Brief Fact Summary.
The defendant supplied plaintiff with propane and other fuel that was resold to plaintiff’s customers. Per a clause in the contract between them, it will automatically terminate upon the triggering the key man provision.Plaintiff sued the defendant, and the defendant appealed.
Synopsis of Rule of Law.
In Vermont, the implied covenant of good faith and fair dealing maystretch out past the lapse of an agreement term to activities and commitments required to be performed by the parties.
Adirondack Bottled Gas Corporation (Adirondack) (defendant) provided Philip and Janet Carmichael's (plaintiff) oil gas distributorship with propane and other fuel that was then sold to the Carmichaels' clients. Incorporated into the agreement amongst Adirondack and the Carmichaels was a "key man" condition which gave that the supply contract ended naturally upon the demise of Philip or any adjustment in the administration or responsibility for Carmichaels' business. Several years later, Philip died, triggering the key man provision. From that point, Adirondack kept on providing Janet's business with fuel while making a few offers to buy the Carmichaels' business for approximately half its value. Each time an offer was made, Janet refused. Subsequently, a lawyer for Adirondack educated Janet that it would never again supply the fuel items. Therefore, Janet was compelled to lay off her representatives, sell most of the company’s assets, and her clients went without propane. After the parties wrapped up the execution of specific commitments required under the agreement, Janet recorded suit against Adirondack for breach of bad faith and fair dealing among other claims. After a trial, a jury held for Janet and granted her $60,000 in compensatory harms and $100,000 in punitive damages. Adirondack appealed.
In Vermont, may the implied covenant of good faith and fair dealing stretch out past the lapse of an agreement term to activities and commitments required to be performed by the parties?
Yes. The implied covenant of good faith and fair dealing exists to ensure that the parties to an agreement act with “faithfulness to an agreed common purpose.” Restatement (Second) of Contracts § 205, cmt. A (1981).
An underlying principle implied in every contract is that each party promises not to do anything to undermine or destroy the other's rights to receive the benefits of the agreement.View Full Point of Law
Adirondack contends the trial court erred in directing the jury to consider whether the actions of Adirondack constituted a breach of the implied covenant of good faith and fair dealing because there was no agreement amongst them and the Carmichaels as of Philip's death. In fact, Adirondack is right. The implied covenant of good faith and fair dealing exist exists to guarantee that the parties to an agreement demonstrate “faithfulness to an agreed common purpose.” Restatement (Second) of Contracts § 205, cmt. A (1981). At the point when the commitments under an agreement end, so do the implied covenant. Frequently, however, the nature of a business relationship requires actions to be taken by each party to a contract even after the contract term expires. The covenants of good faith and fair dealing stretches out to the post-contract execution of each party. Here, the agreement amongst Adirondack and the Carmichaels accommodated the return of deposits, cooperation in locating equipment in the field, and the return of business records, among different commitments long after the lapse of the agreement term. The greater part of this action was subject to the implied covenant. The key man clause did not stifle Adirondack's commitment to "play fair" in its dealings with Janet. The judgment of the trial court is affirmed.