Marnon v. Vaughan Motor Co., Inc.

This suit was brought upon the theory that the written contract of September 30, 1937, with all its provisions intact, remained in effect from the time of its execution throughout the entire period of the dealings between the parties. The complaint shows this to be so. It alleges that defendant has "refused to set a sale price with plaintiff * * * according to the terms of said agreement", and the prayer is for an accounting of profits in accordance with such terms. Counsel for the plaintiff repeatedly during the trial asserted that the contract was never modified, and in this court has argued the case upon that premise. Thus, in the plaintiff's brief, it is said:

"The suit involves primarily the construction of a written contract which we claim, and the trial court found, creates a joint adventure. If this court does not so construe the contract, the other issues involved in this appeal are of no importance."

Counsel for the defendant, on the other hand, have contended strenuously, not only that the contract does not create a joint adventure, but that it was wholly abandoned and that Marnon was a mere employee of the defendant and, therefore, not entitled to maintain a suit for an accounting of profits.

For our part we think that the concession of counsel for Marnon that, if the contract is not one of joint adventure no other question is important, is a concession that need not have been made and which the court should not accept. For, if the contract remained in effect either in its entirety or sufficiently so as to afford the basis for relief under the pleadings, it would seem to us to be immaterial to the question of plaintiff's right to an accounting whether the relationship between the parties created by it was that of joint adventure or something else, since "whatever their relation may have been, their rights and liabilities rest upon their agreement, and where a contract provides as this one does, for payment by one party to another of profits received, it is the duty of the one receiving such profits to account to the other * * *" Elliott v. Murphy TimberCo., 117 Or. 387, 393, 244 P. 91, 48 A.L.R. 1043.

We cannot, however, concur either in the view of the plaintiff that the contract was not modified in some important particulars, or in that of the defendant that it was cancelled or abandoned. It is our opinion that, as a result of the agreement of January, 1939, and the conduct of the parties under it, certain of the provisions of Paragraphs 4 and 5 of the contract relating to the method of transacting the business and the profits to which the respective parties were entitled were superseded, but that the provision of Paragraph 4, which, as we construe it, was intended to assure to Marnon a reasonable profit on the sale of Mobilifts, was never abandoned and remains as a basis for the maintenance of a suit for an accounting. We proceed to a consideration of the reasons which have led us to these conclusions.

CANCELLATION OR ABANDONMENT OF THE CONTRACT Vaughan contends that the sole consideration moving from Marnon for the contract of September 30, 1937, was Marnon's representation that he was amply financed and his promise to establish a sales agency which could market Mobilift, and that upon his failure to comply with this promise Vaughan was wholly relieved of its duties under the contract. Reliance is placed upon § 318 of the Restatement of the Law of Contracts, which reads in part as follows:

"* * * any of the following acts, done without justification by a promisor in a contract before he has committed a breach under the rules stated in §§ 314-315, constitutes an anticipatory repudiation which is a total breach of contract:

"(a) a positive statement to the promisee or other person having a right under the contract, indicating that the promisor will not or cannot substantially perform his contractual duties;

* * *

"(c) any voluntary affirmative act which renders substantial performance of his contractual duties impossible, or apparently impossible."

See, Ratcliffe v. Union Oil Co. of California, 159 Or. 221,77 P.2d 136.

In order to discuss this contention intelligently it is necessary first to examine the terms of the contract. It recites that the idea of the "Mobile Load-Lift Truck" originated with Marnon; that Vaughan's experience in regard to the manufacture and cost of the machine is limited and Marnon's experience in its sale unknown. "In consideration of" these premises the parties agreed that: (1) Vaughan shall proceed to develop the design for the machine and thereafter to manufacture it in such quantities as sales of it by Marnon shall warrant; (2) notwithstanding that "the building of said Mobile Load-Lift Truck was suggested by" Marnon, the ideas embodied in it shall be the exclusive property of Vaughan, as also any patents upon it or upon improvements thereon; (3) the manufacture of the machine shall be at Vaughan's sole cost and expense and Vaughan shall not divulge to any other person the ideas embodied in it nor give any other person the right to design or manufacture it, nor sell or market it to or with any person except Marnon except upon the terms and conditions thereinafter set forth; (4) within a reasonable time after the machine has been designed or manufactured Vaughan shall set and quote to Marnon "the cost of said device, reserving unto itself a reasonable margin of profit", and when said cost, plus manufacturer's profit, has been definitely fixed, the parties will agree upon and establish a reasonable list or consumer's price, "having in mind as part of said cost price and list price a reasonable margin of profit wherein (Marnon) can sell said device at such a profit as the exigencies of the business demand"; (5) Vaughan shall keep the books at its own expense, and all payments made in the purchase of machines are to be made directly to Vaughan "and it shall make disbursements therefrom to (Marnon) after the fixed and set price hereinbefore mentioned reserved to (Vaughan) has been deducted;" (6) if Marnon shall either neglect to serve adequately or shall voluntarily decline to market the device in any given territory Vaughan shall have the right, upon notice, to market it in such territory, it being the intention that all territory, where there may be a demand for such device, shall be served; but Vaughan shall pay Marnon two per cent of the dealer's price on all machines sold by it in such territory. If Marnon shall abandon the sale of the device said commission of two per cent shall be paid only for a period of five years from the date of such abandonment. The provisions of the contract are expressly made binding upon the heirs, executors, administrators and assigns of the parties.

Taking the contract by its four corners and viewing it in the light of the situation of the parties at the time it was drawn and executed, we think that its primary and central purpose was to grant Marnon the exclusive right to sell Mobilifts in consideration of the "idea" which the latter had originated and imparted to Vaughan. While there is language in Paragraph 4 which seems to indicate that Marnon was to buy machines from Vaughan — and no doubt he had that right — he was not required to do so. The provisions of Paragraph 3 that Vaughan will not "sell ormarket the same to or with any person other than" Marnon, etc., and the provision of Paragraph 5 that all purchase payments shall be made to Vaughan which will disburse to Marnon all above "the fixed and set price", — that is, its manufacturer's price — sufficiently show that it was anticipated that Marnon was to secure retail purchasers rather than buy and sell machines. This no doubt would have to be accomplished through some sort of sales organization or through the establishment of dealers. Vaughan's profit under the contract was limited to the difference between its cost of manufacture and its manufacturer's price. Marnon's profit was to come from retail sales, and it was stipulated that the parties would agree on a retail price which would enable Marnon to make a reasonable profit. That, we think, is all that the rather involved language of the second sentence of Paragraph 4 comes to. While not expressly stated, it is necessarily implied, that the entire expense and the full responsibility and risk, as well as all the profit connected with the retail sales of Mobilifts was to be Marnon's. The contract is not notable for good draftsmanship and it omits many details ordinarly to be found in agreements of that character. But, whatever the relation between the parties created by it, it is akin to the exclusive sales agency contract and the exclusive sales and distribution contract frequently employed in modern industry, concerning which it is said in 4 Williston on Contracts (Rev. ed.) 2848, § 1027A:

"Any one of these types of agreement, however, since they are bilateral in nature, imposes weighty obligations on both sides during its continuance. Usually, the agent or buyer, as the case may be, is doing more than merely offering to render services or to pay the price for the goods. It is at least expected and understood, and, in fact, frequently expressly provided in the contract, that he is to make a substantial investment and to build up or maintain a business establishment for the distribution of the manufacturer's products. On the other hand, the manufacturer intrusts the fate of his product in the defined territory exclusively to this agent or distributor, and, in thus forbearing to resort to other sources of distribution in that locality, he gives up a valuable right."

