Johnson v. Peterbilt of Fargo, Inc.

438 N.W.2d 162, 1989 N.D. LEXIS 70, 1989 WL 28593

• Court: North Dakota Supreme Court
• Decided: March 27, 1989
• Docket: Civ. 880149
• Status: Published

Opinions

VANDE WALLE, Justice.

Mike Johnson appealed from a judgment dismissing his action against Peterbilt of Fargo, Inc., for recovery of commissions earned while he was employed by the defendant. The only issue on appeal is whether a clause in the contract between the two parties is against public policy.¹ Because we conclude that it is not, we affirm.

Peterbilt is a corporation engaged in the business of selling and repairing trucks, tractors, and trailers. Johnson was employed as a salesman for Peterbilt from April of 1984 through October of 1985.

The parties entered into a contract on January 21, 1985.² That contract specifies, in part:

“COMMISSIONS WILL NOT BE PAID TO SALESMEN UNDER THE FOLLOWING CONDITIONS:

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“6. ON SALES WHERE THE UNIT OR UNITS ORDERED IS DELIVERED AFTER THE TERMINATION OF SALESMAN’S EMPLOYMENT, WHETHER SUCH TERMINATION BE VOLUNTARY OR OTHERWISE.”

Johnson sold two trucks for which he did not receive commissions. One sale occurred in August 1985 and the other took place in September 1985.³ The total commission he claimed due was $4,128.68. Pet-erbilt refused to pay any commissions because Johnson quit his job before the units sold were actually delivered.

The trial court found that Johnson failed to show that the provision in the contract was unconscionable or constituted unjust enrichment or involuntary servitude. It also found that Section 34-03-09, N.D.C.C., provided no relief for Johnson because the contract specified that no commissions would be due until the units were delivered; and since Johnson voluntarily terminated his employment prior to delivery, no commissions were owed under the contract.

On appeal, Johnson argues that “[a] contractual provision which states that no commission will be paid to a salesman on sales where the item is delivered after the termination of the salesman’s employment whether such termination is voluntary or otherwise is void as a matter of public policy.”

Peterbilt counters that Johnson is an experienced salesman and willingly subjected himself to the terms of the contract; thus there was no overreaching by Peterbilt.

Public policy, with respect to contract provisions, is a principle of law whereby a contract provision will not be enforced if it has a tendency to be injurious to the public or against the public good. Ness v. Fargo, 64 N.D. 231, 251 N.W. 843 (1933). Whether a particular provision is against public policy is generally provided for by statute⁴ or by the State Constitution. However, when a contract provision is inconsistent with fair and honorable dealing, contrary to sound policy and offensive to good morals, courts have the authority to declare the provision void as against public policy. Sec. 9-08-01, N.D.C.C. See also Mees v. Grewer, 63 N.D. 74, 245 N.W. 813 (1932).

When a court is faced with deciding whether a contract is against public policy, it must also be mindful of an individual’s right to enter into a contract. “It is not the court’s function to curtail the liberty to contract by enabling parties to escape their valid contractual obligation on the ground of public policy unless the preservation of the general public welfare imperatively so demands.” Tschirgi v. Merchants National Bank of Cedar Rapids, 253 Iowa 682, 690, 113 N.W.2d 226, 231 (1962). [Citations omitted.] See also Walker v. American Family Mutual Insurance Co., 340 N.W. 2d 599 (Iowa 1983).

Johnson relies upon Section 34-03-09 ⁵ for the proposition that, as a matter of public policy, whenever a person works on a commission basis he is unconditionally entitled to a portion of the profits on sales he makes. We do not read that section to so narrowly limit the parties’ right to contract. Section 34-03-09 superseded Sections 34-03-07⁶ and 34-03-08.⁷ It appears that the Legislature, in adopting Section 34-03-09, did not intend to limit the rights of persons to contract as they desire; rather, it merely sought to reverse the law that provided no compensation was due to an employee who was dismissed for good cause. Thus Section 34-03-09 does not limit the parties’ right to agree if and when commissions are due; nor does it establish an absolute policy that compensation is due whenever any amount of work, no matter how minuscule, is performed.

Johnson suggests that this would be the only State in the Union to recognize that, even if the employee has partially performed his job, the parties can agree that commissions will not be due until after a unit has been delivered. But our research does not support that suggestion. See, e.g., Powis v. Moore Machinery Co., 72 Cal.App.2d 344, 164 P.2d 822 (Cal.Dist.Ct.App.1945); Division of Labor Standards Enforcement v. Dick Bullis, Inc., 72 Cal.App.3d Supp. 52, 140 Cal.Rptr. 267 (Dep’t Super.Ct.1977); Fox v. Don Siebarth Pontiac, Inc., 458 So.2d 575 (La.Ct.App.1984).

