Title: J S HOME REALTY INC v ANACOND

State: montana

Issuer: Montana Supreme Court

Document:

No. 13356 IN THE SUPREME COURT OF THE STATE OF MONTANA 1977 J & S HOME REALTY, INC., a Montana Corporation, Plaintiff and Appellant, THE ANACONDA COMPANY, A Montana Corporation, Defendant and Respondent. Appeal from: District Court of the Fourth Judicial District, Honorable Edward T. Dussault, Judge presiding. Counsel of Record: For Appellant: Boone, Karlberg and Haddon, Missoula, Montana Wm. T. Boone argued and Sam E. Haddon argued, Missoula, Montana For Respondent : Garlington, Lohn and Robinson, Missoula, Montana Robert E. Sheridan, Jr. argued, Missoula, Montana Submitted: March 2, 1977 Filed: f i p ~ 2 7 IC-~-/ . - . Plr. Jus c l c e o h i l "or~way Harrisoil Jelivered the Opinion of the Court. P l a i n t i f f appeals from a judgment entered by the d i s t r i c t court, Missoula County, s i t t i n g without a jury, i n a breach of contract action. L i a b i l i t y and damages were separated f o r t r i a l . I n March 1971, J & S Home Realty, Inc. (J & S) entered i n t o a contract with The Anaconda Company (Anaconda) t o a c t a s the d i s t r i b u t o r of prefabricated homes manufactured by Anaconda Forest Products, a division of the Anaconda Company. B y the terms of t h i s contract J & S was t o be the sole d i s t r i b u t o r of these homes i n Montana. For t h i s privilege J & S was t o pay a franchise fee and receive a specified percentage commission on each s a l e . I n May 1972 Anaconda sent a notice which conformed t o the procedure s e t out i n the contract termination provision informing J & S t h a t Anaconda was terminating the franchise. O n June 26, 1972, following s i x months of negotiations, Anaconda sold the a s s e t s of i t s division, Anaconda Forest Products, including the prefab- ricated home building plant t o Champion International Corporation f o r i t s U.S. Plywood Division. It i s conceded the termination was an adjunct t o the s a l e of these assets. A l l p a r t i e s agree (1) Anaconda Forest Products was a p r o f i t a b l e division of Anaconda and t h a t these a s s e t s were sold f o r a sound business reason t o improve Anaconda's cash position, (2) t h a t a t the time Anaconda entered i n t o the franchise agreement with J & S the s a l e of those a s s e t s was not contemplated, and (3) t h a t the termination provision i n the franchise contract was a subject of bargaining. The original draft of the provision allowed termination - . "with or without cause" while the final provision reads in pertinent part: i it her party may cancel or terminate this agreement with cause, including any breach of the provisions of this agreement Jc * *." Berton N. Schultz, Jr. of J & S, testified that during negotia- tions with Anaconda the reason for the change of language was: ! ' A . Well, it was going to be our responsibility to set up other distributors and to hire people. And at that time we felt that we were not willing to enter into a contract with Anaconda if such a contract could be canceled in 30 days by either party at their own will . " As a result of entering into the contract, J & S hired additional people and made changes in their company which entailed substantial dollar investments. This case is not one where the distributor of the product had all the bargaining power and the provisions of the contract favor the distributor. Here, the language of the contract on its face excludes termination at the subjective will of the parties. The phrase "cause, including any breach of the provisions of this agreement" indicates that "cause" was meant to be broader than legal cause alone. Care should be taken that there is no confusion on this matter -- Anaconda always had the power to terminate the contract but it would, of course, have to pay damages. Here, the question is whether there was "cause" for termination which would allow the ending of the relationship pursuant to the contract provision and thus not have to pay damages. The sole issue presented for this Court's review is whether Anaconda's going out of the building materials business, in good I I faith for business reasons, is cause" as the term was used in the contract l The question is difficult and arises in a number of contexts, but the controlling issue is what the parties meant at the time of entering the contract by the words "with cause". Applying Montana's rules of construction,the parties certainly did not mean the contract could be terminated at will to the advantage of the corporation. Anaconda sold the assets rather than the cor- poration and conveniently disposed of the rights of J & S. Anaconda's prior franchises were terminable "with or without cause" but in the instant case the parties bargained to a different agreement. To hold otherwise is to allow termination at will, requiring only a good faith subjective reason for termina- tion, and termination