Finally, to protect Marnon in case of his inability to market the device in a given territory, or at all, the provisions in Paragraph 6 for a two per cent commission to be paid to him were included in the contract.

First. We pass over the contentions of the plaintiff that the parol evidence rule bars Vaughan from showing that it was induced to execute the contract by Marnon's representations as to his financial resources and ability to establish a sales organization, and shall assume, although we do not decide, that such evidence was admissible. Our examination of the testimony does not convince us of the factual validity of this claim. If Marnon did make such representations to Boutin and Weiss before the contract was executed, as they testified and he denied, we do not think that they regarded them as anything more than the tall talk of a high-powered salesman. It was Boutin who conducted the negotiations with Marnon and agreed upon the terms of the contract with him, although Weiss was present at some of their discussions. As the record clearly discloses, Boutin is a cautious, prudent, clear-headed business man, not likely to be taken in by claims such as he testified Marnon made. These were to the effect that a group of men connected with the United States National Bank in Portland were prepared to put up a half a million dollars for the formation of a sales company. Boutin does not seem to have been too sure that the representations were made before the contract was executed because, when asked about this, he testified:

"I think that the original mention of this group I just mentioned was prior to the time that I signed this contract."

That he was skeptical appears from the following statement in his testimony:

"I couldn't quite see what they were going to do with all that money, and mentioned it, and he said that it was going to cost a lot of money to do it."

Mr. Boutin testified that he knew what Marnon's financial position was, because he had investigated it. We think that if the decision as to whether he should sign the contract or not depended upon the existence of financial backing for Marnon, he would likewise have investigated that subject. The name of the man who was supposed to head the group who were going to put up a half a million dollars as well as the names of others whom Marnon hoped to interest in the enterprise were given him, and he would have had no difficulty in ascertaining the facts.

Again, on his direct examination, Boutin's attention was called to Paragraph 5 of the contract under which it was agreed that Vaughan should keep the books relating to the business and that all purchase payments should be made directly to Vaughan, which was then to disburse to Marnon that portion of the moneys to which he was entitled. He was asked why that clause was put in the contract and answered:

"A Well, our information was that Mr. Marnon didn't have finances to finance a deal like that and we didn't know how long it would be before we had machines nor how long before he would have his selling organization, and we expected that we would have machines before he would be ready. If they were sold, we wanted to handle the accounts so that we would get our money first."

This answer is inconsistent with the idea that Boutin thought that Marnon would have a sales organization formed by the time that Vaughan had built machines ready to be marketed. It leaves wholly unsupported the argument, advanced for the first time in Vaughan's reply brief, that Marnon breached the contract in 1938 when he advised Vaughan of his financial inability to establish a sales agency and undertook to sell Mobilift machines for the remainder of that year at retail. And it renders inapplicable the rule of the Restatement, and of the Ratcliffe case, above cited.

Of even greater significance is the contract itself — both in respect of what it contains and what it omits. The contract was drawn by Vaughan's attorney, and we think that if the representations in question were made and relied on, Boutin would have seen to it that they were incorporated in the writing.

The provision of Paragraph 6 that if Marnon "shall abandon the sale of said device" Vaughan may take over the sales, and Marnon in that event will be entitled to a commission of two per cent of the dealer's price on all machines sold for a period of five years from the date of such abandonment is, in our opinion, wholly out of harmony with the defendant's position. It shows that, so far from Vaughan relying on the asserted promise of Marnon, the parties had in mind the contingency that Marnon might never sell a machine, and provides what the respective rights of the parties should be if that contingency should arise.

But, it is argued, this provision means only that if Marnon, after having created an initial demand for the machine, should decide not to market it in a particular territory or should be unable to do so, he was to receive two per cent on machines sold in such territory by Vaughan to compensate him for his efforts. We think that Marnon's rights are not thus limited and that the contract will not bear that interpretation. Having been prepared by Vaughan's attorney, any uncertainty of its meaning must be resolved in favor of Marnon. Herrold v. Hartley, 144 Or. 368,24 P.2d 338. But we think that the contract, so far as this question is concerned, is free from ambiguity. It may be conceded that the parties contemplated that Marnon would establish a sales organization or find some other means of marketing the machine, for he could not otherwise earn the profit provided for in Paragraph 4, but he did not obligate himself to market Mobilift.

There are three contingencies stated in Paragraph 6, on the happening of any one of which the two per cent provision would come into effect. The first applies to a particular territory "where there is a demand for the device" and which Marnon shall "neglect to serve adequately"; the second applies to "any given territory" in which Marnon shall "voluntarily decline" to market the device; and the third to an entire "abandonment" of its sale by Marnon. In the first two instances, apparently, the commission is to be paid as long as machines are sold by Vaughan in the territories referred to; in the last it is to be paid for a period of five years only after such abandonment. The word "abandonment" was used, in our opinion, to express Marnon's voluntary decision at any time, either before or after entering upon a selling program, to quit the enterprise. It cannot be given the construction urged by counsel for Vaughan without reading into the provision language which the parties have not seen fit to insert, and certainly not without adopting a construction in favor of the party who drew the instrument.

Second. What, then, was the consideration for the agreed two per cent commission, and, as well, for the exclusive selling rights granted to Marnon? Obviously, it was the "idea" of the device, which the contract states "originated with" Marnon and was "suggested" by him to Vaughan. A careful reading of the contract reveals that it does not bind Marnon to do anything except to agree with Vaughan, as a basis for determining his profits on any machines he might sell, on a list price of the machines after Vaughan had fixed its manufacturer's price. It gives Marnon exclusive selling rights, a portion of the profits on sales made by him, and, under certain stated conditions, a two per cent commission on sales made by Vaughan. Many a man has had a valuable idea from which he has received no financial reward but which others have used to their profit. The purpose of the provision under discussion was to safeguard Marnon's interests and to assure him a measure of compensation for his idea if it should prove to have value, even though he might never earn a cent of profits as a salesman. In this instance, as it turned out, the idea had great value, and we think that Marnon should not be deprived of its legitimate fruits by what seems to us to be an after-thought on the part of the officers of Vaughan as to what influenced them to sign the contract.

The defendant asserts, however, that the "idea" of the "Mobile Load-Lift Truck", which, according to the recitals in the contract, originated with Marnon, could not have been the consideration for the contract because at the time of its execution one machine had been nearly completed, and, therefore, whatever "suggestions" Marnon may have made to Vaughan must have been made before the contract was executed. While no principle of law is invoked and no authorities are cited in support of this claim, we assume that what counsel have in mind is that Marnon's "suggestions" to Vaughan were in the nature of a gratuity, which would not constitute consideration for a contract subsequently entered into.

