Neal v. State Farm Ins. Companies

Decision Date31 January 1961
Citation188 Cal.App.2d 690,10 Cal.Rptr. 781
CourtCalifornia Court of Appeals Court of Appeals
PartiesDocky Joseph NEAL, Plaintiff, Respondent and Cross-Appellant, v. STATE FARM INSURANCE COMPANIES, doing business as State Farm Mutual Automobile Insurance Company, State Farm Life Company, and State Farm Fire and Casualty Company, and Golden State Agency, Inc., Defendants, Appellants and Cross-Respondents. Civ. 19148.

Harry D. Miller, Marvin B. Starr, Oakland, Warren B. Wilson and Purchio & Fairwell, Hayward, for Docky Joseph Neal.

McFarland & Ferdon, John P. McFarland, San Francisco, for State Farm Insurance Companies.

TOBRINER, Justice.

While we must resolve every ambiguity against an employer insurance company which drafted a contract of employment, or so-called 'contract of adhesion,' for engagement of insurance salesmen, we cannot uphold the salesman's claim for additional compensation here. We can find neither an ambiguity in the contract nor a basis for the claim.

Appellant and respondent Neal (hereinafter called appellant) and appellants and respondents State Farm Insurance Companies on behalf of the other named appellants and respondents (hereinafter called respondents) object to a decision whin interprets the terms of an agency agreement between the parties. Appellant appeals from that portion of the judgment which denies him claimed compensation for six months of servicing policyholders; respondents appeal from the part which awards appellant a sum attributable to services rendered by him for a full month even though he worked only sixteen thirty-firsts of the month.

The case presents two issues, both involving the proper construction of the contract. The pertinent paragraphs read as follows: '2. For services rendered in any month while this Agreement is in force, in reporting, investigating and handling claims and otherwise servicing policyholders, the Local Agent shall be paid an amount equal to Ten Percent (10%) of the net premium collections, as hereinafter defined, received and recorded by the Company during the sixth preceding month on policies credited to the Local Agent during the month for which such payment is computed irrespective of whether such policies were secured by the Local Agent. Net premium collections are defined to be gross premium collections, less Selling Expense, if any, and less dividends paid or credited to policyholders. * * * 4. Upon termination of this Agreement by death or otherwise as provided in Section III A, any unpaid amounts for securing new business under Section I hereof, shall be paid as soon as ascertainable. Payments for the agent's services under Section 2 hereof for the particular month of termination by death or otherwise shall be prorated and paid as soon as ascertainable and shall constitute the final payment due under this Schedule for such services.'

Appellant insists that under paragraph 2 he is entitled to payments for servicing policyholders for the six months immediately preceding the termination of the contract because State Farm Insurance Companies, hereinafter called 'the company,' in fact operates on a deferred payment system. Respondents deny any obligation to pay appellant for those six months and claim that the phrase 'sixth preceding month' refers only to the company's formula for determining compensation currently due. The second issue involves paragraph 4: whether appellant should be paid for the entire month of termination or only the portion actually employed.

Appellant's testimony set forth his version of his employment and the arrangement for compensation for servicing policies. He commenced working as a local agent in January, 1953. The company representative who recruited him, Mr. Hicks, told him that he 'would be paid a portion of the membership fee' and that after he had been with the company six months he 'would then draw a service fee of ten per cent of my premium volume for the preceding six months.' Mr. Hicks did not state whether or not he considered that the company paid service fee payments currently, but Mr. Pierce, the district manager, indicated that, because the company would be behind six months on service fee payments, appellant would receive a portion of another agent's service fees until his own started. He received 100 per cent of the other agent's fees in the first month; 75 per cent the second and third; 50 per cent the fourth, fifth and sixth and 25 per cent 'permanently' thereafter. The 'permanent' 25 per cent assignment became appellant's business. On August 16, 1956, respondents wrote to appellant terminating the agreement. Appellant did not receive any payment for service fees for the period from February 16th to August 16th.