at will was excluded by the contract language. Here, it is clear that termination was not for some failure on the part of J & S . In fact the termination notice states: 11 We certainly have enjoyed our relationship with you and your organization and are very sorry that this relationship has to be terminated." The only cause alleged by Anaconda as the basis for termination was that the sale of the assets made performance impossible. However, the sale of assets took place after the termination. The termination was an adjunct to the sale and not because sale had made performance impossible. IJhile it is undisputed that Anaconda had a sound good faith reason to sell its forest products assets, there was no condition forcing termination, the division was still profitable and able to get materials. If Anaconda could no longer get the materials it needed from its timber lands because of government regulation, or if a long term downturn in the economy destroyed the profit of the building materials division, then there might exist condi- tions forcing termination emanating from outside Anaconda's control which would c o n s t i t u t e "cause". I n P a r s i l v. Emery, 272 N.Y.S. 439, 440; an argument similar t o Anaconda's was rejected: "* * * The claim of defendant t h a t he i s excused from performance under the contract 'because performance has been made impossible by destruction of the subject matter thereof' i s predicated upon the a l l e g a t i o n t h a t the employer was dissolved a s a corporation. The answer t o t h i s , i n our opinion, i s t h a t t h i s dissolution was nothing more than a voluntary s a l e of the corporate a s s e t s t o another corporation engaged i n l i k e business. The case might be otherwise had the dissolution been effected by the Attorney General; i n other words, an involuntary dissolution * * *." Several cases c i t e d by J & S a r e of import here. I n Buono . - i i - . - . D I D Sdles Inc. v. ~ h r y s l e r Motors Corporation, 363 F.2d 43,44,49, a d i s t r i b u t o r who had a contract t o s e l l DeSoto and Plymouth automobiles was terminated by the corporation's decision t o discontinue t h e DeSoto. The court noted t h a t from the contract i t s e l f the very thought t h a t Chrysler might sometime abandon the DeSoto was not within i t s contemplation a t the time the contract was entered i n t o with i t s dealers; t h a t had the corporation contemplated such action it could e a s i l y have so provided i n the contract. Further t h a t i n a l l such dealings of the corporation with dealer franchises the corporation i s the dominating party. The court noted: "* * * Deceiving i t s dealers from the beginning a s t o what would have been an a l l important element of the agreement, hardly f i t s t h a t s i t u a t i o n o r indeed i n t o the basic picture of an outstanding American industry. A s appears from the record t h i s matter a r i s e s wholly from a r a d i c a l corporate determination, f o r whatever the reason, t o cut i t s production losses on DeSoto immediately. The inevitable c o l l a t e r a l consequences of t h a t move, the damage claims of i t s dealers, e t c . , i f then bothered about Z i t a l l , undoubtedly were regarded a s the l e s s e r e v i l which could be handled l a t e r . "The contract before us i s clear. Its unmistakable i n t e n t i s t o protect Chrysler a s t o i t s dealers i n every foreseen contingency. It does not by i t s terms o r impliedly give Chrysler the naked r i g h t t o discontinue without contract cduse, ,nanuiacturing a i d d i s t r lbutiz~g t o i t s dealers !JeSoto dutomobiles. I n so doing Chrysler broke the zontract. 11 W e find the reasoning found i n Buono Sales Inc. applicable t o the instant case. I n two N e w York cases cited by J & S , Noah v. Daitch & Co., 192 N.Y.S.2d 380 and Cycleway, Inc. v. Kawasaki Motors Corp. 354 N.Y.S.2d 812, the courts upheld a s reasonable termination clauses where the number of days notice of termination was s t a t e d and agreed upon by the p a r t i e s t o the contract. Here we have the s a l e of the a s s e t s which i s not cause i n the sense of an outside condition forcing termination, unless one accepts the subjective reason that the s a l e would be more profitable if the contract could be terminated a t no cost t o Anaconda. W e find the d i s t r i c t court erred i n i-ts conclusion of law No. 3 , which s t a t e s : "That the s a l e of Defendant's f o r e s t products division, including the m i l l , timberlands, house plant and r e l a t e d a s s e t s and equipment and the r e s u l t a n t cessation of a l l operations r e l a t i n g thereto, was s u f f i c i e n t cause f o r the cerrnination of i t s franchise agreement with the P l a i n t i f f . " Che decision of the d i s t r i c t court i s reversed and the cause ' . a remanded f o r a hearing on damages. J u s t i c e i We Concur: Chief Justice