Opinion ID: 2616451
Heading Depth: 1
Heading Rank: 4

Heading: Contractual Concessions to Louisiana Pacific

Text: Georgia-Pacific personnel, negotiating on behalf of MPI for the purchase of the LP timber package, agreed to certain contractual terms which were solely for the benefit of LP and which increased the risk of the transaction to MPI. [7] This was done without disclosing the facts to the Montana group or to the MPI board as a whole. The trial court so found. The 1973 contract between the Montana group and LP provided for a $2 million refundable deposit which was paid by LP on execution of the contract. It was to be applied, at the rate of $4 per thousand board feet, to the purchase price of the timber as it was cut, up to 500 million board feet. If the recoverable timber proved to be less than 500 million board feet, the unamortized portion of the deposit was to be refunded to LP. The 1974 contract between LP and MPI contained a comparable provision for an initial cash payment by MPI of $6.7 million, which was to be applied, at the rate of $20 per thousand board feet, to the purchase price of the timber as it was cut, up to 335 million board feet. This payment was labeled in the contract a refundable deposit, as it was in the 1973 contract. However, unlike the 1973 contract, the 1974 contract contained no provision for a refund to MPI of any portion of that deposit in the event the recoverable timber did not total 335 million board feet. The contract was drafted in this form in order to permit LP to take, at a later time, whatever position as to refundability of the payment it might determine to be most advantageous for tax purposes. Thus, the contract was written, for LP's benefit, in deliberately ambiguous language, and the ambiguity and its possible adverse effect on MPI were concealed from the Montana group. On appeal GP has neither denied that its representatives concealed this aspect of the negotiations with LP, nor attempted to justify the contractual provisions as the price of any reciprocal benefit to MPI. Although the written contract was presented to MPI's board for approval, it is not surprising that the unwary members of the Montana group did not notice the ambiguity. It was designed not to be noticed. GP has tendered no excuse for this breach of duty, and we can conceive of none. GP does contend, accurately, that there is no showing of actual or probable financial loss to MPI as a result of these terms of the LP contract. In fact, plaintiffs have consistently taken the position that there is no shortage of recoverable timber on the contract lands. That is not the point. The decision whether the risk of loss was so slight that MPI could bear it solely to provide LP with a tax advantage was one in which the Montana group was entitled to share. Although not the direct cause of any loss to MPI, GP's secret concession to LP did play a part in a related matter of which plaintiffs also complain. The original sale of timber cutting rights from MLS to LP included the assignment by MLS of its interest in a ranch, and the timber thereon, which it was purchasing under a land sale contract. The sales contract stated the assignment was To secure payment of any refund which may be due to Buyer [LP] from Seller [MLS] under the terms of Paragraph 4.1 [the provision for the refundable deposit]   . The trial court found the parties originally contracted and intended that this assignment was to be only for security purposes; however, later the timber on the ranch was included in the list attached to the cutting contract. We find the assignment was solely for security purposes. After the terms of the sale from LP to MPI had been agreed upon, GP personnel learned that GP foresters believed the quantity of merchantable timber on the LP contract lands might be considerably less than 335 million board feet, the minimum quantity upon which MPI's cash payment of $6.7 million to LP had been calculated. GP then informed the Montana group that the timber on the MLS ranch would have to be sold to LP at $18 per thousand board feet (the base price under the 1973 contract between MLS and LP) so that it could be included in the LP conveyance to MPI. The Montana group objected to this transaction, insisting that the ranch timber was an asset of MLS and that, except for its assignment for security purposes, it was no part of the LP package. Without explanation, GP insisted that unless the ranch timber was conveyed to LP at the 1973 contract price, GP would not agree to the consummation of the LP transaction. Under protest, the ranch timber was conveyed to LP. Certainly the effects of this transaction were not concealed: MLS was required to sell its timber at $18 to LP, which in turn sold the timber to MPI at $40. When plaintiffs agreed to this transaction they clearly understood what they were doing, although they were not informed why GP insisted that it be done. The trial court held that they executed the conveyance with a full understanding of its consequences and that there was no duress or fraud in the transaction of a kind which would warrant relief. However, GP never revealed to the Montana group that because the refundable deposit was not refundable, if the timber ran below 335 million board feet MPI would lose a portion of its $6.7 million deposit and GP would bear one-half of this loss. In Starr v. International Realty, supra (271 Or. at 405, 533 P.2d 165), we recognized as the established, and the better, rule that the absence of deception or fraud is not sufficient to justify a partner in acquiring an interest in partnership property adverse to that of the firm, and that only full disclosure of all relevant facts would suffice. Similarly, the mere absence of fraud as to the nature of the timber conveyance does not justify GP's insistence upon it as a condition of the consummation of the LP transaction. Plaintiffs were entitled to know the real reasons for GP's adamant stand. Had those reasons been made clear, it is possible that plaintiffs, because of their own cash needs, would have chosen to go ahead with the LP transaction on those terms in hopes that MPI would soon be operating profitably. We cannot assume, however, that that would have been the case. GP has not suggested any explanation for its insistence upon this conveyance other than that advanced by plaintiffs: that a shortage of timber under the contract would result in a loss to MPI and that this was known to GP but had been concealed from plaintiffs. To protect MPI against possible loss as a result of GP's secret concession to LP, plaintiffs were persuaded to sell their timber at $18 per thousand board feet, MPI became contractually obligated to cut and pay for that timber at $40 per thousand board feet, and LP was given a windfall profit of $22 per thousand board feet. This transaction cannot be undone in the present case. LP is not a party to this case. Although it has assigned the cutting contracts to MPI, it still retains the right to payment for all merchantable timber cut from the lands covered by the contract. We cannot in this case, divest LP of its right to receive payment at the contract rate as the ranch timber is cut. This does not mean, however, that no relief is available. GP is responsible for inducing plaintiffs to sell their ranch timber to LP at $18, without full disclosure of important facts. That price was far below the value of the timber at that time, and resulted in a windfall profit to LP. Plaintiffs cannot be restored to ownership of their timber in this case, but they are entitled to recover the damages resulting from this transaction. On remand, the trial court shall determine the quantity of timber involved, and shall enter judgment for plaintiff in the amount of the difference between the price to be received by LP and the price received by plaintiffs. [8]