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Law School Case Brief

Carmichael v. Adirondack Bottled Gas Corp. - 161 Vt. 200, 635 A.2d 1211 (1993)

Rule:

The definition of the "covenant of good faith and fair dealing" is broad. 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 covenant of good faith and fair dealing exists to ensure that parties to a contract act with "faithfulness to an agreed common purpose and consistency with the justified expectations of the other party.

Facts:

Plaintiff distributor initiated an action against defendant supplier in arbitration for damages resulting from the winding down of the sale of the distributor's business to the supplier. The arbitrator awarded the distributor damages. A trial followed and the Superior Court of Washington County (Vermont) awarded damages to the distributor on the claim of breach of the covenant of good faith and fair dealing. The supplier appealed, arguing that the distributor was precluded from bringing the action because the claims had been resolved in arbitration. The supplier claimed that the jury was improperly instructed on the law of good faith and accord and satisfaction. The supplier also asserted that the distributors waived their right to punitive damages, and that the calculation of interest was erroneous.

Issue:

Was the supplier correct in its assertions?

Answer:

No.

Conclusion:

The Court held that the supplier failed to raise the defense of res judicata and was precluded from asserting it on appeal, and that the lower court's instruction captured the substance of the implied promise of good faith and fair dealing. Moreover, the Court held that the supplier failed to object to the instruction on punitive damages, and that the lower court did not err in failing to instruct the jury on accord and satisfaction because there was no evidence to support it.

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