgage Company v. Rieken Development, Inc., 99 Nev. 483, 664 P.2d 358 (1983).

In surveyors’ action against owner for breach of contract under which surveyor agreed to perform survey work and reports pertaining to construction of addition to hotel and casino, expert testimony was not required to prove breach of owners’ duty. See Daniel, Mann, Johnson & Mendenhall v. Hilton Hotels Corp., 98 Nev. 113, 642 P.2d 1086 (1982).

An action for architect to recover professional fee for services rendered, evidence was sufficient to support district court’s conclusion that architect had performed his contractual obligations and was entitled to agreed-up compensation. See Pace v. Linton, 97 Nev. 103, 625 P.2d 84 (1981).

In subcontractor’s action against general contractor for housing project to obtain foreclosure of mechanics lien and to obtain damages for breach of contract under which subcontractor was to perform exterior “stucco” job, finding that such subcontractor, which failed to respond to general contractors letter requesting written assurance that subcontractor was willing to perform second phase of contract, had not committed an anticipatory repudiation of contract was supported by substantial evidence See Covington Brothers v. Valley Plastering, Inc., 93 Nev. 355, 566 P.2d 814 (1977).

Evidence, in proceeding on crossclaim by electrical contractor against electrical materials supplier seeking damages for delay in supplying materials, supported finding that delay and consequent damage were due solely to supplier’s failure to deliver on time. See Solar. Inv. v. Electric Smith Construction & Equipment Co., 88 Nev. 457, 499 P.2d 649(1972).

Evidence, in action by prime contractor for state highway construction project against subcontractor for breach of contract, supported finding that subcontractor had fully performed pursuant to oral subcontract for moving earth from cut and proposed roadway to fills at bridge abutment. See Savini Construction Co. v. A & K Earth Movers, Inc., 88 Nev. 5, 492 P.2d 125 (1972).

Evidence sustained findings that no account stated had been effected as to services and merchandise rendered and sold to defendant by plaintiffs’ assignor. The indebtedness due plaintiff had been incurred at the request of the assignor for payment to be made for future deductions for money defendant would receive from assignor for work. The contract between assignor and defendant was executory and then binding and that defendant had not breached it. See Nevada Credit Rating Bureau, Inc. v. Williams, 80 Nev. 343, 393 P.2d 618 (1964).

Evidence supported finding that landscaper had substantially complied with terms tree planting and landscaping contract. See Dunes Hotel Inc. v. Schmutzer, 78 Nev. 208, 370 P.2d 685 (1962).

The evidence supported findings that; (1) contractor was responsible for delay in paving work at mobile home park; (2) the contractor breached contract for paving work by failing to apply part of prime coat, failing to apply seal coat, and using type of gravel other than that specified in contract; and (3) the asphalt overlay would make paving conform to its expected state of durability. See Cheyenne Construction, Inc. v. Hazz, 102 Nev. 308, Nev. 720 P.2d 1224 (1986).

In subcontractor’s action against general contractor for housing project to obtain foreclosure of mechanics lien and to obtain damages for breach of contract under which subcontractor was to perform exterior “stucco” job, finding that subcontractor’s work was not work within the scope of the contract, and thus subcontractor was entitled to an additional payment for such work was supported by substantial evidence. See Covington Bros. v. Valley Plastering, Inc., 93 Nev. 355, 566 P.2d 814 (1977).

Evidence that electrical contractors bid for $600 for rewiring work related only to two rooms of house sustained judgment of$l,596,9] in favor of contractor for rewiring entire house. See Picking v. Day and Night Electric, Inc., 87 Nev. 5, 479 P.2d 461(1971).

Building Contracts

In suit against contractor for failure to complete performance of a contract to build a hotel and casino on plaintiffs’ property, substantial evidence supported trial court’s findings that; (1) the parties intended a cost-plus-profit contract with no maximum price; (2) the contract was substantially performed; (3) contractor’s acceptance of a check marked “final payment” from plaintiffs’ bank was not intended to be in accord and satisfaction; and (4) all but one of the promissory notes from plaintiff to contractor did not represent actual debts between the parties. See Laughlin Recreational Enterprises, Inc. v. Zad Development Co., Inc., 98 Nev. 285, 646 P.2d 555 (1982).