We think that the contention is answered by the rule, supported by a considerable body of authority and recognized in the decisions of this court, that when "the past consideration consisted of a material pecuniary benefit which, although not moved by a previous request, was conferred upon the promisor in such circumstances as to create a moral obligation and has not been exhausted by furnishing the consideration for another legal obligation already performed or still enforceable, * * * it will support a subsequent executory promise." 12 Am. Jur., Contracts, 601, § 107. The cited text continues:

"To render this doctrine applicable it must appear: (1) That the service or other consideration moving from the promisee conferred an actual material or pecuniary benefit on the promisor, and not merely that it resulted in detriment to the promisee; (2) that the promisee expected to be compensated therefor, and did not intend it as a mere gift or gratuity; (3) that the circumstances were such as to create a moral obligation on the part of the promisor; and (4) that the benefit received has not constituted the consideration for another promise already performed or still legally enforceable. * * *" See, also, 17 A.L.R. 1325, 79 A.L.R. 1349

This doctrine has received the express approval of this court in the following cases: State ex rel v. Funk, 105 Or. 134, 161,199 P. 592, 209 P. 113, 25 A.L.R. 625; Meyer v. Livesley,56 Or. 383, 389, 107 P. 476, 108 P. 121; Forbis v. Inman, 23 Or. 68,72, 31 P. 204; Glenn v. Savage, 14 Or. 567, 577, 13 P. 442.

It is clear from the record in this case that Vaughan derived a material and very substantial pecuniary benefit from Marnon's idea; that Marnon did not intend to confer a gratuity on Vaughan, but rather expected to be compensated; that imparting the idea to Vaughan created a moral obligation which Vaughan recognized in signing the contract; and that no other promise or obligation was involved. The contract, therefore, and Vaughan's undertakings therein, are supported by a valid consideration. The contract was not cancelled or abandoned. We pass to the question of its modification.

MODIFICATION OF THE CONTRACT As related in the statement of the evidence, about January 1, 1939, the parties agreed orally upon a method of transacting business. The reason for making that agreement is not far to seek. It developed out of the necessities of the situation. In 1938 Marnon was hopeful that the Howard-Cooper Corporation would be the medium through which an organization for nationwide sale of Mobilifts might be developed. When this hope was disappointed Marnon quit Howard-Cooper's employ and undertook by his personal efforts to sell a few machines. The division of profits, or rather of the proceeds of the sales during this period, was in accordance with the provisions of the written contract, that is to say, Vaughan retained its manufacturer's price, Marnon got all the rest. It was obvious, however, that no business of the volume necessary for the success of the enterprise could be built up merely through sales made by Marnon individually. Moreover, Marnon, being without funds and unable to obtain financial backing, could neither buy machines himself nor, unaided, establish a sales organization throughout the country. In other words, he was unable to proceed in the manner contemplated by the contract. On the other hand, Vaughan, having invested in excess of $50,000.00 in designing and building the machine, was under the business necessity of finding a means of marketing its product, recouping its investment, and making a profit.

It was under these circumstances that, during the last two months of 1938, Boutin and Marnon, with Weiss at times participating, engaged in discussions about the terms of a new arrangement for marketing Mobilifts. The result of these discussions was the agreement of January, 1939, under which Marnon, financed by Vaughan, was to establish sales agencies in various sections of the country and be paid eight per cent of the price received by Vaughan for all machines sold.

This agreement was widely different from the provisions for a division of profits in the written contract and comprehended a different method of transacting the business. Vaughan's duties under the contract were to manufacture Mobilifts, "set and quote" to Marnon its manufacturer's price, agree with Marnon on a retail price which would allow for a reasonable profit to Marnon, sell the machines to Marnon or his sales organization or dealers appointed by him, keep the books, receive the purchase price, and disburse to Marnon his part thereof — i.e., all above the manufacturer's price. It is clear, and there is no contention to the contrary, that Vaughan had no obligations connected with the sale of Mobilifts other than as above stated.

Vaughan did not agree to finance Marnon or defray advertising costs by the contract of September 30, 1937. But by the agreement of January, 1939, it not only assumed these burdens but as well the risk of loss connected with them. In the place of the agreement for the division of the proceeds of sales under which Marnon was to receive all above the manufacturer's price, he agreed to accept eight per cent of the price received by Vaughan, and Vaughan agreed to pay this whether there were profits or not. For the purposes of the present discussion it is immaterial whether, as Marnon contends, this eight per cent should be called "costs of sale", or is referred to as a "commission", "compensation", or something else. By whatever name it may be called it was in fact the only remuneration Marnon received while that agreement was in effect, and it amounted to about $25,000 in the year 1941.

The trial judge found that the provisions of the written contract relating to the respective interests of the parties in the profits were "suspended." Counsel for Marnon take issue with this finding and say that by the January, 1939, agreement "the only thing the parties decided on was how the respondent's share should be expended." It is contended that the parties agreed that forty-six per cent of the retail sales price was Marnon's "share" and that this should be allocated twenty-five per cent to the dealer, four per cent to advertising, and eight per cent to the cost of sales, to be credited to Marnon. Even on that theory the arrangement would represent a modification of the contract because there remained nine per cent, which, according to a statement of Marnon's, was the compensation to Vaughan for the "gamble" it agreed to take when it financed him. If forty-six per cent of the retail sales price was Marnon's share under the written contract, his agreement to take less than forty-six per cent resulted to that extent in a different and inconsistent agreement.

We are unable, however, to accept the premise that "the only thing the parties decided was how the respondent's share should be expended." This was not an agreement for the sharing of profits. The percentages the parties talked about were not money in the bank. The respondent's "share" when the agreement was made was theoretical and not in existence. While the twenty-five per cent discount to the dealer was not given and the eight per cent allowance to Marnon was not credited, until after the actual receipt of the money produced by sales, the advertising expense could not wait on the receipt of such money, but in the beginning at least would have to be incurred before sales were made and in order to create a demand for the product. In other words, Marnon's "share" included the cost of advertising, which, under the contract, was his burden, but which, under the new agreement, was assumed by Vaughan. So, also, Vaughan was required to advance $700.00 a month to Marnon whether his efforts produced results or not. True, these advances were to be credited back, but it was possible that a part or all of them would be lost to Vaughan. It was also possible that the money spent on advertising would be lost. That was the "gamble" that Vaughan took. It was not provided for in the contract.

It is our opinion that the agreement of January, 1939, amounted to a modification of the written contract, under which Marnon sold machines and established dealers for their sale, at a fixed rate of compensation of eight per cent of the price received by Vaughan on all sales except those made by the Mobilift Company of New York, upon which his agreed rate of compensation was three instead of eight per cent.

This conclusion is reenforced, indeed made inevitable, by the establishment of the Chicago branch. This was done with Marnon's full approval and cooperation, and the conduct of the parties in that regard was inconsistent with those terms of the contract which contemplated that Vaughan's interest in Mobilift was to be limited to the manufacture of the machine and the profit from its sale to Marnon or his dealers, and that all else belonged to Marnon. The branch was financed and operated by Vaughan. Its employees were Vaughan's employees. They sold Mobilifts and serviced them. In a word, Vaughan became, as far as the Mobilift business was concerned, not merely a manufacturer, but a sales organization selling machines at retail on which Marnon was paid a commission of eight per cent.

In 1942 the Chicago branch did a large business. Its total purchases of Mobilift trucks, parts and materials for sales to its customers amounted to $367,073.00. Of that amount the sum of $288,067.00 represented purchases from the Vaughan factory. In 1943, when most of the sales were to the government, the branch was credited with dealer's discounts in the amount of $34,683.00, in which were included ten per cent of the sale price of machines sold to the government through the Washington agency and thirty-five per cent discount on parts. All the profit in these figures concededly belonged to Vaughan. No part of them belonged to Vaughan under the contract, because they were not a part of, but in addition to, "the manufacturer's profit" to be included in the "cost price" which Vaughan was to "set and quote" to Vaughan — the only profit which, under the terms of the contract, Vaughan was entitled to make.

