Nekoosa Papers v. Magnum Timber Corp.

• Court: Wisconsin Court of Appeals
• Writing for the Court: PER CURIAM
• Citation: Nekoosa Papers v. Magnum Timber Corp., 632 N.W.2d 123, 246 Wis.2d 988 (Wis. App. 2001)
• Decision Date: 21 June 2001
• Docket Number: 00-2031
• Parties: This opinion is subject to further editing. If published, the official version will appear in the bound volume of the Official Reports. A party may file with the Supreme Court a petition to review an adverse decision by the Court of Appeals. See Wis. Stat. §808.10 and Rule 809.62. Nekoosa Papers, Inc., Plaintiff-Respondent, v. Magnum Timber Corporation, Johnson Timber Corporation, and Bayside Timber Corporation, Defendants-Appellants.STATE OF WISCONSIN IN COURT OF APPEALS DISTRICT IV

This opinion is subject to further editing. If published, the official version will appear in the bound volume of the Official Reports.

A party may file with the Supreme Court a petition to review an adverse decision by the Court of Appeals. See Wis. Stat. §808.10 and Rule 809.62

Nekoosa Papers, Inc., Plaintiff-Respondent v Magnum Timber Corporation, Johnson Timber Corporation, and Bayside Timber Corporation, Defendants-Appellants

No. 00-2031

STATE OF WISCONSIN IN COURT OF APPEALS DISTRICT IV

June 21, 2001

APPEAL from a judgment of the circuit court for Jackson County: ROBERT W. RADCLIFFE, Judge. Reversed and cause remanded with directions.

Before Dykman, P.J., Deininger and Lundsten, JJ.

¶1. DYKMAN, P.J.

This is an appeal from a declaratory judgment in which the trial court determined that an agreement between Nekoosa Papers, Inc., and Johnson Timber Corporation, Bayside Timber Corporation, and Magnum Timber Corporation (hereinafter "Johnson Timber") was unambiguous, permitting the agreement to expire at the end of three years. Johnson Timber argues that the plain terms of the contract support its own interpretation, which would require a minimum of four years' duration for the contract. Johnson Timber also argues that if we conclude the contract is ambiguous, we must remand the case to the trial court so that extrinsic evidence of the parties' intent can be considered. We agree with the second argument and conclude that the agreement is ambiguous and that the trial court may consider extrinsic evidence of the parties' intent. We therefore reverse and remand for further proceedings consistent with this decision.

I. Background

¶2. Nekoosa Papers and Johnson Timber entered into a pulpwood purchase and processing agreement, effective October 1, 1997. Under the terms of the agreement, Nekoosa Papers purchased pulpwood from Johnson Timber, and Johnson Timber stored and aged the wood, then processed it into chips for Nekoosa Papers. Nekoosa Papers then bought the chips for a price in addition to what it already paid for the pulpwood.¹

¶3. The paragraph in the processing agreement controlling the termination of the agreement provides:

The parties mutually agree that this Agreement shall have an initial term of three (3) years commencing on the 1st day of October, 1997, and shall self renew for successive one (1) year terms, provided that following the initial term either party may terminate this Agreement, at any time, without liability for breach upon 365 days written notice.

¶4. Nekoosa Papers and Johnson Timber also entered into a lease related to the processing agreement, presumably because after Nekoosa Papers purchased the pulpwood, Johnson Timber continued to store the wood for Nekoosa Papers while the wood aged.

¶5. On September 30, 1999, Nekoosa Papers sent Johnson Timber a letter in which it advised Johnson Timber that it would not renew the processing agreement. In the letter, Nekoosa Papers explained that its obligation to buy pulpwood from Johnson Timber would end as of September 30, 2000, and its obligation to buy aged chips would end as of September 30, 2001. Johnson Timber wrote back to Nekoosa Papers, indicating its position that under the processing agreement, Nekoosa Papers was required to purchase wood through September 30, 2001, and to purchase aged chips through September 30, 2002.

¶6. Nekoosa Papers commenced an action for declaratory judgment, maintaining that its interpretation of the agreement was the correct one. Johnson Timber moved for judgment on the pleadings, arguing that the processing agreement unambiguously bound the parties until at least September 30, 2001. Nekoosa Papers moved for summary judgment, asking the trial court to rule that the processing agreement obligated Nekoosa Papers to purchase pulpwood from Johnson Timber only through September 30, 2000, and to purchase chips through September 30, 2001.