While the record contains controverted interpretations of the contract by respondents' district manager Pierce and executive vice president Tompkins, we do not set out this testimony. Oral construction and interpretation of the contract is unavailing if the contract itself is clear and unambiguous. Gero v. Richey, 1918, 38 Cal.App. 21, 175 P. 91. The trial court found that such provisions were 'plain, precise and unambiguous and not subject to questions of construction or interpretation * * *.' Since, as we shall point out, we believe this finding entirely proper, the oral testimony is immaterial.

As to the basic issue, the court found after trial that 'under and pursuant to Section 2 of Form A 541 the plaintiff was paid currently during any month for services rendered by him during that month and that the payments during that month were merely computed on the basis of 10% of net premium collections as therein defined, received and recorded by the company during the sixth preceding month on policies credited to the plaintiff during the month for which the payment was computed;' but that appellant 'is entitled to service fees for the entire month of August without proration. * * *' For the reasons hereinafter stated we believe the court properly denied appellant's claim for the additional six months' commissions but that it erred in refusing to prorate the last month's commissions. We consider each of these propositions separately

As to the first, any ambiguities in the language of the contract must be interpreted against the company. Commentators have characterized the type of agreement before us as a 'contract of adhesion.' The term signifies a standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it. Kessler, 'Contracts of Adhesion,' 43 Col.L.Rev. (1943), p. 629. The designation 'contract of adhesion' was introduced into the legal vocabulary by Patterson, 'The Delivery of a Life-Insurance Policy,' 33 Harv.L.Rev. (1919), pages 198, 222. Such an agreement does not issue from that freedom in bargaining and equality of bargaining which are the theoretical parents of the American law of contracts. Yet, today, the impact of these standardized contracts can hardly be exaggerated. 'Most contracts which govern our daily lives are of a standardised character. We travel under standard terms, by rail, ship, aeroplane, or tramway. We make contracts for life or accident assurances under standardised conditions. We rent houses or rooms under similarly controlled terms; authors or broadcasters, whether dealing with public or private institutions, sign standard agreements; government departments regulate the conditions of purchases by standard conditions.' Friedmann, Law and Social Change in Contemporary Britain, p. 45.

The rule that any ambiguities caused by the draftsman of the contract must be resolved against that party (Narver v. California State Life Ins. Co., 1930, 211 Cal. 176, 180-181, 294 P. 393, 71 A.L.R. 1374; Lagomarsino v. San Jose, etc., Title Ins. Co., 1960, 178 Cal.App.2d 455, 464, 3 Cal.Rptr. 80), applies with peculiar force in the case of the contract of adhesion. Here the party of superior bargaining power not only prescribes the words of the instrument but the party who subscribes to it lacks the economic strength to change such language. Hence any ambiguity in the contract should be resolved against the draftsman, and questions of doubtful interpretation should be construed in favor of the subscribing party.

The instant contract, prepared, drafted, and printed by the employer, left no room for bargaining by the individuals seeking employment. As described by appellant the preliminaries to employment offered no chance for argument: 'I was quite unhappy with the contract at the time and he [Mr. Pierce] told me that * * * it was either a take-it-or-leave-it proposition.' This contract constituted a typical contract of adhesion.

A careful analysis of the contract, however, fails to reveal any ambiguity. Its language cannot be construed to support appellant's claim that the agreement entitled him 'to be paid for services rendered in an amount totalling Ten Percent (10%) of his net monthly premium collections for the six months period immediately prior to his termination * * *.' The contract does not provide for payment of six months of premium collections, but fixes the compensation '[f]or services rendered in any month' the amount of net premium collections received by the company 'during the sixth preceding month on policies credited to the Local Agent * * *.' (Emphasis added.) The sixth preceding month serves as the test for the amount to be paid the agent. It is a touchstone for one month's payment, not a cornerstone supporting a structure of payment on premiums collected during the salesman's last six months of employment.

The contract apparently framed two kinds of payment, each based upon different concepts: the...

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