Plywood Marketing Associates v. Astoria Plywood Corp.

Citations: 558 P.2d 283; 16 Wash. App. 566; 96 A.L.R. 3d 1231; 1976 Wash. App. LEXIS 1749Docket: 1784-2

Court: Court of Appeals of Washington; December 21, 1976; Washington; State Appellate Court

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Plywood Marketing Associates (PMA) filed a lawsuit against Astoria Plywood Corporation to recover claimed over-advances totaling $71,739 plus interest, following Astoria's withdrawal from the cooperative. Over its first four years, PMA reported tentative advances of $70,583,316 against net margins of $69,951,689, resulting in a "loss" of $631,627, which PMA argued should be absorbed by its members based on their participation percentages. Astoria contended that losses from nonmember product transactions should not be allocated to members, claimed an accord and satisfaction had been reached for losses incurred in the first three years, and argued that it should only be responsible for losses corresponding to its patronage percentage in fiscal year 1970.

The trial court ruled that losses from nonmember transactions were chargeable to members and recognized an accord and satisfaction for known losses up to $167,099 from the first three years, leading to a reimbursement of $33,287 to Astoria. However, the court also assigned Astoria a portion of additional pre-1970 losses, discovered in 1970 due to undisclosed activities by PMA's General Manager, amounting to $390,949, which included the previously agreed losses. Astoria's share of the total pre-1970 losses, calculated based on its 19.921 percent patronage, was determined to be $77,881, from which the previously paid assessment and an additional credit of $3,787 would be deducted. Both PMA and Astoria appealed the trial court's decision.

PMA recorded losses of $240,678 for the fiscal year 1970, during which Astoria's patronage percentage decreased to 5.986%. As a result, Astoria is liable for $14,407 related to these losses. PMA accepts the trial court's ruling that awarded Astoria $5,000 for the return of its membership fee, including prejudgment interest from September 27, 1970. The judgment against Astoria will be amended to require Astoria to pay PMA $55,214, plus prejudgment interest starting from June 11, 1971, when PMA demanded payment.

PMA, formed in 1966 as an Oregon cooperative by nine plywood manufacturers, required a $5,000 membership fee and a $3,000 assessment for startup costs. The cooperative operates on a nonprofit basis, taking title to and selling members' products, with proceeds distributed among members through marketing "pools" based on their contributions. Losses incurred by the cooperative are charged to members based on their interest in the respective pools, as outlined in the bylaws. The board has the authority to manage net operating losses for tax benefits and can make advance payments to members, subject to final settlement at the end of each fiscal period. Membership acceptance binds members to comply with PMA's governing documents, and an annual audit is mandated post-fiscal year. PMA's bylaws and operations are governed by the Oregon Cooperative Corporation Act, specifically ORS ch. 62, which details the apportionment and distribution of net proceeds, savings, or losses among members.

Net proceeds or savings of a cooperative are to be distributed periodically to eligible recipients as specified in the bylaws. Specifically, savings from member patronage are allocated based on each member's contribution relative to total patronage. The bylaws may also address the apportionment of net losses, which must be calculated according to generally accepted accounting principles. At PMA's formation in November 1966, members were advised that they could be liable for a share of losses proportional to their patronage, and no independent assessments could be levied against members outside of loss sharing related to their transactions. 

PMA's operational model initially involved taking customer orders and receiving plywood directly from member mills, benefiting from successive trade discounts. The profit potential for PMA was based on the difference between the discount given to customers and the discount paid to members. PMA also procured products from nonmembers, whose purchases constituted a decreasing percentage of total purchases over the years. In its first fiscal year, PMA reported a modest profit of $1,042, but this was not distributed to members who had not yet been repaid their assessments. The following year, PMA incurred a loss of $74,102, creating a cumulative loss of $73,060 over two years, but no assessments were made against members at that time due to an anticipated profit for the following fiscal year. 

PMA's board decided to treat a two-year period as a single operating pool, despite not combining members' products for sale as is typical in cooperative marketing. In early 1969, PMA shifted its operations to have members ship inventory directly to its warehouses. Concurrently, the market price for plywood fell significantly, impacting PMA's financial outlook.

PMA was responsible for advancing members the agreed price for goods but retained the right to charge members for any shortfall in case of market depreciation, maintaining a 2 percent margin. The General Manager, Fritz Page, engaged in misconduct by purchasing lauan plywood at a high price without board approval and concealing its storage, leading to falsification of records to secure a bank loan. Despite no personal gain from these actions, Page aimed to present a misleadingly positive financial situation to retain members amidst a market downturn. An audit for fiscal year 1969 revealed a net loss of $94,039, prompting the board to prorate losses among members, with Astoria Plywood bearing the largest share of $33,287. Astoria subsequently withdrew from PMA in February 1970. A later audit uncovered significant discrepancies in the financial statements, including an overstatement of assets and inventory. PMA calculated that Astoria had been overpaid by $71,739 and filed a suit to recover this amount. The court's analysis involved principles of contract law, specifically regarding "account stated" and "accord and satisfaction," requiring mutual agreement and consideration for the new contract to settle prior obligations.

An account stated is recognized as a settled agreement between debtor and creditor regarding a specific sum that reflects matured debts, as defined in the Restatement of Contracts. In this case, Astoria's payment of $33,287 for its share of known losses did not constitute an accord and satisfaction or account stated for undisclosed asset overstatements and other issues that emerged later. The payment was for identifiable losses, and there was no mutual understanding or intention to settle unknown debts that had not yet matured. 

Defendant PMA contends that knowledge of asset overvaluation should be imputed to them through their General Manager, Page. While generally, a corporation is charged with the knowledge of its agent, this does not apply if the agent acted outside their authority or against the corporation's interests. Page's intentions were not self-serving, but his actions were deceptive and harmful to PMA's interests. However, because he was not the sole representative of PMA and reported to a board of directors that included Astoria, his knowledge of concealed losses should not be imputed to PMA.

Astoria also argues that PMA's acceptance of its membership withdrawal and assessment should estop PMA from pursuing claims for later-discovered losses. However, this argument fails because the doctrines of estoppel do not apply to claims that were not contemplated at the time of the original agreement, and PMA's assessment of known losses was consistent with their later claims. The case does not meet the elements of equitable estoppel, as the original assessment did not contradict the later assertion of undisclosed losses.

Astoria accepted a $33,287 share of a $167,099 loss without claiming that this reliance changed its position regarding any unknown losses. The trial court allocated the 1969 asset overvaluation and 1970 operating losses to PMA members based on their patronage share for that year. Astoria argued that Oregon statutes and PMA bylaws did not permit charging members for losses from nonmember sales. However, as active members and owners of the cooperative, they would bear the losses. The bylaws allowed business with members and the purchasing of products from nonmembers, which Astoria did not object to. According to ORS 62.415(1) and (5), cooperative bylaws can include provisions for loss apportionment in line with generally accepted accounting principles. A CPA testified that including nonmember losses with other losses for apportionment was standard practice. The allocation of losses was deemed compliant with the bylaws, which permitted charging for fiscal losses in a manner consistent with sound accounting practices. Thus, members would be charged for losses based on their patronage percentage. For 1970 losses, Astoria's charge should not exceed its patronage percentage that year. Prejudgment interest is permissible if the claim is liquidated or based on a contractual obligation with an ascertainable amount. Although the existence and amount of Astoria's obligation were disputed, the total losses from member and nonmember transactions were not. Once defenses were resolved, the amounts for each fiscal period could be calculated. PMA is entitled to statutory interest from June 11, 1971, the date of its demand for payment. The judgment is adjusted accordingly.