Erickson Hardwood Co. v. North Pacific Lumber Co.

• Decision Date: 11 January 1985
• Parties: ERICKSON HARDWOOD CO., an Oregon corporation, Respondent-Cross-Appellant, v. NORTH PACIFIC LUMBER CO., an Oregon corporation, Appellant-Cross-Respondent. A8006-03357; CA A27765.
• Court: Oregon Court of Appeals

Page 1071

690 P.2d 1071

70 Or.App. 557

ERICKSON HARDWOOD CO., an Oregon corporation, Respondent-Cross-Appellant, v. NORTH PACIFIC LUMBER CO., an Oregon corporation,

Appellant-Cross-Respondent.

A8006-03357; CA A27765.

Court of Appeals of Oregon.

Argued and Submitted June 4, 1984.

Decided Oct. 31, 1984.

Reconsideration Denied Jan. 11, 1985.

Robert L. Allen, Portland, argued the cause for appellant-cross-respondent. With him on the briefs were G. Kenneth Shiroishi, and Morrison, Dunn, Carney, Allen & Tongue, Portland.

John L. Langslet, Portland, argued the cause for respondent-cross-appellant With him on the briefs were Joan Lisensky Volpert, and Martin, Bischoff, Templeton, Biggs & Ericsson, Portland.

Before GILLETTE, P.J., and VAN HOOMISSEN and YOUNG, JJ.

VAN HOOMISSEN, Judge.

This is an action for breach of contract. A jury returned a verdict in plaintiff's favor. Defendant appeals. It contends that the trial court erred in several of its evidentiary and procedural rulings. Plaintiff cross-appeals. It contends that the court erred in denying it prejudgment interest. We affirm.

Erickson Hardwood (Erickson) is a small mill that produces green alder lumber. North Pacific Lumber (Norpac) is a forest products wholesaler and broker. In 1968, Erickson and Norpac entered into a contract, drafted by Norpac, under which Erickson granted Norpac

"the exclusive right to purchase from Erickson all lumber and forest products * * * which Erickson, or any subsidiary or associated company, shall during the life of this contract manufacture or produce."

Norpac agreed to set up facilities in Portland to market Erickson's lumber. Norpac also agreed that, if the parties could agree on price and cutting orders, it would endeavor to accept from Erickson a minimum of 200,000 board feet of lumber monthly.

The contract stated in relevant part:

"[T]he parties shall endeavor from time to time to arrive at proper prices to be paid to Erickson for the different grades and qualities of lumber to be produced by Erickson, * * * and in the event that the parties cannot agree upon a proper price, then Erickson shall have the right to sell to parties other than Norpac provided that Erickson shall not sell to any third party at a price which is equal to or less than the price which Erickson has offered to sell to Norpac, and Erickson agrees that prior to sale of any forest products to any third party Erickson will first offer said product to Norpac at the price at which it proposes to sell to said third party, and Erickson shall pay to Norpac a commission equal to five percent (5%) upon all sales made by Erickson to third parties, except that in recognition of the previous association between Erickson and Chappel, Erickson may make sales of two (2) truck loads per month (approximately 20,000 feet) to Chappel without the payment of said commission provided that said sales are at the request of Chappel without any initiation of said sales by Erickson."

It also required Erickson to furnish Norpac with a monthly balance sheet and profit and loss statement and an annual financial statement including information about its assets and liabilities. Norpac had the right to examine Erickson's books and records. Norpac gave financial advice to Erickson, and Erickson paid for that advice.

With minor exceptions, Erickson's entire income came from Norpac. Throughout the contract's term, Erickson made enough money to maintain its operation, but it never made a profit. Because Erickson's product was unique, no prices were published for it, and Erickson did not know what it was worth. Norpac did not tell Erickson how much it had earned from sales of Erickson's lumber, and at times Norpac represented that it had earned nothing. Occasionally, Erickson heard rumors of good prices, but those rumors were discounted by Norpac as inaccurate. The evidence at trial indicated that Norpac had made profits of 30 percent or more on those sales.

In 1977, Erickson learned what Norpac was receiving for the lumber. It then terminated the contract and brought this action. In its pleadings, Erickson alleged that the contract created an exclusive sales agreement that established a fiduciary relationship between the parties; that Norpac had breached its fiduciary relationship by failing to disclose the true market condition and by actively misrepresenting that condition; and that Norpac had wrongfully earned excessive profits at Erickson's expense. The trial court found that the contract unambiguously established an agency relationship between the parties, giving rise to implied fiduciary obligations. Specifically, the court found that Norpac was serving as a fiduciary in setting a "proper price" and in marketing Erickson's lumber.