Evidence that; (1) difficulty caused by subcontractors supplying of non-conforming girders was not great; (2) the substituted girders could bear greater loads then the beams called for in agreement between contractor and subcontractor; (3) weight of the girders actually provided should not have caused contractor any of the problems which it complained; and (4) contractor fully benefitted from work performed by the subcontractor, sustained finding that any breach by subcontractor by supplying girders of composite steel parts rather than one piece steel beams was non-material. Evidence sustained finding that telephone company for which construction project was undertaken did not authorize subcontractor to substitute girders for beams so that contractor could not recover from telephone company for amount which it might owe subcontractor because of substitution. See Robert J. Gordon Construction Company, Inc. v. Meredith Steel Construction, Inc., 91 Nev. 434, 537 P.2d 1199 (1975).

In action by builder of building against owner to recover balance due under contract for construction of building wherein owner contended that it was entitled to withhold $10,000 because of fact that puddles or “bird baths” formed during showers on top concrete slab, which served as roof, evidence sustained finding of trial judge that contractor performed in accordance with plans and specifications of contract as required by owners’ architect and was therefore entitled to recover. See Home Furniture, Inc. v. Brunzell Construction Co., 84 Nev. 309, 440 P.2d 398 (1968).

Evidence established that written contracts for installation of canopy and neon display had been orally modified and that such contracts, as modified, had been performed by plaintiff. See Silver Dollar Club v. Cosgriff Neon Company, 80 Nev. 108, 389 P.2d 923 (1964).

Questions for Jury

Where service rendered does not involve esoteric knowledge or uncertainty that calls for professional judgment, it is beyond knowledge of jury to determine adequacy of performance. See Daniel, Mann, Johnson &Mendenhall v. Hilton Hotels Corp., 98 Nev. 113, 642 P.2d 1086(1982).

Evidence presented jury issue as to whether purchasers knew or should have known prior to close of escrow of defect in solar heating system so that their decision to close notwithstanding that knowledge precluded them from subsequently recovering for breach of contract. See Epperson v. Roloff, 102 Nev. 206, 719 P.2d 799 (1986).

G. Actions and Defenses

Remedies

When parties to a contract prescribe a remedy, a presumption arguably exists that they intended the remedy to be exclusive; however, use of the presumption generally confined to cases in which the specified remedy provided for liquidated damages in lieu of other rights normally incident to a contract. See Phillips v. Mercer, 94 Nev. 279, 579 P.2d 174 (1978).

In the event of a breach of covenant, remedy is in contract for breach. See Wittlesea v. Farmer, 86 Nev. 347, 469 P.2d 57(1970).

Causes of Action

Decision of bank to forego collection on balance due on construction loan issued to builder to finance construction of garage pursuant to construction contract did not effect builders right due to him under contract. See Putt v. Duvall, 97 Nev. 250, 628 P.2d 298 (1981).

Complaint seeking declaration of interest in property couple had acquired during their proximately 23 year co-habitation stated cause of action for breach of implied-in-fact contracts to acquire and hold property as if parties were married or general partners. See Hay v. Hay, 100 Nev. 196, 678 P.2d 672 (1984).

Specific Performance

Granting of specific enforcement of a written 99-year lease with option to purchase was not an error on the theory that the written instrument was so vague that the definition of its terms were impossible, the consideration was inadequate, or the lessees were guilty of misrepresentation or fraud. See Wiley v. Cook, 94 Nev. 558, 583 P.2d 1076 (1978).

Specific performance is available only when (1) the terms of the contract are definite and certain; (2) the remedy at law is inadequate; (3) the performance has been tendered; and (4) the court is willing to order it. To be awarded specific performance, purchaser who has not tendered purchase price must demonstrate that she is ready, willing, and able to perform. See Serpa v. Darling, 107 Nev. 299, 810 P.2d 778 (1991).

Equitable Estoppel

The doctrine of equitable estoppel is grounded in fairness. To prove equitable estoppel, the party must prove four elements: (1) the party must be apprised of the true facts; (2) the party must intend that his or her conduct shall be acted upon or must act in such a manner that there is a right to believe it was intended; (3) the party must be ignorant of the true state of facts; and (4) the party must have relied to his or her detriment. See Hermanson v. Hermanson, 110 Nev. 1400, 887 P.2d 1241(1994).

Equitable estoppel operates to prevent party from asserting legal  rights that in equity and good conscious they should not be allowed to assert because of their conduct. To establish equitable estoppel, a party must show (1) the party was apprised of the true facts; (2) the party intended that his conduct shall be acted upon; (3) the party asserting estoppel must be under the true state of facts; and (4) the party asserting estoppel must have relied to his detriment on the conduct of the party to be estopped. See NGA #2 Limited Liability Company v. Rains, 113 Nev. 1151, 946P.2d 163 (1997).