The radical departure from the provisions of the contract is emphasized by the following excerpt from a letter written by Marnon to Boutin under date of January 16, 1942, in which he was discussing the Chicago branch:

"Except for the fact that unusual conditions prevail we will probably go ahead with the plans which you and I discussed while I was in Portland and which involve several other set ups just like this, all of which will be factory owned. I do not want at this time to do anything that may create the impression that at some future date this branch will be operated as dealership by either Mr. Putnam or myself, both of us together, or by anyone else. This is now and will remain your branch as will the other branches that are set up by yourself. At the time when we can set up those other branches undoubtedly it will be necessary to rearrange our policies of operation but these changes in policy would tend to knit our organization closer together into a more compact, centrally controlled unit rather than to do the opposite."

It was the position of the plaintiff in the court below, and it is his position here, that, according to the evidence, the defendant received as profits for the years 1942 and 1943, some $230,000.00 arising out of sales where no dealer's discounts were given, the sum in question representing the amount of such unpaid discounts; that this profit pertained exclusively to the sales end of the business, which belonged to Marnon; and that Vaughan should account for the full amount thereof. The contention, it will be observed, rests squarely upon the terms of the written contract.

The argument supporting it was stated very clearly by counsel for the plaintiff during the course of the taking of testimony on the accounting. A question having been raised as to the theory of the accounting, counsel for the plaintiff said:

"Now, your paragraph 4 of the contract, with which the court is familiar, sets up the method of dividing profits. It provides for two profits; it provides for a profit for the manufacturing end of the business and it provides for a profit for the selling end of the business. The factory alone is to set the factory cost, including a margin of profit. Then the two of them are to set a sales cost which would allow a margin of profit. Now, the plaintiff has no interest whatsoever in the manufacturer's profit; the manufacturer had no interest whatsoever in the sales profit. They were separate and distinct. That is a provision of the contract. Now, that is the way the parties construed the contract."

Counsel for the plaintiff then referred to a statement made by Boutin in a conference held by the parties and their attorneys in an attempt to settle the controversy in June, 1942. Referring to the sales in 1938 to Howard-Cooper Corporation, Boutin had said: "We arrived at a price and when we were to be paid that price, and then we were to be through with it." Plaintiff's counsel next quoted from Boutin's testimony concerning the sales made by Marnon in 1938 after he left Howard-Cooper as follows:

"Well, when we shipped a machine to a customer we charged Mr. Marnon with the — with his cost of the machine, and when the customer paid for the machine we credited his account with the payment received from the customer."

In this connection counsel referred to a sale to the Grays Harbor Chair Manufacturing Company and the exhibits in evidence with regard to such sale, which showed that the method described by Boutin had in that instance been followed, and proceeded:

"* * * According to its terms, according to the way the parties construed it, and according to the way they operated under it, the contract provided for separate and distinct profits. The manufacturing profit went to the factory. The price, the factory price, was set by the Vaughan Motor Company. Marnon had nothing to do with it. The two of them set the sale price. Now, everything over and above the manufacturer's price went to the sales end of the business. That is the way the contract reads; that is the way the parties construed it; that is the way the parties actually operated under it."

Counsel then argued that no change had been made in the contract by the January, 1939, agreement. The construction thus placed on the contract by Marnon's counsel at the trial is adhered to by his counsel in this court.

In connection with the foregoing contention, it should be noted that precisely the same sort of claim was made by Marnon in the year 1940 during the course of the transaction of the business. The evidence concerning it was brought out on Marnon's cross-examination. He conceded at first that under the January, 1939, agreement he was to be credited with only eight per cent of the amount of money received by Vaughan and that he was entitled to no part of the profits. On cross-examination his attention was called to correspondence passing between him and Boutin in 1940 concerning two sales which were made without the intervention of a dealer and on which Vaughan received the full retail price without reduction for dealer's discount. In this correspondence Marnon asked to be credited with the amount of the dealer's discount. Boutin refused to allow this claim. He wrote Marnon under date of April 22, 1940:

"I have reference to your contention that the difference on any sale between the dealers price and the amount actually received by us, should go to your credit. That is a swell idea from your standpoint but not from ours; we originally agreed that the maximum sales cost would not be more than 8%, that also has proved to be the minimum but under present circumstances that cannot be helped. However, we have assumed any and all liabilities actual or potential and as long as we get all the grief, we are also entitled to any gravy when there is some."

Again, Marnon at one time suggested to Boutin that Vaughan should stand a part of the expense of a convention at which Marnon was promoting the sale of Mobilifts. In declining to accede to this suggestion Boutin wrote Marnon under date of February 5, 1940, a letter in which he said among other things:

"* * * It is my impression that you look at it that we are making certain equipment to order that you then take it and then pay a specified price and carry on from there. That was the original idea but not the one that we were forced to proceed under. As the proposition turned out, it is no different than anything else that we are making." (Italics added.)

Concerning these matters Marnon testified on cross-examination:

"Q Why, if your deal was that you were to receive 8% for the things that you were to do during the year 1940, were you claiming that you were entitled to any more than 8%?

"A My deal was not that I was to receive 8%. My deal was that I was to receive a fraction under 37%, of which I was to give 25% discount to the dealer, 4% for advertising, and leaving the balance to me. I have explained all that to you now six or seven times."

Being pressed further about the apparent inconsistency in his testimony, he said:

"A In addition, — what I said was that in addition to the 25% that we were going to give the dealer — now, that is established; that wasn't changed — the 4% for advertising; I thought I made myself clear on this. The 25% and 4% was fixed and they weren't ever changed. Now, in addition to that, then — that was money that I couldn't spend; the dealer got the 25, the advertising company got 4 — then in addition to that I had agreed that my costs would not exceed 8%. It wasn't even 8% of the cost, of the retail price, but I had agreed that my cost would not exceed 8% of what they got net."

At another point in his cross-examination Marnon admitted that he had not made any arrangement which entitled him to any part of the unpaid dealer's discount.

In connection with these matters, Marnon's counsel argue that Vaughan knew in 1940 that Marnon claimed rights under the contract, and invoke the principle that, where one knows that another is acting under the belief that he has certain rights and accepts the benefits of that action, he cannot be heard to question its validity (citing Smith v. Martin, 94 Or. 132,185 P. 236). We do not see how that principle can come to Marnon's aid. If Vaughan knew that Marnon was asserting the rights in question, Marnon equally knew that Vaughan denied them. There was nothing equivocal about Vaughan's position. It did nothing to mislead Marnon into believing that Paragraphs 4 and 5 of the contract were then in effect. It rejected his claim to a share in the profits beyond the eight per cent agreed on in January, 1939, and called his attention directly to the terms of that agreement. It reminded him in February, 1940, that they had been forced to proceed in a different manner than the "original idea", namely, "that we are making certain equipment to your order, that you then take it and pay a certain price and carry on from there" — which was precisely the "idea" embodied in the written contract. It is certainly of no little significance that Marnon made no answer to this statement and that he continued thereafter until 1942 to accept the eight per cent. When the dispute over the control of dealers arose in the summer of 1940, and Marnon brought up his rights under the contract, Boutin told him, "well, we are not working under that contract and you know it." Again, in May, 1941, Marnon claimed that Vaughan rather than he should bear the expense of sending a man to Florida. As shown by the correspondence between Marnon and Boutin on this subject, both parties based their contentions on the terms of the 1939 agreement as they understood them. In any case, as to the years directly involved, there can, of course, be no claim that there was any misunderstanding on Marnon's part as to Vaughan's position. The parties started out in 1942 with full knowledge of each other's contentions, and continued to transact the business for the next two years in complete awareness of the risk they each ran that, if they should be unable to compose their differences, a court would some day determine their respective rights and obligations.