Norpac contends that the trial court erred in failing to dismiss Erickson's complaint on the ground that it was not timely filed. Erickson filed its action two and one-half years after its cause of action was discovered. Norpac argues that, because Erickson's action is based on fraud or deceit it is governed by the two-year statute of limitations applicable to tort actions, ORS 12.110(1), not the six-year statute applicable to contract actions, ORS 12.080(1). ¹

In determining whether an action arises in tort or in contract, we focus on what characteristic of the action predominates. In Securities-Intermountain v. Sunset Fuel, 289 Or. 243, 259, 611 P.2d 1158 (1980), the Supreme Court explained:

" * * * If the alleged contract merely incorporates by reference or by implication a general standard of skill and care to which the defendant would be bound independent of the contract, and the alleged breach would also be a breach of this noncontractual duty, then ORS 12.110 applies. Dowell v. Mossberg, [226 Or 173, 355 P2d 624, 359 P2d 541 (1961) ]. Conversely, the parties may have spelled out the performance expected by the plaintiff and promised by the defendant in terms that commit the defendant to this performance without reference to and irrespective of any general standard. Such a defendant would be liable on the contract whether he was negligent or not, and regardless of facts that might excuse him from tort liability. Or the nature either of the defendant's default or of the plaintiff's loss may be of a kind that would not give rise to liability apart from the terms of their agreement. In such cases, there is no reason why an action upon the contract may not be commenced for the six years allowed by ORS 12.080." (Footnote omitted.)

Norpac argues that this case fits under the first alternative, which is addressed to cases alleging violation of a general standard of care by implication. It relies on Lindemeier v. Walker, 272 Or. 682, 538 P.2d 1266 (1975), and Bales for Food v. Poole, 246 Or. 253, 424 P.2d 892 (1967); see Dowell v. Mossberg, 226 Or. 173, 355 P.2d 624, 359 P.2d 541 (1961). Lindemeier was an action against a real estate broker for damages resulting from an intentional failure to obtain the best sales price for certain property. The parties had signed a standard real estate contract. The Supreme Court held that the action was for professional malpractice and that the tort statute of limitations was applicable. Bales for Food was an action against a professional engineer for damages resulting from the negligent mislocation of a building. The complaint alleged that the defendant had failed to exercise due care in planning and supervising construction. The Supreme Court held that the action sounded in tort, although the parties had signed a contract requiring the defendant to perform the usual duties of a professional engineer. Neither case relied on any specific provision of its respective contracts.

In Securities-Intermountain, supra, 289 Or. at 260, 611 P.2d 1158, the Supreme Court acknowledged the difficulty inherent in characterizing an action for the purpose of applying the appropriate statute of limitations:

"These variations may occasionally call for close decisions, but they are the product of a statutory scheme which, since 1870, has imposed different periods of limitations on commencing different actions defined by the legal basis of the claimed liability. Quoting the late Dean Prosser's observation that 'there has been a failure to think the thing through,' Justice O'Connell's opinion for the court in Bales for Food 'concluded that there is a need for change in the law relating to the limitation of actions, but ... that the change should come through legislation ....' 246 Or at 257 . * * * " (Footnote omitted.)

Distinguishing between tort and contract claims is essential in deciding whether an action was timely filed. However, we must not lose sight of our goal: to redress a legal wrong. ² It would be unjust to bar an action merely because it contained elements of both tort and contract. Norpac argues that its misconduct, if any, amounts to deceit, fraud or misrepresentation. However, the Supreme Court has held:

" * * * ORS 12.110 certainly does not contemplate that a defendant can defeat an action for breach of his contract by asserting that, independent of the contract, his own conduct constituted a tort, whether negligence or, for instance, fraud." Securities-Intermountain v. Sunset Fuel, supra, 289 Or. at 259, 611 P.2d 1158.

In its complaint, Erickson alleged that:

"[Norpac] breached its obligations as the exclusive sales agent of the partnership in one or more of the following particulars:

"a. [Norpac] failed to pay the partnership a proper price.

" * * *

"d. [Norpac], through a series of acts entailing economic coercion, unfair advantage, dishonesty, deceit and misrepresentation, acted so as to pay the partnership less than a proper price for the partnership's lumber production, while representing to the partnership that [Norpac] was acting in the partnership's best interests."

Thus, the complaint alleged specific breaches of the contract. The contract stated that the parties would agree...