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:

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. -.Plr. Jusclce ohil "or~wayHarrisoil Jelivered the Opinion of the Court.
Plaintiff appeals from a judgment entered by the district court, Missoula County, sittingwithout a jury, in a breach of contract action. Liability and damages were separated for trial. InMarch 1971, J & S Home Realty, Inc. (J & S) entered into
a contract with The Anaconda Company (Anaconda) to act as the distributor of prefabricated homes manufactured by Anaconda Forest Products, a division of the Anaconda Company. By the terms of this contract J & Swas tobe the sole distributor of these homes inMontana. For this privilege J & S was topay a franchise fee and receive a specified percentage commission on each sale. InMay 1972Anaconda sent a notice which conformed to the procedure set out in the contract termination provision informing J & S thatAnaconda was terminating the franchise. On June 26, 1972, following sixmonths of negotiations, Anaconda sold the assets of its division, Anaconda Forest Products, including the prefabricated home building plant to Champion International Corporation for its U.S. Plywood Division. It isconceded the termination was an adjunct to the sale of these assets. Allparties agree (1) Anaconda Forest Products
was a profitable division of Anaconda and that these assets were sold for a sound business reason to improve Anaconda's cash position, (2) that at the time Anaconda entered into the franchise agreement with J & S the sale of those assets was not contemplated, and (3) that the termination provision in the franchise contract was
a subject of bargaining.

### The original draft of the provision allowed termination

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### "with orwithout 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 negotiations with Anaconda the reason for the change of languagewas: !'A. Well, it was going to be our responsibility to set up other distributors and to hire people. And at that timewe felt that we were notwilling to enter into a contractwith Anaconda if such a contract could be canceled in 

### 30 days by eitherparty at their own will

# ." As 

### a result of entering into the contract,J & 

### S

### hired additional people and made changes in their companywhich entailed substantial dollar investments. This case isnot 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 subjectivewill 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 alwayshad the power to terminate the contract but itwould, of course,have to pay damages. Here, the question is whether there was "cause" for terminationwhich would allow the ending of the relationship pursuant to the contract provision and thusnot have to pay damages. The sole issue presented for this Court's review iswhether Anaconda's going out of the building materialsbusiness, in good

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### faith for business reasons, is cause" as the termwas used in the contract

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### The question is difficult and arises in a number of contexts, but the controlling issue iswhat the partiesmeant at the time of entering the contractby thewords "with cause". Applying Montana's rules of construction,theparties certainly did not
mean the contract could be terminated at will to the advantage of the corporation. Anaconda sold the assets rather than the corporation and conveniently disposed of the rights of

### J & 

### S. Anaconda's prior franchiseswere terminable "with orwithout cause" but in the instant case the parties bargained to a different agreement. Tohold otherwise is to allow termination at will, requiring only a good faith subjective reason for termination, and termination at willwas excluded by the contract language. Here, it is clear that terminationwas not for some failure
on the part of 

### J & 

### S. In fact the termination notice states:
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### We certainlyhave enjoyed our relationshipwith you and your organizationand are very sorry that this relationshiphas to be terminated." The only cause alleged by Anaconda as the basis for termination
was that the sale of the assetsmade performance impossible. However, the sale of assets took place after the termination. The terminationwas an adjunct to the sale and not because sale had made performance impossible. IJhile it is undisputed thatAnaconda had a sound good faith
reason to sell its forest products assets, there was no condition forcing termination, the divisionwas stillprofitable and able to get materials. IfAnaconda 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 conditions forcing termination emanating from outside Anaconda's controlwhich would constitute "cause". InParsilv. Emery, 

### 272 N.Y.S. 439, 440; an argument similar toAnaconda's was rejected: 

### "*

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# * The claim of defendant that he isexcused from performance under the contract 'because performance has been made impossible by destruction of the subject matter thereof' ispredicated upon the allegationthat the employer was dissolved as a corporation. The answer to this, in our opinion, isthat this dissolutionwas nothing more than a voluntary saleof the corporate assets to another corporation engaged in likebusiness. The case might be otherwise had the dissolution been effected by theAttorney General; inother words, an involuntary dissolution

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# *." Several cases citedby J & S are of import here. InBuono

.- ii -. - .D ID Sdles Inc. v. ~hrysler Motors Corporation, 363 F.2d 43,44,49, a distributorwho had a contract to sellDeSoto and Plymouth automobiles
was terminated by the corporation's decision to discontinue the DeSoto. The court noted that from the contract itself the very thought that Chrysler might sometime abandon the DeSoto was not within its contemplation atthe time the contract was entered into with 

### itsdealers; thathad the corporation contemplated such action it could easilyhave so provided inthe contract. Further that in allsuch dealings of the corporation with dealer franchises the corporation is the dominating party. The courtnoted: 

### "*

# ** Deceiving 

### itsdealers from the beginning as to what would have been an allimportant element of the agreement, hardly fitsthat situationor indeed into the basic picture of an outstanding American industry. As appears from the record this matter ariseswholly from 

### a radical corporate determination, forwhatever the reason, to cut 

### itsproduction losses on DeSoto immediately. The inevitable collateralconsequences of thatmove, the damage claims of itsdealers, etc., if then bothered about Zit all, undoubtedly were regarded as the lesser evilwhich could be handled later.

"The contract before us isclear. 

### Itsunmistakable intent 

### is toprotect Chrysler as to 

### itsdealers inevery foreseen contingency. It does not by itsterms or impliedly give Chrysler the naked right to discontinue without contractcduse, ,nanuiacturing aid dis trlbutiz~g to its dealers !JeSoto dutomobiles. In so doing Chrysler broke the zontract.11 We find the reasoning found inBuono Sales Inc. applicable to the instant case. In two New York cases cited by J & S, Noah v. Daitch & Co., 192N.Y.S.2d 380 and Cycleway, Inc. v. Kawasaki Motors Corp. 

### 354 N.Y.S.2d 812, the courts upheld as reasonable termination clauses where the number of days notice of termination was stated and agreed upon by the parties to the contract. Here we have the sale of the assets which isnot cause in the
sense of an outside condition forcing termination, unless one accepts the subjective reason that the salewould be more profitable if the contract could be terminated atno cost to Anaconda. We find the district court erred in i-tsconclusion of law No. 3, which states: "That the sale of Defendant's forest products division, including the mill, timberlands, house plant and related assets and equipment and the resultant cessation of all operations relating thereto, was sufficient cause for the cerrnination of its franchise agreement with the Plaintiff." Che decision of the district court isreversed and the cause ' .a remanded for a hearing on damages.

Justice

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### We Concur:



### Chief Justice