One difficulty about this claim to the entire amount of the unpaid discounts is that they were not net profits to Vaughan, for it is shown without contradiction, and nowhere is disputed, that Vaughan's advertising expense and its expense of keeping men in the field and servicing machines sold to the government are not taken into account in the computation.

The more serious objection, however, goes to the entire contention, and, therefore, to the whole theory of the plaintiff's case. The expenses referred to were incurred, not in connection with the manufacture of Mobilifts, but with their sale to consumers. It could not be said of these sales, as Boutin said of the 1938 sales, "We arrived at a price and when we were to be paid that price, and then we were to be through with it." Instead, Vaughan had a continuing responsibility with respect to these sales, which, under the construction placed on the contract by both parties, it was not required to assume. The way "the parties actually operated" in 1942 and 1943 is not the way they actually operated in 1938. It would be a somewhat remarkable result for a court to hold that under such circumstances there had been no change in the terms of the contract.

We think that the fallacy underlying the contention of the plaintiff lies in the unexpressed assumption that the case must be viewed in the same light as though Marnon had made the January, 1939, agreement with a third party instead of with Vaughan. In that event, of course, it would have been no concern of Vaughan's what arrangement Marnon might have made for a distribution of responsibility, expense, and profits in connection with the retail sale of Mobilifts. But, when he dealt as he did with Vaughan, he dealt with the subject matter of their contract, and any agreement they made which was inconsistent with its terms necessarily modified the contract to the extent of the inconsistency. He could not agree with Vaughan that the latter should assume responsibilities and incur expense in the business of selling Mobilifts at retail, and at the same time maintain the integrity of a contract under which, according to the plaintiff's own construction, Vaughan's duties were limited to the manufacture of Mobilifts and selling them to Marnon or to whomsoever Marnon might designate.

plaintiff urges that there was no consideration for alleged modification. This court adheres to the rule that there must be a consideration in such cases.Craswell v. Biggs, 160 Or. 547, 560, 86 P.2d 71; Cameron v.Edgemont Investment Co., 149 Or. 396, 403, 41 P.2d 249. In the present case Vaughan's promise to finance Marnon and defray advertising costs, and the burdens that it subsequently assumed in connection with the retail sales of Mobilift, all constituted a valid consideration within the meaning of the decisions cited.

There still remains to be considered on this branch of the case the question: How far did the modification go? Specifically, did it wipe out the provisions of the contract which contemplated that Marnon should receive a reasonable profit on sales made by him? That question is certainly not one free from difficulty. The alternative is to hold, as the defendant contends, that Marnon became a mere employee whose compensation Vaughan could fix, and whom it could discharge at will. This conclusion should not be drawn unless the evidence is so strong in support of it as to leave room for no other.

We have said that the evidence of the parol modification of a contract "must be clear, convincing and conclusive". Craswell v. Biggs, supra. The rule is thus stated in 17 C.J.S., Contracts, 869, § 379:

"An agreement, when changed by the mutual consent of the parties, becomes a new agreement, which takes the place of the old, and consists of the new terms and as much of the old agreement as the parties have agreed shall remain unchanged; in other words, a contract may be abrogated in part and stand as to the residue. The new contract supersedes the first to the extent that the two will be unable to stand together."

In the Restatement, Contracts, § 408, it is said:

"A contract containing a term inconsistent with a term of an earlier contract between the same parties is interpreted as including an agreement to rescind the inconsistent term in the earlier contract. The parties may or may not at the same time agree to rescind all the other provisions of the earlier contract. Whether they do this is a question of interpretation, except as this rule is qualified by the rule stated in § 223."

See, also, Krause v. Bell Potato Chip Co., 149 Or. 388, 392,39 P.2d 363; 13 C.J., Contracts, 595, § 615; 6 Williston on Contracts (Rev. ed.) 5172, Note 9.

With reference to the question of what conduct will constitute modification of a contract it is said in 4 Page on the Law of Contracts 4357, § 2458:

"While the parties to a contract may modify it by a subsequent contract which is shown by their acts, the acts which are relied upon to modify a prior contract must be unequivocal in their character. Acts which are ambiguous in their character, and which are consistent either with the continued existence of the original contract, or with a modification thereof, are not sufficient to establish a modification.

"Conduct which is not necessarily inconsistent with the continuation of a contract, will not be regarded as showing an implied agreement to discharge it, although such conduct might have been consistent with an agreement to discharge such prior contract."

And it is, of course, well established that the minds of the parties must have met upon the asserted modification, 17 C.J.S., Contracts, 1229, § 558; 13 C.J., Contracts, 762, § 950;Northwestern Fire and Marine Insurance Co. v. Connecticut FireInsurance Co., 105 Minn. 483, 117 N.W. 825; Molostowsky v. Grauer, 113 N.Y.S. 679.

At the end of 1938, when Marnon, due to lack of funds, was unable to proceed with a selling program, it is possible that Vaughan would have been justified in taking the position that he had abandoned the sale of the machine and in setting up its own system of marketing under Paragraph 6 of the contract, with no obligation to Marnon other than to pay him two per cent of the proceeds of the sales for a period of five years. Instead of doing this, however, it chose to enter into the agreement of January, 1939. There is no evidence that in their discussions the parties mentioned Marnon's exclusive selling rights or Vaughan's covenant not to disclose the principle of Mobilift to others. In fact, there is no evidence that the contract was mentioned at all. The continued existence of the provisions just referred to was entirely consistent with the terms of the new agreement, and neither of them can be said to be discharged because of that agreement. To hold otherwise would be to run counter to the principles of law upon this subject to which attention has been called above. The agreement to pay Marnon eight per cent of the sales price for marketing the machines was not a permanent agreement. All the evdience shows that it was a year-to-year arrangement. It could be renewed at the end of a particular year only by mutual consent, and there finally came a time when Vaughan refused to renew it, and asserted the right to fix Marnon's compensation and to discharge him if he refused to accept Vaughan's terms.

The contract of September 30, 1937, contemplated a business to be transacted over a period of, perhaps, many years, and the parties, under the pressure of circumstances, might well have entered into the oral agreement without intending that it was to endure longer than the circumstances which brought it about. That, indeed, is the only view which harmonizes with the retention by Marnon of his exclusive selling rights under the written contract. We are of the opinion that the minds of the parties never met on an agreement which would have rendered those rights of doubtful value. We therefore hold that, while, for reasons already stated, Marnon may not insist on the enforcement of the provisions of Paragraphs 4 and 5 of the contract to their full extent, he did not relinquish his right to a reasonable profit on sales of Mobilift, and that such right simply remained in abeyance during the years 1939, 1940 and 1941, and thereafter was in force and effect, but circumscribed by the new conditions created by the parties themselves.

