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09/24/97 DARRELL A. BENNETT, Appe v. FARMERS INSURANCE COMPAN

BLUE BOOK CITATION FORM: 1997.OR.495

[Editor's note: footnotes (if any) trail the opinion]

[1] FILED: September 17, 1997

[2] IN THE COURT OF APPEALS OF THE STATE OF OREGON

[3] DARRELL A. BENNETT, Appellant,

v.

[4] FARMERS INSURANCE COMPANY OF OREGON, an Oregon corporation; FARMERS
INSURANCE EXCHANGE; TRUCK INSURANCE EXCHANGE; FIRE INSURANCE
EXCHANGE; MID-CENTURY INSURANCE COMPANY; FARMERS NEW WORLD LIFE
INSURANCE COMPANY; and FARMERS GROUP, INC., aka FARMERS UNDERWRITERS
ASSOCIATION, Respondents.

[5] (9308-05432; CA A89477)

[6] In Banc

[7] Appeal from Circuit Court, Multnomah County.

[8] Frank L. Bearden, Judge.

[9] Argued and submitted April 11, 1997; resubmitted in banc September 4, 1997.

[10] Marc Zwerling argued the cause for appellant. With him on the briefs were Ridgway K. Foley, Jr.,
Gary J. Lekas and Foley & Duncan.

[11] James N. Westwood argued the cause for respondents. With him on the brief were Craig D.
Bachman, Miller, Nash, Wiener, Hager & Carlsen and Lane Powell Spears Lubersky.

[12] EDMONDS, J.

[13] Judgment notwithstanding the verdict on contract claim reversed; order granting new trial on contract
claim affirmed and remanded for new trial; otherwise affirmed.

[14] Armstrong, J., concurring in part, dissenting in part.

[15] EDMONDS, J.

[16] Plaintiff appeals after the trial court granted judgments notwithstanding the verdict (JNOV) and,
alternatively, a motion for a new trial, ORCP 63 C, on breach of contract, breach of fiduciary duty, and
breach of duty of good faith and fair dealing claims. ORCP 63 C. After a two-month jury trial, the jury
returned verdicts in favor of plaintiff for $3.5 million for breach of contract against all contracting
defendants,*fn1 $750,000 compensatory damages for breach of fiduciary duty against Farmers Insurance
Company of Oregon (FICO) and Farmers Group, Inc. (FGI), $750,000 compensatory damages for
breach of good faith and fair dealing against FICO and FGI, and $35 million punitive damages against
FICO and FGI. The trial court entered judgments in favor of plaintiff in accordance with the verdicts, and
then subsequently entered JNOVs. Plaintiff seeks reinstatement of the judgments in his favor. We reverse
the JNOV on the contract claim and remand for a new trial. Otherwise, we affirm.

[17] Because this appeal comes to us on JNOVs, we do not reexamine the jury's findings, nor do we
reweigh the evidence. Jacobs v. Tidewater Barge Lines, 277 Or 809, 811, 562 P2d 545 (1977). All
evidence, and every reasonable inference from the evidence, must be viewed in the light most favorable to
plaintiff. Wooton v. Viking Distributing Co., Inc., 136 Or App 56, 62, 899 P2d 1219 (1995), rev den 322
Or 613 (1996). Our inquiry is to ascertain whether the record contains any evidence that supports the
verdicts.

[18] In 1981, FGI and FICO solicited plaintiff to terminate his insurance agency business and to enter into
a new agreement under which he would recruit and train insurance agents to sell the contracting defendants'
insurance policies. All defendants, except FGI, are insurance companies. FGI is the management company
that acts on behalf of the defendant insurance companies and with whom plaintiff dealt throughout his
relationship with defendants. Subsequently, the contracting insurance companies entered into a "district
manager's agreement" (Agreement) with plaintiff in September 1981. FGI is not a party to the Agreement.
Under the Agreement, plaintiff was characterized as an independent contractor. He maintained his own
office, hired his own employees, paid his own business expenses and assumed all the risk of business losses
and failure. The Agreement provided that "no control" would be exercised by the insurance companies over
the time, place or manner in which plaintiff carried out the objectives of the Agreement and that the
Agreement did not create an employer-employee relationship between plaintiff and the insurance
companies. Plaintiff's office was located in the Portland metropolitan area, but he was entitled under the
Agreement to recruit agents without any geographical restriction. Most importantly, the Agreement
expressly provided that it could be terminated by defendants without cause.

[19] Essentially, plaintiff's theory of the case is that defendants recruited him to become a district manager
and that, after he had built a successful business, they terminated their relationship with him, thereby
retaining the fruit of his investment in the business. From 1981 to 1993, plaintiff invested money in the
business and worked to make it successful. Because district managers for the companies receive a
percentage of all sales commissions generated by the insurance agents under their supervision, they enjoy
the potential to earn annual incomes exceeding one million dollars. From 1982 to 1992, defendants' total
gross profits from plaintiff's district exceeded $27 million. However, in 1993, FGI and FICO prepared an
internal 150-page report proposing to terminate the Agreement. FGI's management approved the request,
which directly led to defendants' termination of the Agreement. As a result, plaintiff brought this action. A
central issue in this case is whether the parties' agreement, as it existed in 1993, permitted defendants to
terminate without cause.

