Carmichael v. Adirondack Bottled Gas Corp.
161 Vt. 200, 635 A.2d 1211 (1993)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
The implied covenant of good faith and fair dealing extends to post-termination conduct when a contract contemplates a wind-down period, and a party commits an actionable wrong if the manner of termination is contrary to equity and good conscience.
Facts:
- In 1981, Philip and Janet Carmichael bought a gas distributorship, and Philip Carmichael entered into a contractor's agreement with Adirondack Bottled Gas.
- The agreement contained a 'key man' clause, providing that the contract would automatically terminate upon the death of Philip Carmichael.
- In the summer of 1987, the Carmichaels attempted to sell their distributorship to Adirondack for $60,000, but Adirondack offered only $38,500, which the Carmichaels rejected.
- On December 24, 1987, Philip Carmichael died in an accident, triggering the contract's termination clause.
- Shortly after the funeral, Janet Carmichael informed an Adirondack manager of her intent to continue the business, and he replied that they would discuss it later.
- On January 5, 1988, Adirondack sent a letter to Carmichael's attorney, renewing its previous offer to purchase the business for $38,500.
- On January 15, after Carmichael indicated she would not sell, Adirondack's attorney told her that 'no matter what... I was out of business Monday at noon.'
- Believing she would be cut off from her gas supply, Carmichael laid off her employees and sold business equipment to a competitor over the weekend before the deadline.
Procedural Posture:
- Janet Carmichael filed suit against Adirondack in Washington Superior Court (a state trial court).
- The trial court ordered that accounting claims arising from the Contractor Agreement be submitted to arbitration but retained jurisdiction over other claims.
- While arbitration was pending, Carmichael sued Adirondack in federal district court for antitrust violations; that suit was later dismissed with prejudice.
- Adirondack moved for summary judgment in the state court action, arguing the federal court dismissal barred the state claims, but the trial court denied the motion.
- The state case proceeded to a seven-day jury trial.
- The trial court directed a verdict for Adirondack on all counts except for the breach of the implied covenant of good faith and fair dealing.
- The jury returned a verdict for Carmichael on the good faith claim, awarding $60,000 in compensatory and $100,000 in punitive damages.
- Adirondack, the defendant-appellant, appealed the judgment to the Supreme Court of Vermont.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a party's conduct following the automatic termination of a contract, specifically by taking advantage of the other party's vulnerable circumstances during the wind-down period, constitute a breach of the implied covenant of good faith and fair dealing?
Opinions:
Majority - Morse, J.
Yes. A party's conduct following the automatic termination of a contract can constitute a breach of the implied covenant of good faith and fair dealing. The duty of good faith and fair dealing did not expire abruptly with Philip Carmichael's death because the nature of the business relationship and the contract itself contemplated post-termination duties related to winding down their affairs. The covenant exists to ensure parties act with faithfulness to the agreed common purpose and is breached by conduct that violates community standards of decency, fairness, or reasonableness. The court found sufficient evidence for a jury to conclude that Adirondack breached this duty by taking advantage of Janet Carmichael's vulnerable situation, imposing unreasonably short deadlines, and attempting to coerce her into selling the business at a previously rejected low price. This conduct amounted to an abuse of a power to terminate and was contrary to equity and good conscience.
Analysis:
This case establishes that the implied covenant of good faith and fair dealing is not confined to the performance period of a contract but can extend to post-termination activities. The decision broadens the scope of the covenant, treating it less like a bargained-for contract term and more like a tort duty imposed by law to ensure fairness. By focusing on the 'manner of termination,' the court created a precedent that even a contractually valid termination can lead to liability if it is executed in bad faith, such as by exploiting a party's necessitous circumstances. This will influence future cases involving franchise or distributorship terminations, requiring dominant parties to act equitably during the wind-down process.
Unlock the full brief for Carmichael v. Adirondack Bottled Gas Corp.