The "reasonable profit" to which Marnon is entitled is limited to profits derived from the sales of Mobilifts to consumers, including the United States government. He is not entitled to share in the manufacturer's profit. Counsel for Marnon do not defend the Circuit Court's conclusion of law "that said contract creates a joint adventure between plaintiff and defendant in the business of manufacturing and selling lift trucks and each of said parties have an equal interest in said business." Counsel for Marnon say in their brief:

"The trial court's decree is based upon an equal division of the profits. This is predicated on the court's finding that the parties did not have a definite understanding about the division of profits after the meeting of January 1, 1939. We are unable to see how a contract can be amended by a misunderstanding but we accepted the trial court's finding as we realized that the development of the government business eliminated the necessity for some expenditures the respondent would have had under normal operations and due to the fact that the business will have to be wound up and an accounting had for subsequent years."

We concur in this criticism of the conclusion of law above quoted, and we can see no basis for giving Marnon any part of the manufacturing profits, as distinguished from profits derived from retail sales. The contract, as construed by the parties themselves, makes no such provision either in its original or its modified form. It is said that our law "does not surprise parties into a partnership against their will". Call v. Linn, 112 Or. 1,7, 228 P. 127; Preston v. S.I.A.C., 174 Or. 553, 564,149 P.2d 957. Yet, to hold that Marnon and Vaughan were partners in the manufacture of Mobilifts would be to do that very thing. In 1942 Marnon was a witness in the suit brought in the Oregon Federal Court against Vaughan by the Mobilift Company of New York. We quote some of the answers given by him to questions put to him touching his authority to represent the Vaughan Motor Company. "We are two entirely separate entities. The authorities of the Vaughan Motor Company are just as definite as mine and I have not now, never have had, never represented that I should or could speak authoritatively for the Vaughan Motor Company on any question whatever." "For instance if there was a question between Mobilift of New York and the Vaughan Motor Company regarding credit, regarding payment of bills, regarding manufacturing, those things were in the province of the Vaughan Motor Company and I had nothing to do with them. If it came to a question of sales, then I decided the sales policy of Mobilift. The Vaughan Motor Company does not. Now, any controversy that anybody ever had with me was over sales policy, not anything else. I merely am the sales end of Mobilift. I sell Mobilifts." "The Vaughan Motor Company made machines. I sold them." "I have nothing whatever to do with the Vaughan Motor Company other than take the machines they make and sell them."

We do not quote these answers as being strictly and in all respects accurate, for even as to matters falling within the category of sales policy, Marnon, while exercising very wide powers, was not supreme. Dealer's contracts, for example, were not Marnon's contracts, but were entered into by Vaughan and the respective dealers, and no one but Vaughan had authority to terminate them. But this aside, his sworn testimony shows that Marnon did not consider himself a partner in the business of manufacturing Mobilifts. His suit was not brought on that theory, his counsel made no such claim on the trial, and, as stated, do not defend it here. There is nothing in the record to indicate that such a partnership had ever entered into the thinking of the officers of the Vaughan Motor Company. In the detailed findings of fact made by the circuit judge there is none which suggests it. About all that there is in the record which would afford any sort of a basis for a contention of this kind is the evidence briefly referred to in the statement of facts regarding the obtaining of priorities and the need of plant expansion and speeding up of the manufacturing process in order to fill the rapidly increasing government orders. We think it sufficient to say of this evidence that it does no more than reflect the extraordinary conditions created by the war and the unusual activities in which business men and others were forced to engage during that period. In a situation where the problem was not one of selling goods but finding them, Marnon, in order to promote his own business of selling Mobilifts, might well have exerted himself to secure priorities and needed materials, and might even have made the suggestions to Vaughan which he did make — and which usually were not heeded — concerning manufacturing methods, without thereby becoming a partner in the business of manufacturing Mobilifts.

CLAIM THAT CONTRACT IS TOO INDEFINITE FOR ENFORCEMENT Counsel for the defendant have argued with vigor and at length that the provisions of Paragraph 4 of the contract that the parties will "fix and establish a reasonable list or consumer's price, having in mind as part of said cost price and list price a reasonable margin of profit wherein the Party of the Second Part can sell said device at such a profit as the exigencies of the business demand" are too indefinite for enforcement because they comprise an agreement to make an agreement in the future and because there has been no meeting of the parties' minds on what constitutes a reasonable margin of profit.

As stated by Professor Williston in a passage quoted by the defendant in its brief:

"A provision that some matter shall be settled by future agreement has often caused a promise to be too indefinite for enforcement." 1 Williston, op. cit. 98, § 37.

An illustrative case upon which the defendant relies, among others, is the recent decision of this court in Reed v.Montgomery, 180 Or. 196, 175 P.2d 986. The parties there had executed a writing by which they purported to agree to pool their properties, consisting of logging equipment, "to carry on business therewith". There was no further indication in the writing of the character of the business except that one of the parties agreed to advance $1,500.00 to secure an extension of an option on timber land. The writing concluded:

"It is understood that this is a temporary agreement further details to be included in a more particular agreement to be later drawn up between the parties."

The more particular agreement was never drawn up nor were the further details ever agreed upon; it was not shown that any business was ever transacted under the alleged contract; and it was therefore held that the writing was incomplete and not a contract, and that plaintiff's suit for an accounting of profits derived from a logging operation carried on by the defendant must fail.

The principle invoked by Vaughan governed that case, but we apprehend it can have no application to a case where the parties have actually agreed on the matters which their writing left to the future and the agreement, as thus completed, has been fully executed and large profits realized which are now in the hands of one of the parties. This, the evidence shows, is the state of the present case.

As to the language "a reasonable margin of profit" defendant relies upon the rule thus stated in 1 Williston, op. cit. 98, § 37:

"It is a necessary requirement in the nature of things that an agreement in order to be binding must be sufficiently definite to enable a court to give it an exact meaning."

In the Restatement, Contracts, § 32, the rule is phrased thus:

"An offer must be so definite in its terms, or require such definite terms in the acceptance, that the promises and performances to be rendered by each party are reasonably certain."

There are authorities cited in Williston, idem. 117, § 41, and referred to in the defendant's brief, which tend to support its position. Of these the case most closely in point is Gaines Sea v. R.J. Reynolds Tobacco Co., 163 Ky. 716, 174 S.W. 482, where the price to be paid for a quantity of tobacco was agreed to be the original cost thereof plus the expense of handling and a "nice" or a "reasonable profit". The court held the contract unenforcible because of the difficulty of determining judicially what would be a reasonable profit.