[20] CONTRACT CLAIM--JNOV

[21] We first address the JNOV on plaintiff's breach of contract claim against all defendants except FGI.
Plaintiff alleges, in part, that those defendants violated the Agreement by terminating him without cause.
Defendants answered that the Agreement expressly permitted them to terminate the Agreement without
cause. Plaintiff replied with several theories: (1) that the "termination without cause" provision had been
modified in 1985 to provide for termination only "for cause"; (2) that the companies had waived their
contractual right to terminate the Agreement without cause; and (3) that the companies were estopped from
terminating the Agreement without cause. The jury found the contracting defendants liable for breach of
contract. Defendants then moved for a JNOV, which the trial court granted. The court also ruled that, as a
matter of law, plaintiff's theories of modification, waiver and estoppel were not available based on the
evidence that had been adduced. On appeal, plaintiff assigns those rulings as error.

[22] There are three clauses in the Agreement that are pertinent to our analysis. The first is the termination
clause that provides, in part:

[23] "This Agreement shall terminate upon the death of [plaintiff], and may be cancelled without cause by
either [plaintiff] or [defendants] on 30 days written notice."

[24] The Agreement also contained a clause that provides, in part:

[25] "The time to be expended by [plaintiff] is solely within his discretion, and the persons to be solicited
and the area within the district involved wherein solicitation shall be conducted is at the election of [plaintiff].
No control is to be exercised by [defendants] over the time when, the place where, or the manner in which
[plaintiff] shall operate in carrying out the objectives of this Agreement."

[26] Finally, the Agreement provides that

[27] "this Agreement supersedes and takes the place of any and all prior agreements, written or otherwise,
between [plaintiff] and [defendants], or any of them, and no change, alteration or modification hereof may
be made, except as is evidenced by an agreement in writing signed by [plaintiff] and an authorized
representative of [defendants]."

[28] When the provisions of the Agreement are read together, they require that any modifications to the
Agreement must be in writing and signed by the parties. The trial court ruled that there was no evidence of
any written modification of the Agreement. The evidence shows that on May 24, 1985, David Winter,
defendants' regional sales manager, sent plaintiff a letter that established certain goals that defendants
expected plaintiff to attain to avoid termination of the Agreement. Defendants told plaintiff that they would
terminate the Agreement if he did not reach the specified goals. The letter also explained that defendants
would be exercising more control over plaintiff's business. The letter was signed by Winter and requested
that plaintiff also sign the letter and return it to defendants. Plaintiff signed the letter and returned it to
defendants.

[29] In particular, the letter provided:

[30] "[Plaintiff has] agreed that all of the goals that we discussed and established were attainable goals. * *
*

"* * * * *

[31] "* * * If any of the above goals are not attained by the end of August, we will be asking you for your
resignation. All of these goals must be attained. You did indicate that these were reasonable goals and goals
which could be attained.

"* * * * *

[32] "* * * Failure to attain any one of these goals will again result in us requesting your resignation or
terminating your appointment agreement.

"* * * * *

[33] "In addition, we ask that you supply a weekly recruiting report to both Bill Meals and Ed Colvard
every Monday. This report should include the number of first time interviews, second interviews and
subsequent interviews which you have with prospective agents. Also include the names of the people you
were talking with. In addition, indicate the number of first time contacts, from whatever source that you
have. Also indicate the source from which the contact came. This will allow us to evaluate your progress on
a weekly basis and recommend changes to your plans or to provide you assistance should problem areas
pop up. We want to help you in any way we can.

"* * * * *

[34] "* * * At this point, you will either make the goals that we established together and develop the habits
necessary to be a successful district manager over the long haul, or we will have to replace you as a district
manager.

[35] "If you approach this in a positive manner and take advantage of the assistance that we can and will
provide, you can attain the established goals. If you are unwilling or unable to put forth the effort necessary
to attain these goals, you probably should not be a district manager. Your future is in your hands. We can
help, but can't do the job for you. Your own abilities and efforts will be the determinant factor as to
whether you remain as a district manager for the Farmers Insurance Group of Companies." (Emphasis
supplied.)

[36] Plaintiff argues that the letter constitutes a written modification of the provision in the Agreement that
allowed defendants to terminate the Agreement without cause. If plaintiff reached the prescribed goals, then
according to the letter, defendants promised to retain him as a district manager. Defendants contend that
they did not intend to modify the Agreement by requiring plaintiff to sign the letter but that the letter clarified
plaintiff's obligations and gave plaintiff a final opportunity to demonstrate that he could perform his
obligations under the Agreement.

[37] Whether the Agreement was modified by the 1985 letter depends on the intent of the parties. Before
the alleged modification, the Agreement said that plaintiff could be terminated without cause. The letter
does not expressly reserve that right, and it could be reasonably inferred from the letter that defendants
promised not to terminate the agreement as long as plaintiff reached the required goals. There is also
evidence that defendants orally represented to plaintiff after the 1985 letter that they would terminate the
Agreement only for good cause. Because the law of contracts is not concerned with the parties'
undisclosed intents and ideas and it gives heed only to their communications and overt acts, a jury could
infer from the letter and defendants' conduct that, in exchange for the attainment of the prescribed goals,
defendants had committed to terminating their relationship with plaintiff only when good cause existed. See
Kabil Developments Corp. v. Mignot, 279 Or 151, 157, 566 P2d 505 (1977); see also Adair Homes,
Inc. v. Jarrell, 59 Or App 80, 85, 650 P2d 180 (1982) (conduct after the agreement can manifest an
acquiescence in a modification of the agreement).

