Title: Badger v. Nu-Tone Products Co.
Citation: 425 P.2d 698
Docket Number: 21310
State: Colorado
Issuer: Colorado Supreme Court
Date: March 27, 1967

425 P.2d 698 (1967) Walter C. BADGER, Plaintiff in Error, v. NU-TONE PRODUCTS CO., Inc., Defendant in Error. No. 21310. Supreme Court of Colorado, En Banc. March 27, 1967. Rehearing Denied April 17, 1967. *699 Delaney &amp; Costello, David L. Kofoed, Denver, for plaintiff in error. Wm. Rann Newcomb, Denver, for defendant in error. KELLEY, Justice. In a claim tried to the court without a jury the defendant in error, Nu-Tone Products Co., Inc. (Nu-Tone), obtained a judgment of $4,214.35 against Badger, the plaintiff in error, based upon the terms of a written instrument designated "Salesman's Agreement" (Agreement "A"). The amount of the judgment represented the amount by which advances made by Nu-Tone to Badger exceeded commissions earned by Badger on his sales of Nu-Tone products. The trial court, in concluding the trial, stated: The court's decision turned entirely upon that court's interpretation of Agreement "A". Badger disagrees not only with the court's interpretation of the so-called Salesman's Agreement (Agreement "A"), but also complains of its failure to consider, in determining the intention of the parties thereto, a contemporaneously executed instrument which was designated "Nu-Tone Reserve Fund Agreement" (Agreement "B"), which had been received in evidence by the court. It was agreed in the pre-trial order that both instruments were drafted by Nu-Tone, both related to the employment of Badger by Nu-Tone, and both were executed by each of the parties on June 2, 1961, as a preliminary to the employment of Badger by Nu-Tone. The final paragraph of Agreement "A" recited that: However, because that recital is contrary to the admitted facts, both instruments must be construed as one contract. 56 C.J.S. Master and Servant § 7. We are here mainly concerned with ascertaining the actual intent of both parties to this agreement. The ultimate question for our determination on this writ of error therefore is: Whether, under the terms of the agreement (Agreements "A" and "B"), there is any liability on the part of Badger to repay those advances made by Nu-Tone which were in excess of the commissions earned? In Moorman Mfg. Co. v. Rivera, 155 Colo. 413, 395 P.2d 4, we find the following general rule pertaining to the construction of contracts: Another rule of construction pertinent to the contract between the parties here is *700 found in 56 C.J.S. Master and Servant § 7, p. 73. It reads as follows: In effect, the law is that where there is an ambiguity in an employment contract, in addition to the specific language used in the contract, the nature of the relationship, the conduct of the parties, the principles and rules of law applicable thereto are all impliedly a part of that contract and must be considered in arriving at the intention of the parties thereto. Although this court has not decided a case in which the facts approximated those in issue here, it has had occasion to consider the law applicable to the employer-salesman relationship and has recognized the rule generally adhered to. In Argonaut Builders, Inc. v. Dare, 145 Colo. 424, 359 P.2d 366, this court stated: The bellwether case on the subject, and the one inferentially alluded to in Argonaut Builders, Inc. v. Dare, supra, is Richmond Dry Goods Co. v. Wilson, 105 W.Va. 221, 141 S.E. 876, 57 A.L.R. 31. The basic rule, as set forth there, and followed by the great majority of courts, is stated as follows: Although both Agreements "A" and "B" in their entireties are significant because of their over-all impact, we limit our discussion in this opinion to those provisions which are directly involved in arriving at our decision. From Agreement "A" we quote the following (Nu-Tone is first party; Badger is second party): The following portions of Agreement "B" have a very direct bearing on our determination as to what the intention of the parties was in reference to the repayment of advances to Badger which exceeded his commissions: * * * * * * With the foregoing general rules and the agreement in mind we turn now to the factual background in which the contracts were executed, the terms of the contract specifically involved in the solution of this litigation and the manner in which the parties to the contract did or did not adhere to it, in order to arrive at our decision. Nu-Tone was a Colorado corporation, headquartered in Denver. Mr. Hayes was the president and managing officer of the company. Badger, at all pertinent times, maintained a home in Denver for his wife and five children. He had never worked as a traveling salesman prior to his employment by Nu-Tone. He was not employed on June 2, 1961, when he entered into the agreement to work for Nu-Tone. He was employed to sell the products of Nu-Tone throughout the western half of the state of Kansas. It was contemplated by the parties that Badger would furnish his own automobile to reach and cover his assigned territory, and pay his own away-from-home and family living expenses, including those of his automobile incurred in covering his territory. Badger was paid $100 per week from the beginning. Mr. Hayes testified that the $100 was arrived at by "advancing" Badger $16.50 per daily report from Monday through Friday, and $17.50 for Saturday's. In his testimony, initially, Hayes said that the $100 was "advanced" pursuant to the "discretion" reposing in Nu-Tone by virtue of paragraph 3 of Agreement "A". Subsequently, *702 Hayes stated that he and Badger agreed to the arrangement in reference