P and her husband bought a petroleum gas distributorship and entered into contractor's agreement with D that said D would supply gas to P to supply to P's customers.
The agreement contained a "key man" clause that said that in the case of P's husband's death, the contract would terminate.
P's husband died, and P decided that she wanted to keep the business.
D wanted to buy the distributorship for a low price, but P would not sell. D then threatened that they would not provide any more gas and that P would be out of business by Monday.
P accepted this and began selling her business assets.
Later, D pressured P to sign an agreement signing over all of her remaining assets to D.
P filed suit against D for return of deposits, collection of accounts, etc. D filed suit against P for inventory not returned, fuel not paid for, etc.
The lower court dismissed all of P's claims except for the count that alleged that D's conduct toward P following the death of her husband amounted to a breach of the implied covenant of good faith and fair dealing.
Procedural History:
Lower court jury found for P, awarded $60k actual and $100k punitive.
VT Supreme Court affirmed the judgment, found for P.
Issues:
Does the obligation of good faith and fair dealing continue even after a contract has been terminated because of a "key man" clause?
Holding/Rule:
The obligation of good faith and fair dealing continues even after a contract has been terminated because of a "key man" clause.
Reasoning:
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.
The implied promise of good faith protects against a variety of conduct characterized as involving bad faith because they violate community standards of decency, fairness, or reasonableness.
Examples of bad faith are evasion of the spirit of the bargain, lack of diligence or slacking off, willful rendering of imperfect performance, abuse of a power to specify terms, and interference with or failure to cooperate in the other party's performance.
Good faith is ordinarily a question of fact, one particularly well-suited for juries to decide.
All post-termination activity was subject to good faith and fair dealing. Although the "key man" provision may have spelled an end to the parties' contractually contemplated business-as-usual, the provision did not extinguish the context of prior dealings between the parties.