[38] Defendants also argue that there was no evidence of consideration for the modification. However, the
letter contained mutual promises that could be construed as the consideration for the modification. Under
the original agreement, defendants had agreed to take a hands-off approach regarding the operation of
plaintiff's business. The execution of the letter permitted defendants to have increased involvement in the
business of recruiting and training agents to the detriment of plaintiff. It required plaintiff to supply weekly
recruiting reports to defendants and to indicate the number of first-time contacts and the source from which
the contacts came. The jury could have believed from the evidence that the "quid pro quo" for plaintiff's
relinquishment of control over his investment was that defendants could only terminate the Agreement for
cause or in the event that plaintiff failed to reach the goals established by the letter. The trial court granted
the JNOV on the contract claim on the mistaken premise that there was no evidence that the parties had
entered into a written modification of their original agreement. As a result, it erred.

[39] CONTRACT CLAIM--NEW TRIAL

[40] In addition to the grant of a JNOV on the contract claim, the trial court alternatively granted
defendants a new trial in the event that the JNOVs were reversed on appeal. The trial court ruled that it had
given an erroneous jury instruction and had refused to give an instruction that would have cured the error.

[41] Defendants requested the following jury instruction, which the trial court refused to give:

[42] "Plaintiff contends that the provisions of the Appointment Agreement concerning the parties' rights to
terminate without cause was modified by the parties, both orally and in writing, during the term of the
agreement. In order to be valid, a modification of a contract must meet all of the requirements for formation
of a contract. To find that there was a modification, you must find that there was an offer and acceptance,
that the parties mutually assented to the modification and the terms of the modification, and that there was
an exchange of consideration for the modification."

[43] Before the trial court instructed the jury, the parties and the trial court discussed proposed instructions.
Plaintiff objected to all but the first sentence of the above instruction. Defendants argued that "it is of course
well established that the minds of the parties must have met upon the asserted modification" and contended
that "our [instruction] is a correct statement of the law." Ultimately, the trial court instructed the jury on the
breach of contract claim as follows:

[44] "Plaintiff contends that the provisions of the appointment agreement concerning the parties' rights to
terminate without cause was [sic] modified by the parties orally or in writing or by conduct of the parties
during the term of the agreement. Plaintiff must prove any modification by clear and convincing evidence.

[45] "Clear and convincing evidence is that which enables you to find the truth of the facts asserted is highly
probable.

[46] "Consideration is a necessary element for a valid modification. To form a valid modification, both
parties must give consideration for the performance by the other party."

[47] Defendants took a general exception on the ground that their requested instruction was not given in its
entirety.

[48] In support of its ruling granting a new trial, the trial court explained:

[49] "The jury instruction on modification contained no language on the core requirement of mutual assent.
Oregon cases dealing with the issue of modification emphasize the importance of mutual assent over all
other required elements. Further, there is no specific instruction directing the jury to determine that once
they found mutual assent to a standard different then 'at-will' they needed also [to] determine if the parties
also mutually assented to waiving the requirement that this modification be in writing."

[50] Plaintiff first argues that defendants are not entitled to a new trial based on the erroneous jury
instruction because they did not preserve the error. ORCP 64 B(6).*fn2. He argues that defendants made
only a general exception and that in order to preserve an error about the failure to give a requested jury
instruction, the instruction must be clear and correct in form and substance and free from all error. Beglau v.
Albertus, 272 Or 170, 179, 536 P2d 1251 (1975). Also, according to plaintiff, defendants' requested
instruction was erroneous because it required the jury to find "an offer and acceptance," in addition to
mutual assent to establish a modification of the Agreement, suggesting that offer and acceptance and mutual
assent are discrete elements.

[51] We disagree with plaintiff's argument. Although the requested instruction is not a model of clarity, we
are not persuaded that the jury would have been misled by it. An offer and acceptance is one manner in
which mutual assent is manifested. In the context of the facts of this case, the requested instruction would
have told the jury that a necessary predicate to finding that the Agreement had been modified was an offer
and acceptance. Inasmuch as plaintiff's theory was that the modification occurred as a result of the 1985
letter sent by defendants and signed by plaintiff, we do not believe that the instruction would have created
an erroneous impression on the jury about the legal requirements for a modification. Finally, it is clear from
the combination of defendants' response to plaintiff's objection to the instruction before it was given and
defendants' exception after it was not given that the trial court was put on notice as to defendants' position
and was given the opportunity to correct its mistake. Menke v. Bruce, 88 Or App 107, 113 n 6, 744 P2d
291 (1987).

[52] Next, plaintiff argues that the instruction that the trial court gave was adequate and that no prejudicial
error occurred. In Waterway Terminals v. P.S. Lord, 256 Or 361, 369-70, 474 P2d 309 (1970), the
court said:

[53] "The exact wording of instructions is something which judges and lawyers, despite their technical
training, often disagree upon and discuss in minute detail at great lengths. It is absurd to expect a layman to
listen once to an oral rendition of a highly technical instruction and to appreciate immediately all of the fine
legal distinctions. As a result, cases should not be reversed upon instructions, despite technical
imperfections, unless the appellate court can fairly say that the instruction probably created an erroneous
impression of the law in the minds of the jurymen which affected the outcome of the case."

[54] Thus, in deciding whether a new trial is warranted, the issue is whether the instruction given by the trial
court probably created an erroneous impression of law in the minds of the jurors.

