Carmichael v. Adirondack Bottled Gas Corp. of Vermont

Supreme Court of Vermont · 1993 · Contracts

ContractsImplied covenant of good faith and fair dealingRes judicataClaim-splittingAccord and satisfactionPrejudgment interestgood faithfair dealing

Facts

Philip and Janet Carmichael operated a gas distributorship under a contractor's agreement with Adirondack that automatically terminated upon Philip's death. After Philip died, Janet told Adirondack she wanted to continue the business, but Adirondack repeatedly pressed her to sell, imposed very short deadlines, and according to her stated that she would be out of business by Monday at noon whether she sold or not. Believing Adirondack would stop supplying fuel, she laid off employees and sold equipment to a competitor over the weekend. When she turned over customer records so customers would not be left without fuel, Adirondack immediately began servicing those customers.

Issue

Whether Adirondack could be liable for breach of the implied covenant of good faith and fair dealing based on its conduct after the contractor's agreement terminated upon Philip Carmichael's death. The court also considered whether arbitration or a dismissed federal antitrust action precluded the state claim, whether an accord-and-satisfaction instruction was required, and whether prejudgment interest could run from the date of breach.

Rule

Every contract carries an implied covenant that neither party will do anything to undermine or destroy the other's right to receive the benefits of the agreement, requiring faithfulness to the agreed common purpose and consistency with the justified expectations of the other party. In a relationship that contemplates post-termination dealings to wind up contractual affairs, the covenant may apply to post-termination conduct related to that relationship. Good faith is context-specific and ordinarily a question of fact for the jury; recognized forms of bad faith include evasion of the spirit of the bargain, abuse of termination power, failure to cooperate, harassing demands, rejection for unstated reasons, and unfairly taking advantage of the other party's necessitous circumstances. A defendant who fails to object to simultaneous claim-splitting acquiesces in it and waives a res judicata defense.

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In Burlington, Vermont, North Peak Fuel hired Elena Ruiz as an independent distributor under an agreement that automatically ended if Elena sold her company. The contract also required post-termination cooperation, including transfer of customer deposits, return of leased tanks, and delivery of route records. After Elena sold the company, North Peak refused to tell her for several days whether it would honor pending deliveries, while demanding immediate turnover of records and threatening to contact customers itself that afternoon.

If Elena sues for breach of the implied covenant of good faith and fair dealing based on North Peak's conduct after termination, which is the best argument for allowing the claim to reach the jury?

Explanation. The majority held that the duty of good faith and fair dealing does not necessarily end abruptly at termination when the parties' agreement contemplates post-termination interaction related to winding down their affairs. Here, the contract required continued cooperation over deposits, equipment, and records, so the covenant can apply to North Peak's conduct during that wind-down. Whether the conduct was unfair is ordinarily a contextual question for the jury. (Derived from Carmichael v. Adirondack Bottled Gas Corp. of Vermont (1993).)