The peculiar difficulties inherent in the task of determining a reasonable profit on a sale of tobacco were dwelt upon by the court and undoubtedly influenced its decision. This court inEdwards v. Tobin, 132 Or. 38, 284 P. 562, 68 A.L.R. 152, thought it within judicial competency to enforce specifically an agreement in a lease giving the lessees an option of renewal at its expiration, with a provision that at the time of renewal the rental should be determined by the parties, "said rental to be a reasonable rental under the then existing conditions"; although it must be conceded that in so far as that decision enforced an agreement to agree in the future, it represents the minority view. See 1 Williston, op. cit. 133, note 4. More nearly like the instant case is Noble v. Joseph Burnett Co., 208 Mass. 75,94 N.E. 289. The decision was upon demurrer to the complaint, which alleged an agreement by the defendants to pay one Markoe (plaintiff's intestate) or his legal representative "a fair and equitable share of the net profits realized by the sales of flavoring extracts and coloring matters for foods manufactured" under certain processes and formulas to be discovered by the said Markoe. The suit was for an accounting of profits realized by the defendants in the sale of such flavoring extracts and coloring matters. The Supreme Judicial Court of Massachusetts reversed a decision of the lower court which sustained the demurrer. The court said:

"But it is contended by the defendants that the agreement is too indefinite to be enforced. In support of this contention they argue that what is a fair and equitable share of the net profits cannot be determined and hence the plaintiff can have nothing. The allegations of the bill show that this work was done by Markoe not gratuitously, but under a promise to receive a portion of the proceeds. The work has been done and the bill alleges that great profits have accrued, and the only thing to be done is for the defendants to pay over a fair and equitable share thereof. The plaintiff does not call upon the court to state the rule in accordance with which the profits already obtained and now in the hands of the defendants shall be divided. The contract itself states the rule — a fair and equitable share. The plaintiff simply asks that this rule shall be applied not to future probabilities but to past facts. There is nothing to show that the rule is so indefinite or that its application is so impracticable that it cannot be applied with reasonable certainty to the circumstances under which the profits were made."

The court took the same view of the question in the somewhat similar case of Allan v. Hargadine-McKittrick Drygoods Company,315 Mo. 254, 286 S.W. 16.

These decisions appeal to us as sound and as more conformable to equitable principles than one which would deny the plaintiff all relief. It is the duty of courts to give effect to contracts entered into by parties in good faith, and pursuant to which they have acted, if it can be done reasonably and without violating settled legal principles. See 1 Williston, op. cit. 100, § 37. This is especially true in a case like this where one of the parties, in carrying out the contract, has concededly rendered valuable services which redound to the enrichment of the other. We say "concededly" because it is expressly admitted in the record that Marnon's efforts were responsible for acquiring the government business which produced most of the profits. We are of the opinion that the standard fixed by the contract here can be reasonably applied to the facts and that it should be done.

While, from the standpoint of legal draftsmanship the phrase "as the exigencies of the business demand" may be subject to the strictures upon it found in the defendant's brief, we think its inclusion in the contract is of very little consequence. The contract would have had no different meaning if the phrase had been omitted or if some such language as "under the circumstances" had been used. It would be a necessary implication of such an agreement that the parties would take into consideration, in addition to the manufacturer's cost, all the factors such as costs of sales, probable demand, general market conditions, etc., which ordinarily would be in the view of a manufacturer in establishing a list price. It was matters of this kind that, we think, the parties had in mind in using this phrase.

We conclude, therefore, that, at least in a suit such as this, brought to compel an accounting of profits already earned under a contract fully executed as to such profits, the objection of indefiniteness cannot be sustained.

THE WASHINGTON AGENCY SECRET PROFIT The agreement between Marnon and Cain, Vaughan's Washington agent, under which Marnon received half of Cain's commissions, was concededly made and carried out without Vaughan's knowledge. The law frowns upon such transactions. Concerning them it is said in 1 Mechem on Agency (2d ed.) 894. §§ 1224 and 1225:

"The well settled and salutary principle that a person who undertakes to act for another shall not, in the same matter act for himself, results also in the other rule, that all profits made and advantage gained by the agent in the execution of the agency belong to the principal. And it matters not whether such profit or advantage be the result of the performance or of the violation of the duty of the agent if it be the fruit of the agency. If his duty be strictly performed, the resulting profit accrues to the principal as the legitimate consequence of the relation; if profit accrues from his violation of duty while executing the agency, that likewise belongs to the principal, not only because the principal has to assume the responsibility of the transaction, but also because the agent cannot be permitted to derive advantage from his own default.

"It is only by rigid adherence to this rule that all temptation can be removed from one acting in a fiduciary capacity, to abuse his trust or seek his own advantage in the position which it affords him.

"It matters not how fair the conduct of the agent may have been in the particular case, nor that the principal would have been no better off if the agent had strictly pursued his authority, nor that the principal was not in fact injured by the intervention of the agent for his own benefit. The result is still the same."

See Dias v. Favell-Utley Realty Co., 126 Or. 227, 232,269 P. 207; Schmidt v. Wirth, 99 Or. 261, 266, 195 P. 375; Thimsen v.Reigard, 95 Or. 45, 55, 186 P. 559.

Again, it is said in Mechem, op. cit. 898, § 1227:

"So, where a purchasing agent secures from those with whom his principal dealt, commissions in consideration of buying goods from them, the principal is entitled to recover from the agent the amount of the commissions thus received."

To the same effect, see 3 C.J.S., Agency, 55, § 165:

"An agent violates his duty by secretly entering into relations or transactions concerning the subject-matter of the agency in which he has interests adverse to those of his principal." U.S. Shipping Board Emergency Fleet Corp. v. South Atlantic Dry Dock Co., 300 Fed. 56, 61.

These principles are well established and have been applied in a wide variety of cases. It seems hardly necessary to do more than state the proposition that, in entering into the secret agreement with Cain, Marnon acquired "interests adverse to those of his principal." His conduct, above recounted, in taking Cain's part, when the controversy arose with Boutin over the rights of dealers outside of Washington, may readily have been influenced by a desire to protect his own interest in the Cain commissions. But, whether that be so or not, it was wrong for him to put himself in a position where his interest conflicted with Vaughan's. He was trying to serve two masters.

The Circuit Court by inference found that the secret agreement was illegal when it declared that Marnon must account for the commissions received thereunder, and that these, like the other profits of the joint adventure, should be divided equally between the parties. If Marnon and Vaughan were equal partners in a joint adventure it would seem that that disposition of the matter was correct. Shulkin v. Shulkin, 301 Mass. 184, 16 N.E.2d 644, 118 A.L.R. 629, with annotation at p. 640. But, inasmuch as Marnon was an agent at the time that he entered into the secret agreement, we are of the opinion that he is under a duty to account for all the profits which he derived from it.

The commissions in question were earned in the years 1941, 1942, 1943 and 1944. The defendant's amended and supplemental answer was filed on November 20, 1945, and the further and separate answer therein which alleged the secret agreement is broad enough to require an accounting of such profits for all four years. Notwithstanding this fact, the court limited the recovery in this regard to the two years, 1942 and 1943, for which Marnon sought an accounting. We find no explanation or defense of this procedure in the plaintiff's brief and we do not understand on what theory that limitation can be supported. The defendant's separate answer is an equitable counterclaim the scope of which is defined by § 9-114, O.C.L.A.:

"The counterclaim of the defendant shall be one upon which a suit might be maintained by the defendant against the plaintiff in the suit; and in addition to the cases specified in the subdivisions of section 1-712, it is sufficient if it be connected with the subject of the suit. * * *"

It is apparent that the defendant was entitled to an accounting of all the illegal profits, regardless of the year in which they were earned, because they were all without question "connected with the subject of the suit" brought by Marnon.