[55] The trial court's instruction omitted an essential element of a modification of a contract, and
defendants' requested instruction would have supplied that element. The missing element was not just a
technical imperfection; it was central to the issue of the parties' intent in determining whether the contract
had been modified. We conclude that the instruction given by the trial court probably created an erroneous
impression of the law in the minds of the jurors that affected the outcome of the case. In essence, it
permitted the jury to find a modification of the agreement without determining whether both parties intended
to modify the original agreement. Thus, defendants are entitled to a new trial on the contract claim.

[56] WAIVER AND ESTOPPEL

[57] Because the contract claim must be remanded to the trial court for a new trial, we must address two
other issues that will arise on retrial. The trial court also ruled as a matter of law that there was no evidence
in the record that defendants had waived their right under the Agreement to terminate without cause or that
the basis for an estoppel existed. The trial court explained:

[58] "On the evidence submitted by plaintiff on this issue there was no waiver as a matter of law. This is not
a case where defendants had engaged in a course of conduct with this plaintiff where a right they had was
not enforced such as a landlord repeatedly allowing rent to be paid several days after the due date in a
written lease. Defendants had a right to terminate plaintiff on 30 days written notice exercisable at any time.
Simply because defendants attempted repeatedly to get plaintiff to comply with defendants standards of
operation and told plaintiff he would be terminated for poor performance is not a circumstance that would
require defendants to immediately fire plaintiff on a 30 day notice or forever lose that right."

[59] In order for a provision of a contract to be waived, there must be an intentional relinquishment of a
known right and the waiver must be manifested by clear and unequivocal action by the party. Moore v.
Mutual of Enumclaw Ins. Co., 317 Or 235, 240-41, 855 P2d 626 (1993). By relinquishing a known right,
a party must dispense with something of value or forego some advantage on which the party might have
demanded or insisted. In this case, the Agreement gave defendants the right to terminate plaintiff without
cause at any time on 30 days' written notice. The jury could have found from the evidence that defendants
manifested that they were not going to enforce that provision of the Agreement when they told him
subsequently that they would terminate the agreement only for good cause.

[60] Defendants also argue that any waiver had to be in writing under the Agreement. Oregon law is to the
contrary. Waiver may be proved "by parol and by circumstantial evidence, as well as by direct testimony."
Bank of Eastern Oregon v. Griffith, 101 Or App 528, 534, 792 P2d 1210 (1990). Moreover, "a party to
a written contract can waive a provision of that contract by conduct or by oral representation, despite the
existence of a non-waiver clause." Moore, 317 Or at 241. Accordingly, plaintiff is entitled to present his
waiver theory to the jury on retrial.

[61] Plaintiff also claims that defendants breached the contract because they are "estopped" from
terminating the Agreement without cause as a result of their representations to plaintiff. In essence, plaintiff
seeks to rewrite the Agreement on the basis of an equitable estoppel. The doctrine of equitable estoppel
does not provide a cause of action under the circumstances relied on by plaintiff. In other words, an
equitable estoppel, when properly understood, is a defensive doctrine that prevents an inequitable result.

[62] In Bramwell v. Rowland, 123 Or 33, 36, 261 P 57 (1927), the plaintiff superintendent of banks
brought an action on a promissory note payable to an insolvent bank. The defendant-maker of the note
contended that the insolvent bank had represented that the note would be paid as the result of a collateral
transaction. The jury found for the plaintiff. On appeal, the defendant argued that the trial court had
erroneously instructed the jury that it had to find that the insolvent bank had intended to defraud the
defendant at the time that the promise had been made. Id. at 43. The Supreme Court affirmed, finding no
fault with the trial court's instructions, and it distinguished between the concepts of fraud and estoppel. It
said:

[63] "Fraud and estoppel in pais are alike in respect that each is dependent upon a representation. In fraud,
the representation is the foundation of the cause of action or of the defense; reliance upon it has inflicted an
injury for which the party seeks redress or rescission. In estoppel, the representation * * * has made
known the party's position in regard to a material fact; from this position, he would like to retreat, but the
representee desires to hold him to that position. The injury has not yet been inflicted but the party invoking
the estoppel says that, unless the representator is prevented from shifting his attitude, an injury will occur to
the representee. When all of the elements of fraud are present, a cause of action exists; all the elements of
estoppel may be present and yet no cause of action exists because estoppel is not a cause of action. The
function of estoppel is to preserve facts in favor of the representee. Thus, one writer has said:

[64] 'To use the language of naval warfare, estoppel must always be either a mine-layer or a mine-sweeper;
it can be never be a capital unit.' Spencer, Bower on Estoppel by Representation, p. 12." Id. at 44.

[65] We followed the Bramwell court's holding in Howell v. Oregonian Publishing Co., 82 Or App 241,
247, 728 P2d 106 (1986), on recons 85 Or App 84, 735 P2d 659, rev den 303 Or 699 (1987). In that
case, the plaintiff brought an equitable action for reformation, claiming that the parties were estopped from
relying on the written provisions of the contract. We rejected that argument and held that equitable estoppel
could not be used to change a term that had not been the subject of mutual assent in an express contract. In
other words, the plaintiff in Howell was not seeking by his claim in reformation to prevent an uninflicted
injury. Rather, he sought affirmative relief through the use of an estoppel. Because estoppel is a defensive
measure designed to prevent or "stop" a claim, we held that it was not available as an offensive doctrine to
change a term in contract upon which to base a breach of contract action.