to the daily reports and that the payments "had nothing to do with the number of shipments made." However, he persisted that they were advances on a regular basis "against his anticipated commissions, just as stated in the contract." The foregoing financial arrangement prevailed from June 2, 1961, until October 1, 1961. During this period, the testimony disclosed that the advances which Badger was receiving were not sufficient for him to maintain himself away from home and provide for his family. On October 1, 1961, by prearrangement, Badger, with his wife, met Hayes at the company offices to advise him of their financial plight and of the necessity to terminate the relationship. Hayes, in order to retain the services of Badger, agreed to advance an additional $500 per month, payable regularly in two equal semi-monthly payments, although at this time Badger had drawn $579.85 more than his earned commissions. Nothing was said at this meeting about repayments. In his testimony Hayes stated that the $500 monthly payments had no relation to either the number of reports made by Badger or to the number of orders shipped to his customers. The amounts advanced continued to exceed Badger's commissions and the overdraft as carried on Nu-Tone's books gradually mounted until it reached $4,214.35 at the time he quit, on or about May 25, 1962. Immediately following the October 1, 1961, meeting, Hayes wrote to Badger, saying: We note that there is nothing in the letter to indicate that Nu-Tone expected repayment from any source other than future commissions. Based on a letter written more than five months following the October 1, 1961, meeting, it seems perfectly clear that Nu-Tone had been and still was relying upon Badger's sales commissions to produce the fund to repay Nu-Tone for its advances to Badger. Hayes wrote Badger on March 14, 1962, as follows: The agreement provided that Badger would receive his commissions only when he had obtained an order, the goods had been shipped to, accepted and paid for by the purchaser (see paragraph 2 of Agreement "A"). However, the next paragraph provided that, "a part or all" of the foregoing commissions may be advanced in the "sole discretion" of Nu-Tone, "upon the shipment of the order." It was contemplated that Nu-Tone's discretion under the terms of the contract would be exercised only "upon the shipment of the order." The record affirmatively shows that there was no relationship between the advances actually made and shipments to Badger's customers. But, even if these advances were made under the terms of the contract, that is, "upon the shipment of the order," the next provision would negate any liability, for it provides that "Any sum so advanced shall be a charge or set-off *703 against any commissions due, or thereafter to become due." "Charge or set-off against" negates a personal promise to repay from funds other than future commissions or the reserve fund. Nu-Tone attempts to sustain its position on the basis of the next sentence, which reads: This provision is still referring to advances "upon the shipment of the order," and to "commissions actually earned." The "obligation," as we see it, does not create a personal obligation to repay, as contended for by Nu-Tone, but, at most, creates an obligation against future commissions and the reserve fund. This provision apparently was designed to overcome the general rule that regular advances are treated as salaries and, in the absence of a specific provision, they are not recoverable at all. Here, after ninety days, they become a charge against future commissions. All of the foregoing conclusions on the intent of the agreement become more apparent upon further examination of Agreement "B". It provides that the maximum amount of the reserve fund shall be $300, which indicates to us that, in the exercise of Nu-Tone's discretion, the amount of advances over commissions actually earned would not prove to be excessive by more than that sum, and hence, Nu-Tone has fully protected itself. It is obvious that Nu-Tone contemplated that Badger would owe the company some money when his employment terminated. The manner in which this indebtedness was expected to arise also appears in the agreement. Not set out above is paragraph 4 of Agreement "A", which requires Badger "to refund at once" to Nu-Tone, "any and all commissions paid to him on orders the purchase prices of which are uncollectible, in the sole judgment of" Nu-Tone. It was anticipated that the rest of the deficiency would be created by the items set forth in paragraph 4 of Agreement "B", supra. It is quite apparent that the $300 fund would have been adequate to meet the contingencies against which the company, in its experience, felt a need to provide, had Nu-Tone held the expenditures or "advances" under tighter control at all times. It permitted the advances to exceed the reserve account at its own risk. Considering the whole agreement ("A" and "B"), construing its terms, looking at the factual background, the interpretation put upon the agreement by the parties, and applying the law governing the relationship of the parties, we agree with the court, in Shaler Umbrella Co. v. Blow, supra, wherein it said: Accordingly, we hold that there is no personal liability on the part of Badger, since there was no express agreement on his part to repay those amounts advanced to him which exceeded the earned commissions. The judgment is reversed and the cause remanded to the trial court with directions to enter judgment not inconsistent with the views expressed herein. HODGES, J., dissenting. PRINGLE, J., not participating.