## Facts

- Bak-A-Lum Corporation of America (BAL) and Alcoa Building Products, Inc. (ALCOA) entered an oral arrangement around 1962–1963 making BAL the exclusive distributor of ALCOA siding and related products in Northern New Jersey.
- BAL was permitted to sell other siding lines but was expected to maintain an adequate organization and use best efforts to sell ALCOA products; BAL performed satisfactorily and met ALCOA sales quotas in later years.
- By 1969, ALCOA internally decided to end BAL’s exclusivity and add other distributors in the territory but did not disclose this decision to BAL.
- During ALCOA’s nondisclosure, BAL made significant business commitments associated with continuing exclusivity, including entering a long-term warehouse lease to support its distribution operation.
- In January 1970, ALCOA appointed four additional distributors in Northern New Jersey, effectively terminating BAL’s exclusive status without advance warning sufficient for BAL to adjust its operations and commitments.
- BAL sued for injunctive relief and damages; ALCOA counterclaimed for unpaid merchandise sold to BAL.

## Issues

1. Whether an oral exclusive distributorship of indefinite duration could be terminated only after a reasonable time and upon reasonable notice, rather than at will without notice.
2. Whether ALCOA’s concealment of its decision to end exclusivity while BAL undertook long-term commitments breached the implied covenant of good faith and fair dealing.
3. What damages were recoverable for the termination, including the appropriate notice period, and whether equity affected interest on BAL’s acknowledged debt to ALCOA.

## Decision

- The New Jersey Supreme Court affirmed that a binding exclusive distributorship existed and that, after a reasonable duration, ALCOA could end exclusivity.
- The Court held ALCOA breached the implied covenant of good faith and fair dealing by withholding its decision to add competing distributors while BAL made substantial reliance-based commitments.
- The Court held the notice given was not reasonable and that ALCOA’s concealment was highly relevant to determining what notice was reasonable.
- The Court modified the damages by extending the reasonable-notice period, increasing BAL’s recovery for losses attributable to the lack of reasonable notice.
- The Court addressed BAL’s request for equitable relief concerning interest on BAL’s conceded indebtedness to ALCOA, but did not eliminate BAL’s underlying obligation on the counterclaim.

## Legal Principles

- Every contract includes an implied covenant of good faith and fair dealing requiring that neither party act to destroy or limit the other’s right to receive the contract’s benefits.
- A party with discretion to terminate or materially alter an ongoing distributorship relationship must exercise that discretion in good faith.
- An exclusive distributorship of indefinite duration is terminable only after a reasonable time and upon reasonable notice under the circumstances.
- Reasonableness of notice is fact-dependent and may be affected by the terminating party’s conduct, including nondisclosure of material plans that induce foreseeable, detrimental reliance.
- Damages for wrongful termination in this setting are measured by losses caused by the failure to provide reasonable notice, not by an entitlement to perpetual exclusivity.

## Conclusion

The court permitted termination of an indefinite exclusive distributorship after a reasonable duration, but held that the manufacturer’s concealed plan to end exclusivity breached the implied covenant of good faith and required a longer reasonable-notice period, with damages limited to losses attributable to the absence of reasonable, good-faith notice.


Bak-a-Lum Corp. of Am. v. Alcoa Bldg. Prods., Inc., 69 N.J. 123, 351 A.2d 349 (N.J. 1976)