[66] The dissent views the doctrine of equitable estoppel more expansively. It says:

[67] "[Plaintiff] is not attempting to use estoppel as the basis for an independent claim but rather to prevent
defendants from denying that an existing contract contains the terms that they represented to him that it
contained." __ Or App at __ (slip opinion at 3; emphasis in original).

[68] It concludes that plaintiff is seeking to use the doctrine in the same way that we held that the plaintiff in
Gillman v. Emel, 89 Or App 153, 747 P2d 390 (1987), could use it. Arguably, there is dictum in our case
law that supports the dissent's view.*fn3 However, a correct understanding of the doctrine refutes the
dissent's argument.

[69] In DeJonge v. Mutual of Enumclaw, 315 Or 237, 843 P2d 914 (1992), the issue in a declaratory
judgment action was whether the defendant insurer was estopped to deny liability coverage to the plaintiffs
based on a policy exclusion. The plaintiffs argued that an estoppel occurred when the defendant orally
represented that plaintiffs would be fully covered. The court held that the plaintiffs were using the doctrine
of equitable estoppel improperly. Id. at 241. The court relied on its holding in ABCD...Vision v. Fireman's
Fund Ins. Companies, 304 Or 301, 307, 744 P2d 998 (1987). It said:

[70] "The ABCD...Vision court distinguished between using estoppel affirmatively, to create a right to
coverage not contained in the insuring clauses of the policy, and using it defensively, to preserve a right to
coverage already acquired by preventing its forfeiture. The court held that estoppel is not available in the
former situation to negate an express exclusion in the written contract but is available in the latter situation to
avoid a condition of forfeiture of coverage." DeJonge, 315 Or at 241 (emphasis in original).*fn4

[71] The underlying rationale for the court's holding in DeJonge is that where there is an express contract,
courts cannot create a new contract for the parties by estoppel. Id. at n 3.

[72] In Gillman, we acknowledged that "[e]stoppel is not in itself the basis for a claim, but that it may be a
method of proving the facts necessary to establish the claim that the plaintiff does make." 89 Or at 156-57.
That statement is a correct statement of law when an estoppel is viewed as a defensive doctrine. For
example, the plaintiff in Gillman brought an action to recover unpaid sales commissions that she allegedly
had earned while working for the defendants. The defendants counterclaimed against the plaintiff,
contending that they had actually overpaid her and that she was entitled only to a lower commission. There
was no express agreement between the parties. Through the use of the doctrine of estoppel, the plaintiff
sought to require the defendants to adhere to the representations that they had made about the amount of
the commission and that were contrary to the position being taken by them at trial. Thus, when we said in
Gillman that it was "appropriate" for the plaintiff to use estoppel to establish the terms of a quantum meruit
claim as well as part of an affirmative defense to the defendants' counterclaim, that should not be
understood to mean that the doctrine is available as an offensive doctrine to change the terms of an express
contract. Gillman, 89 Or App at 156.

[73] In this case, plaintiff seeks to change the terms of the written employment contract between the parties
by relying on the doctrine of equitable estoppel. In other words, he is asking us to create a new contract for
the parties through the use of the doctrine by modifying their previous agreement. In Bramwell and in
DeJonge, the Supreme Court has expressly rejected in concept the offensive use of the doctrine for that
purpose. The dissent's assertion that plaintiff is attempting to use the doctrine "to prevent defendants from
denying that an existing contract contains the terms that they represented to him that it contained" ignores
the uncontroverted fact that the written agreement permits termination without cause and plaintiff
acknowledges the existence of the original agreement. To prevail on his claim for damages based on
contract, plaintiff must first prove a mutual modification of that provision of the agreement to allow
termination only for cause. Otherwise, the use of the equitable estoppel doctrine would have the effect of
changing the terms of the parties' express agreement without mutual assent in an action at law. That would
be contrary to the principle that express contracts can only be modified by mutual assent. The trial court
was correct for the wrong reason. As a matter of law, equitable estoppel is not available to plaintiff under
these circumstances as a legal theory.

[74] TORT CLAIMS

[75] Plaintiff also claims that the trial court erred when it granted JNOVs on two claims that he has labeled
as a "tortious" breach of duty of good faith and fair dealing and breach of a fiduciary duty. The trial court
ruled:

[76] "Both parties and the court are well aware that the tort claims are virtually identical. In fact the plaintiff
realleged all of his allegations from the good faith claim in his fiduciary duty claim. The only addition was the
claim that defendants breached fiduciary or fiduciary like obligations to plaintiff. The most recent law in
Oregon has virtually erased any possible distinction between the two claims. The duties that are owed in
each are loyalty, fairness and full disclosure. Because the court does not believe there is any distinction
between the two claims, the analysis below applies equally to each tort claim."

[77] Defendants also group the two tort claims together on appeal and argue that "where one party to a
contract seeks to sue the other in tort, '[t]he dispositive issue is whether [the defendant] was subject to a
standard of care independent of the contract.'" (Brackets in original.) We agree and will also address the
two tort claims together. Under either theory of breach of fiduciary duty or the tortious breach of duty of
good faith and fair dealing, plaintiff was required to present evidence that a special relationship or a
fiduciary-type relationship existed between the parties that was independent of the duties under the
Agreement. Uptown Heights Associates v. Seafirst Corp., 320 Or 638, 648, 891 P2d 639 (1995);
Hampton Tree Farms, Inc. v. Jewett, 320 Or 599, 617, 892 P2d 683 (1995).