The defendant contends that an agent who enters into a secret agreement of the kind herein question forfeits all right to recover for services rendered on his principal's behalf. There is considerable authority in support of this rule. See Raymondv. Davies, 293 Mass. 117, 199 N.E. 321, 102 A.L.R. 1112, and cases cited in the annotation, pp. 1119 et seq. The rule, however, is not an inflexible one, as appears from Willis v. VanWoy, 155 Fla. 465, 20 So. 2d 690, and Shulkin v. Shulkin, supra. Partners in the latter case were held to have been guilty of taking secret profits, and it was urged that an agent who is unfaithful to his trust may be denied compensation. The court said that "this rule is not an absolute one and the question whether a fiduciary who has not been entirely faithful will be denied compensation to which he would otherwise be entitled ultimately rests in the discretion of the court." Because the services of the unfaithful partners had been of real value and had resulted in handsome returns on the investment of the other partner, the court held that the rule against allowing compensation in that character of cases ought not to be applied. In view of Marnon's valuable contribution to the success of Mobilift during the war years a like result is indicated here.

Although it is disputed by plaintiff's counsel, we think it cannot be doubted that in 1941, when the secret agreement was made, Marnon was an agent, working, as we have held, for an agreed compensation of eight per cent of sales. He was not at that time, under any definition of joint adventure that we have seen or within the holding of any case to which we have been referred, a joint adventurer with Vaughan, because he did not share in the profits of the business as such, but under his agreement was entitled to his compensation of eight per cent whether there were profits or not. We need go no further than cite our own decision in Moore v. Willamette Iron Steel Works, 127 Or. 134,271 P. 49, where we held that the plaintiff, an inventor, who had licensed the defendant to manufacture his device under an agreement for a commission on sales made by the plaintiff, was not engaged in a joint adventure with the defendant. The court gave express approval to the holding in Goodwin v. Camp, 295 Fed. 785, in a similar case, that there was no joint adventure because "appellant was paid as compensation for her services fixed commissions upon the gross sales, without reference to whether the business made a profit or suffered a loss, and thus whether there were any net or joint profits to divide." See, also, 30 Am. Jur., Joint Adventures, 689, § 24.

Marnon was not carried on the books of the Vaughan Motor Company as an employee, either for social security or income tax purposes, and Boutin testified that the Internal Revenue Department advised him that Marnon should be classed as an independent contractor, and the evidence would strongly indicate that he had that status. He himself claimed it on one occasion. But, although an independent contractor, he would still be an agent "subject to the fiduciary duties of loyalty and obedience to the wishes of the principal". Restatement, Agency, p. 485, Comment c.

Plaintiff seeks to justify the secret profit by the history of the Cain agency. This is a long story, and it will have to suffice for our purposes to say that Marnon claimed in his testimony that he felt himself obligated to reimburse certain unnamed men with influence in Washington, who had backed Cain financially in the beginning of his efforts to secure government business, and that he, Marnon, proposed to do this out of his half of the Washington commissions. We are not impressed with Marnon's truthfulness in this part of his testimony. But, true or not, it makes no difference, for the rule that the agent who takes a secret profit must account to his principal for such profit, is not diluted by a consideration of the fact that he may have been required to divide the profit with others in order to get it himself. See Restatement, Agency, p. 924, Comment c.

The plaintiff also urges in this connection that the defendant refused to pay any part of the expense of procuring the government business and that the plaintiff "drove" Vaughan into providing an adequate plant in supplying the government orders. The first of these propositions, while true, is irrelevant, because Marnon was working under an agreement which required him to pay his own expenses. As to the second, a good deal might be said on the other side. But, whatever the fact may be, it can have no bearing on Marnon's duty of loyalty to his principal.

Finally, it is argued that Marnon had "a good and valid reason" for not informing Vaughan of his interest in the Washington agency, namely, that Vaughan had refused to honor his claims theretofore made to profits to which he was entitled under the contract. This refers no doubt to Marnon's claims to unpaid discounts to which, as we have held, he was not entitled. It is suggested that a withholding of funds from sales — meaning, we assume, Marnon's half of the commissions — "would have precipitated litigation which would have wrecked the business at its inception." For all that anyone can say, if Marnon had informed Vaughan of his agreement with Cain, Vaughan would have approved it. But whether that be so or not is beside the point. Since he did not disclose the facts it was a secret profit, and Marnon must account for it, not primarily to benefit Vaughan or punish Marnon, but rather to vindicate a salutary rule of policy that demands undivided loyalty of an agent to his principal.

CONCLUSION The views we have expressed lead to a reversal of the decree, although not a dismissal of the suit. The question — What is "a reasonable margin of profit" to be allowed the plaintiff? — has not been presented to this court, and was not decided in the court below, although the court held originally that that was the measure of the plaintiff's right to relief. We think that the question should be decided by the Circuit Court in the first instance. Counsel should have an opportunity to present their views upon it and may possibly wish to introduce additional evidence. It may be that plaintiff will wish to amend his complaint to conform to the facts proved with respect to the modification of the contract, although we are not entirely satisfied that, notwithstanding the avowed theory of the case, the complaint does not contain allegations sufficient to support a recovery based upon a modification of the contract. The allegation, however, that the defendant "failed, neglected and refused to set a sale price with plaintiff which would allow plaintiff a reasonable margin of profit, according to the terms of said agreement" is contrary to the proof and should be changed. Plaintiff may also wish to file a supplemental complaint to include a claim for profits earned by him during the part of the year 1944 that he was engaged in selling Mobilifts, particularly as he must account for the 1944 secret profits.

Most of the profits derived from the government business were scaled down in so-called renegotiation proceedings, under wartime legislation. After such renegotiation, the entire amount of the secret profits over the four-year period was $154,135.00. Against this Marnon claimed credits for escrow fees and fees paid to attorneys as expenses necessarily incurred in conducting the renegotiation proceedings. On the argument here the defendant made no objection to the deduction of items of this character from the commissions for which Marnon is required to account. No doubt it was necessary to employ attorneys in the renegotiation proceedings, and the fees paid may properly be regarded as decreasing by so much the amount actually received by Marnon. Of some analogy are the cases of Forlaw v. Augusta Naval StoresCo., 124 Ga. 261, 52 S.E. 898 (see 6th syllabus) and Judevinev. Town of Hardwick, 49 Vt. 180, 186. See, also, 3 C.J.S. Agency, 54, § 165.

The defendant does, however, attack the allowance made by the court of one of these fees, claimed to have been paid to Attorney Schall. Our examination of the record on the point convinces us that the fee was actually paid for the purpose stated. The defendant argues that on the hearing the judge refused to consider the claim because he was of the opinion, and so expressed himself, that Marnon was not telling the truth about it. That incident did not relate to the attorney's fee in question, payment of which is evidenced by a check from Marnon to Schall in the sum of $9,600.00, but to other alleged fees which had nothing to do with the renegotiation proceedings. We think the item was properly deducted.

The Circuit Court by its decree gave Marnon half of the profits from the Chicago branch. Vaughan challenges this ruling because of Marnon's concession that he was not entitled to share in those profits. But Marnon's concession referred to his claim to the unpaid discounts and the service charges. During the time he was working on the eight per cent commission basis he received eight per cent of the Chicago branch sales, and afterwards Vaughan credited him with four per cent of those sales. In our opinion he is entitled to a "reasonable margin of profit" on that business equally with the rest.

The decree of the Circuit Court is reversed and the cause remanded for further proceedings in conformity to this opinion.

Brand, J., on leave of absence at time case was argued; Winslow, formerly Justice pro tem, did not participate.

On plaintiff's petition for rehearing filed July 28, 1948.

Former opinion filed June 8, 1949. 194 P.2d 992.

PETITION DENIED.