In Powis, a salesman for Moore Machinery Company brought an action for declaratory relief and for money due as commissions. The parties had a contract which stated that the salesman was to receive commissions “when and if the goods are actually delivered to the customer, when they have been invoiced and paid for in full; when the goods are sold on a conditional sale contract and the company has received a down payment and protection against loss, commissions will be paid; ...” 72 Cal.App.2d at-, 164 P.2d at 823-824. In finding that the contract was not void as against public policy, the court stated:

“The provision therein to the effect that if plaintiff should quit voluntarily he should be paid 1% [instead of 2% had he still been employed with the defendant] as commission on goods which were undelivered and unpaid for was not a provision for liquidated damages. Plaintiff would not thereby be deprived of any sums which he had already earned since it related to services to be performed in the future_ It was not illegal to provide that commissions would be paid when and if the goods were delivered and paid for.... Undoubtedly, it was a motive of defendant in placing that provision in the contract to create an incentive for plaintiff to remain with the company, but such motive did not make the contract illegal.... Plaintiff was free to accept or reject the proposed terms of payment.” 72 Cal.App.2d at -, 164 P.2d at 827-828.

In Division of Labor Standards Enforcement v. Dick Bullis, Inc., supra, a case similar to the present one, a car salesperson brought suit against her former employer to recover commissions due. A provision of their contract stated, “No commissions, bonuses, or contest prizes will be payable to a salesman under any conditions for any unit not actually physically delivered and licensed prior to termination of employment.” The salesperson sold seven vehicles but voluntarily terminated her employment prior to the time the cars were delivered. In finding that the contract was not void as a contract of adhesion or a penalty provision, the court stated:

“[T]he salesperson in the instant case had duties to be performed after delivery of the vehicle. She had to be certain that the car was in good condition; she had to test drive the car; she had to supervise the customers’ signing of papers, etc. In addition, there was the further possibility that a customer would ultimately reject a vehicle that he had ordered. Appellant was free to accept or reject employment with respondent.” 72 Cal.App.3d Supp. at 58, 140 Cal.Rptr. at 270.

The court concluded that the right to recover a commission must be measured primarily by the terms of the contract. Likewise, the trial court in the present case found that much work needed to be done at the time the trucks were delivered to the buyer. The trucks had to be inspected in order to confirm that they met the requirements of the orders. The salesperson was expected to correct or make adjustments for any deficiencies found. He was also to be involved in financing the sale of the trucks. Thus requiring a salesman to complete his job prior to being paid is not unreasonable. See also Fox v. Don Siebarth Pontiac, Inc., supra [it is not uncommon in the automobile sales industry for entitlement to a commission to be considered earned only when the sale is completed].

The contract provision at issue in this case is not against any stated public policy. Nor, under the facts of this case,⁸ is it so offensive that it is inconsistent with fair and honorable dealing, or contrary to sound policy, or offensive to good morals. While it is true that Johnson apparently consummated the sale of the two trucks, he agreed in the contract that should his employment with Peterbilt terminate prior to delivery of the trucks, he would not be entitled to a commission. Johnson was an experienced salesman. He entered the contract with knowledge of its terms and without objection. The mere fact that he can show an injury flowing from Peterbilt’s exercising its contractual rights does not compel this court to devise some basis for relief. Minneapolis Threshing Machine Co. v. Hocking, 54 N.D. 559, 209 N.W. 996 (1926). To do so would undermine the parties’ right to bargain and impair their right to contract as they wish.

The judgment of the trial court is affirmed.

ERICKSTAD, C.J., and GIERKE, JJ., concur.

1 . Although the trial court analyzed the issues in terms of unconscionability, unjust enrichment, and involuntary servitude, all of which involve the issue of public policy, the issue on appeal is framed generally, i.e., whether the provision challenged in this case is void as against public policy.

2 . There was some dispute as to whether a written contract was entered into at the time Johnson was hired. Whether or not a contract was entered into at an earlier date is irrelevant because the contract dated January 21, 1985, states, “This agreement automatically terminates and cancels all prior agreements between the parties.”

3 . Another sale took place around May 14, 1985, but Johnson did not pursue a claim for commission because the truck was repossessed.

4 . See, e.g., Kreiti v. Marian Manor Nursing Home, 415 N.W.2d 793 (N.D.1987) [retaliatory discharge of employee for seeking workers compensation violated public policy expressed by Legislature in Section 65-01-01, N.D.C.CJ.

5 . That section provides: "An employee who quits the service of his employer for good cause and an employee who is dismissed by his employer for good cause are entitled to such proportion of the compensation which would have become due upon full performance of the contract of employment as the services already rendered by such employee bear to the services he was obligated to render had the contract of employment been fully performed."

6 . Section 34-03-07 provided: "An employee dismissed by his employer for good cause is not entitled to any compensation for services rendered since the last day upon which a payment became due to him under the contract.”

7 .Section 34-03-08 provided: "An employee who quits the service of his employer for good cause is entitled to such proportion of the compensation which would become due in case of full performance, as the services which he has already rendered bear to the services which he was to render as full performance.”

8 . Our decision is limited to the facts of this case. We do not decide, for example, whether or not we would hold the clause contrary to public policy if an employee who has made several sales for which delivery is due is dismissed without cause [see, e.g., Reed v. Kaydon Engineering Corp., 38 Mich.App. 353, 196 N.W.2d 487 (1972); nor, for example, do we decide whether or not the clause would be contrary to public policy in the case of an adhesion contract, i.e., the instance in which the employee is the weaker party and has no realistic choice as to the terms of the contract. Here, the facts as found by the trial court reflect that Johnson left his employment voluntarily for another job, that the terms of the contract, including the clause in question, were discussed with Johnson by Peterbilt’s manager, and that Johnson did not object to any of the terms of the agreement.