[78] The trial court granted the JNOVs on the two tort claims because it believed that "plaintiff's
employment relationship remained at-will." The court reasoned that, because there was no evidence that the
Agreement had been modified to allow for termination only for cause, there was no duty as a matter of law
that existed independent of the duties under the Agreement. The court explained:

[79] "Since the contract clearly and fully covered all the rights and duties of the parties and all monies
sought by plaintiff were as a result of the termination and not the on going performance of the contract there
is no separate tort."

[80] However, as we have already decided, a jury could infer that the Agreement had been modified so
that it could only be terminated for good cause. Accordingly, the trial court's reasoning was erroneous.

[81] Nonetheless, the question remains whether there was evidence of breaches of duty that were
independent of the terms of the contract that would preclude JNOVs on the tort claims, assuming that the
Agreement was modified by the 1985 letter and defendants' conduct. The Supreme Court has explained
that determining whether there is a standard of care independent of a contractual relationship depends on
the nature of the relationship between the contracting parties:

[82] "The lesson to be drawn from this court's cases discussing the choice between contract and tort
remedies is this: When the relationship involved is between contracting parties, and the gravamen of the
complaint is that one party caused damage to the other by negligently performing its obligations under the
contract, then, and even though the relationship between the parties arises out of the contract, the injured
party may bring a claim for negligence if the other party is subject to a standard of care independent of the
terms of the contract. If the plaintiff's claim is based solely on a breach of a provision in the contract, which
itself spells out the party's obligation, then the remedy normally will be only in contract, with contract
measures of damages and contract statutes of limitations. That is so whether the breach of contract was
negligent, intentional, or otherwise. In some situations, a party may be able to rely on either a contract
theory or a tort theory or both." Georgetown Realty v. The Home Ins. Co., 313 Or 97, 106, 831 P2d 7
(1992).

[83] The first inquiry is whether a jury could infer that the parties entered into a fiduciary relationship. In
Starkweather v. Shaffer, 262 Or 198, 205, 497 P2d 358 (1972), the court held:

[84] "A fiduciary relationship exists in all cases where there has been a special confidence reposed in one
who in equity and good conscience is bound to act in good faith and with due regard to the interests of the
one reposing the confidence."

[85] In Conway v. Pacific University, 324 Or 231, 241, 924 P2d 818 (1996), the court explained:

[86] "In all those relationships, one party has authorized the other to exercise independent judgment in his
or her behalf and, consequently, the party who owes the duty has a special responsibility to administer,
oversee, or otherwise take care of certain affairs belonging to the other party." (Emphasis supplied.)

[87] In this case, the evidence presented by plaintiff does not demonstrate that FGI and FICO acted or
exercised their independent judgment on behalf of plaintiff's interest. Rather, the tenor of the letter is that
plaintiff would have to perform in accordance with defendants' increased expectations and exercise of
control to keep his business. FGI and FICO employees met with plaintiff every month to review, criticize
and approve every aspect of his business. They often insisted that plaintiff operate his business in
accordance with their instructions. They provided extensive advertising programs and reimbursements,
participated in audits of his agents, monitored his daily appointment calendar, exercised control over the
location of his office and even the types of signs he used for his office. These facts demonstrate that FGI
and FICO instructed and exercised control on how plaintiff should perform his duties. However, there is an
additional component to a fiduciary relationship that is missing.

[88] In Conway, the court said, "Another way to characterize the types of relationships in which a
heightened duty of care exists is that the party who owes the duty has a special responsibility toward the
other party." 324 Or at 240 (emphasis in the original). In this case, there is no evidence that defendants
undertook a special responsibility regarding plaintiff's interests. Plaintiff argues that FGI and FICO had a
special responsibility toward plaintiff because they promised to assist him in any way they could. However,
promising to assist and actually acting for a person are not the same for purposes of establishing a fiduciary
relationship. In order for FGI and FICO to have a fiduciary duty towards plaintiff, they actually would have
had to have acted for plaintiff. The evidence does not show that defendants undertook to carry out
plaintiff's obligations under their agreement or to act on his behalf to further his economic interest.

[89] Plaintiff relies on our decision in Eulrich v. Snap-On Tools Corp., 121 Or App 25, 853 P2d 1350,
rev den 317 Or 583, vacated on other grounds sub nom Snap-On Tools v. Eulrich, 512 US 1231, 114 S
Ct 2731 (1994), and argues that when there is evidence of dependency and control in a relationship, a
special relationship can exist. We disagree. Conway requires that in order for a special relationship to exist,
"one party has authorized the other to exercise independent judgment in his or her behalf." 324 Or at 241.
Eulrich illustrates the point. In that case, there was evidence that

[90] "the field manager rode along with plaintiff and actually conducted sales on behalf of plaintiff. Plaintiff's
supervisor did all of his paperwork for the first month, and continued to do some of that paperwork
throughout plaintiff's tenure as a dealer. * * * There was also evidence that defendants promised to 'take
care of' their dealers and exercised complete control over how the business was run and over the size and
location of the dealer's territory." Eulrich, 121 Or App at 37.

[91] The components of the relationship in Eulrich included not only control and dependency but also an
undertaking by the defendant to act on behalf of the plaintiff's interest. Those facts do not exist in this case
and, thus, the relationship between plaintiff and defendants does not give rise to a fiduciary relationship. The
trial court properly granted the JNOVs on the tort claims.