¶7. At a hearing on the parties' motions, the parties agreed that the trial court could treat Nekoosa Papers' motion for summary judgment as a motion for judgment on the pleadings. The trial court interpreted the language of the processing agreement on its face, and ruled in favor of Nekoosa Papers. The court entered judgment declaring that Nekoosa Papers had "effectively terminated the Agreement as of the end of the initial three-year term," thus obligating Nekoosa Papers to purchase pulpwood from Johnson Timber only through September 30, 2000, and to purchase wood chips from Johnson Timber through September 30, 2001. Johnson Timber appeals.

II. Analysis

¶8. Johnson Timber argues that the processing agreement "provides a minimum of four years worth of contractual obligations." Nekoosa Papers asserts that "the agreement unambiguously permits Nekoosa to terminate its obligations to purchase wood on September 30, 2000." Nekoosa Papers states that the parties do not dispute that, whatever the minimum term of the agreement, its obligation to purchase chips extends one year beyond its obligation to purchase pulpwood. Johnson Timber does not expressly acknowledge that it agrees with Nekoosa Papers on this point. However, Johnson Timber does not state in its reply brief that it disputes that interpretation, and the correspondence between the parties before Nekoosa Papers commenced suit indicated that both parties assumed the one-year difference between pulpwood and chip purchasing. Therefore, we construe the parties' dispute on appeal as focused on whether the minimum term of Nekoosa Papers' obligation to purchase pulpwood from Johnson Timber extended to September 30, 2000, or September 30, 2001. Nekoosa Papers has conceded that its obligation to purchase chips extends for one year after its obligation to purchase pulpwood.

¶9. Whether a judgment on the pleadings should be granted is a question of law that we review de novo. Freedom from Religion Found., Inc. v. Thompson, 164 Wis. 2d 736, 741, 476 N.W.2d 318 (Ct. App. 1991). The interpretation and construction of a contract is also a question of law that we review without deference to the trial court. Zimmerman v. DHSS, 169 Wis. 2d 498, 507, 485 N.W.2d 290 (Ct. App. 1992). Our goal in contract interpretation is to determine and give effect to the parties' intentions. Wisconsin Label Corp. v. Northbrook Prop. & Cas. Ins. Co., 2000 WI 26, ¶23, 233 Wis. 2d 314, 607 N.W.2d 276. When the language of a contract is unambiguous, we apply its literal meaning. Id. However, if we determine that a contract provision is ambiguous, we will look to extrinsic evidence to discern the contract's meaning. SeeManagement Computer Servs., Inc. v. Hawkins, Ash, Baptie & Co., 206 Wis. 2d 158, 177, 557 N.W.2d 67 (1996). A contract is ambiguous where its terms are reasonably susceptible to more than one interpretation. Id.

¶10. Upon one reasonable interpretation of the termination clause in the aged chip agreement, "terminate" refers to the action of providing notice in order to cause the contract to end at a later time. Under this interpretation, notice may be given only "following the initial term" of three years, in effect making the minimum term of the contract four years. This is the interpretation Johnson Timber gives to the agreement. However, under another reasonable interpretation of the termination clause, "terminate" refers to one party bringing the contract to an end "following the initial term" by giving the required notice 365 days before the end of the initial term. This is the interpretation favored by Nekoosa Papers, and it would bind the parties for a minimum of three years. Because we conclude that both of these interpretations are reasonable, the agreement is ambiguous.

¶11. Johnson Timber argues that its interpretation is the only reasonable one because it is clear from the grammatical structure of the termination clause that "terminate" is an active verb with "either party" as its subject. Johnson Timber argues that Nekoosa Papers' interpretation of the contract makes "terminate" a passive verb, which cannot be correct given the plain language of the agreement. When Johnson Timber refers to "active verbs" and "passive verbs," what Johnson Timber means is that the agreement utilizes "terminate" in its transitive (to bring to an end) rather than its intransitive (to come to an end) form. We agree that the agreement uses terminate in its transitive form, but that does not resolve the ambiguity. The ambiguity revolves around the intrinsic meaning of the word "terminate" as used in this agreement. As we have already explained, a party's decision to "terminate" the contract could refer to the act of giving notice or it could refer to the act of causing the agreement to end on the last day of the initial three-year term. In either sense, the verb "terminate" is transitive, or "active," as Johnson Timber would have it.

¶12. Nekoosa Papers argues that an interpretation contrary to the one it supports would make particular words in the contract meaningless or...