[92] Because of our prior ruling, we do not address plaintiff's other arguments or defendants'
cross-assignments of error.

[93] Judgment notwithstanding the verdict on contract claim reversed; order granting new trial on contract
claim affirmed and remanded for new trial; otherwise affirmed.

[94] ARMSTRONG, J., concurring in part and dissenting in part.

[95] I concur in the majority's opinion on all issues except estoppel. I dissent from its holding that plaintiff
may not assert that defendants are estopped from enforcing their contractual right to terminate the contract
with plaintiff without cause. That holding both misunderstands and unnecessarily rejects our previous cases
on estoppel.

[96] The essential point that the majority ignores is that plaintiff is not attempting to create a new cause of
action for estoppel but simply to hold defendants to those representations about the terms of the existing
contract that they made and on which he relied. That is an appropriate use of estoppel and is consistent
with our earlier cases and with the general ways for forming and modifying contracts. In this context,
estoppel is merely one way to establish the enforceable requirements of a contract without meeting all of the
requirements for the modification of a bilateral contract. The majority expressly recognizes one of the other
methods of establishing those requirements and does not question the others.

[97] Immediately before rejecting plaintiff's estoppel claims, the majority holds that a party may waive a
contractual right simply by manifesting an intention to relinquish it. Under the facts of this case, the waiver
has the effect of modifying the contract to include a requirement that defendants can terminate it only for
cause.*fn5 ___ Or App at ___ (slip opinion at 16-18). Other methods of creating or modifying contractual
rights without the traditional trappings of a bilateral contract include notifying the other party of the new
terms, which the other party implicitly accepts by continuing to perform as before, see Yartzoff v.
Democrat-Herald Publishing Co., 281 Or 651, 657, 576 P2d 356 (1978), promissory estoppel, see
Schafer et al v. Fraser et ux, 206 Or 446, 468-72, 290 P2d 190, 294 P2d 609 (1956), Neiss v. Ehlers,
135 Or App 218, 899 P2d 700 (1995), and unilateral contracts, see Oregon State Police Officers' Assn.
v. State of Oregon, 323 Or 356, 368-71, 918 P2d 765 (1996).

[98] The majority's rejection of estoppel as a way to modify a contract is thus inconsistent with the
recognition of these other similar ways to achieve that result. In reaching its conclusion it relies on (and
misunderstands) Bramwell v. Rowland, 123 Or 33, 261 P 57 (1927), and Howell v. Oregonian Publishing
Co., 82 Or App 241, 728 P2d 106 (1986), on recons 85 Or App 84, 735 P2d 659, rev den 303 Or 699
(1987). Bramwell simply stands for the point that, in contrast to fraud, "all of the elements of estoppel may
be present and yet no cause of action exists because estoppel is not a cause of action." 123 Or at 44.
(Emphasis supplied). Plaintiff does not dispute that point. He is not attempting to use estoppel as the basis
for an independent claim but rather to prevent defendants from denying that an existing contract contains
the terms that they represented to him that it contained.

[99] We defined "estoppel" in Daly v. Fitch, 70 Or App 18, 21 n 2, 687 P2d 1124 (1984), as

[100] "an equitable principle that precludes someone from exercising a right to another's detriment if the
right holder, through words or conduct, has led the other to believe that the right would not be exercised."

[101] We pointed out that a court's refusal to enforce a time-of-the-essence clause in a land-sale contract
because of the vendor's acceptance of late payments is most appropriately described as based on estoppel
rather than on waiver. Id. Thus, estoppel changes the parties' rights under the contract. There is no reason
to treat the effect of that change in the parties' rights as different depending on who is seeking relief.

[102] The cases that the majority discusses are consistent with my view that plaintiff is entitled to assert that
defendants were estopped from terminating the contract without cause and that their attempt to do so was
a breach of the contract that entitles plaintiff to damages.*fn6 In Howell, the plaintiffs brought claims for
breach of contract, reformation, and fraud, all relating to their contracts with the defendant. The plaintiffs
did not assert that their reliance on the defendant's alleged representations had affected the terms of the
existing contract or was otherwise relevant to their breach-of-contract claims. After resolving the
breach-of-contract and fraud claims, we rejected the plaintiffs' reformation claims as without merit in a
one-sentence paragraph, without any reference to estoppel.

[103] By focusing on the reformation claim in its discussion of Howell, the majority shows that it
misunderstands that case. The plaintiffs in Howell attempted to use estoppel as the ground for an
independent claim, not as support for their claim for reformation. Nothing in our opinion supports the
majority's statement that the plaintiff based its reformation claim on an assertion that "the parties were
estopped from relying on the written provisions of the contract," nor that we held that "equitable estoppel
could not be used to change a term that had not been the subject of mutual assent in an express contract."
(Slip opinion at 19-20.) Our entire statement on estoppel was:

[104] "Appellants have also pleaded claims for equitable relief. They contend that defendant is estopped
from relying on renewal provisions in the written contracts to terminate dealerships without cause, because
of defendant's conduct (the oral promises to renew) on which they have relied. Equitable estoppel,
however, is not a cause of action. Bramwell v. Rowland, 123 Or 33, 44, 261 P 57 (1927). We therefore
affirm the summary judgment against relief based on the estoppel claims."

[105] 82 Or App at 247. We rejected estoppel as an independent claim for relief, nothing more.

[106] In contrast to Howell, Gillman v. Emel, 89 Or App 153, 156-57, 747 P2d 390 (1987), is directly
contrary to the majority's holding and applies to this case. In Gillman, the plaintiff sued to recover unpaid
sales commissions, alleging that she was entitled to a rate greater than the defendants had paid. The
defendants counterclaimed to recover commissions that they had already paid her, alleging that she was
entitled to a lower rate. In reply, the plaintiff alleged that the defendants had represented that she would
receive the higher rate and that they were estopped from denying her any other rate. 89 Or App at 155.
That is clearly a use of the doctrine to establish one of the terms of the parties' agreement.

[107] We held that the plaintiff's pleading of estoppel was not a separate equitable claim but was part of
the legal claim that the trial court submitted to the jury. As a result, the trial court erred when it purported to
decide the issue on its own after the verdict. We explained, citing Bramwell, that "[e]stoppel is not in itself
the basis for a claim, but it may be a method of proving the facts necessary to establish the claim that the
plaintiff does make." 89 Or App at 156-57 (emphasis supplied). Nothing in our opinion suggests that the
procedural fact that the plaintiff first raised estoppel in response to the defendants' counterclaim made any
difference. The plaintiff used estoppel to establish her rate of pay, which was relevant both to her claim and
to the defendants' counterclaim. As we said, she used estoppel "to establish the claim" that she made.*fn7

[108] Plaintiff seeks to use estoppel in this case precisely in the way that we held that the plaintiff in Gillman
could use it. He alleges that he relied on defendants' representations that they would not terminate the
Agreement without cause. If he is correct, those representations modified the existing contract by depriving
defendants of a right that they otherwise had, and defendants breached the contract as modified. Plaintiff is
not seeking to assert estoppel as an independent claim but to use it to show what the parties' actual
agreement was at the time that defendants terminated him and thus to support his breach-of-contract claim.
He should be able to do that. The majority fails to give an adequate reason for changing the rule in our
previous cases that allows him to do so. I therefore dissent from that portion of its opinion.

[109] Deits, C.J., and Riggs and Leeson, JJ., join in this concurrence and dissent.

***** BEGIN FOOTNOTE(S) HERE *****

[110] *fn1 The contracting defendants are Farmers Insurance Company of Oregon, Farmers Insurance
Exchange, Truck Insurance Exchange, Fire Insurance Exchange, Mid-Century Insurance Company, and
Farmers New World Life Insurance Company.

[111] *fn2 ORCP 64 B(6) requires:

[112] "A former judgment may be set aside and a new trial granted in an action where there has been a trial
by jury on the motion of the party aggrieved for any of the following causes materially affecting the
substantial rights of such party:

"* * * * *

[113] "B(6) Error in law occurring at the trial and objected to or excepted to by the party making the
application."

[114] *fn3 In Mittleman Properties v. Bank of California, 131 Or App 666, 673, 886 P2d 1061 (1994),
we said in dictum that "[a]rguably, an estoppel could give rise to an implied agreement modifying the terms
of the lease between plaintiff and defendant." We then found that there was no evidence that the plaintiff
relied on the defendants' representations. We are now faced directly with the issue of whether estoppel
may be used to modify the terms of an express agreement. To the extent that our opinion in Mittleman
suggests the availability of such a theory on these facts, we disavow that interpretation.

[115] *fn4 The dissent points out that we have previous allowed a plaintiff to use equitable estoppel
offensively in Collver v. Salem Insurance Agency, Inc., 132 Or App 52, 61, 887 P2d 836 (1994), rev den
320 Or 598 (1995). However, in that case, we distinguished the DeJonge holding and held that, because
there was no written policy, plaintiffs could use equitable estoppel to establish the terms of an implied
agreement. In Collver, plaintiff was not using estoppel to change the terms of an express agreement.
Implied contracts are based on equitable principles. "The implied in law contract is indeed no contract at
all, it is simply a rule of law that requires restitution to the plaintiff of something that came into [the]
defendant's hands but belongs to the plaintiff in some sense." Derenco v. Benj. Franklin Fed. Sav. and
Loan, 281 Or 533, 557, 577 P2d 477 (quoting Dobbs, Remedies Section 4.2 at 235 (1973)), cert den
439 US 1051 (1978).

[116] *fn5 The majority correctly holds that the jury could find that defendants waived the right to
terminate plaintiff's contract without cause on 30 days notice, thereby essentially making the contract
terminable only for cause. ___ Or App at ___ (Slip opinion at 18.) It does not explain why defendants can
create that new requirement by waiver but not by estoppel.

[117] *fn6 The majority points out that equitable estoppel is not a basis for extending coverage under an
existing insurance policy. See DeJonge v. Mutual of Enumclaw, 315 Or 237, 843 P2d 914 (1992);
ABCD...Vision v. Fireman's Fund Ins. Companies, 304 Or 301, 744 P2d 998 (1987). That holding is, at
least in part, based on considerations unique to insurance law. See DeJonge, 315 Or at 241 n 3. In any
case, it is possible for estoppel to be a ground for avoiding a condition of forfeiture, which is similar to its
potential use in this case to prevent the enforcement of the provision of the contract that permits termination
without cause. That restriction on the enforcement of a provision of an existing contract is not the creation
of a new contract for the parties.

[118] *fn7 In Mittleman Properties v. Bank of California, 131 Or App 666, 673, 886 P2d 1061 (1994),
we relied on this statement in explaining that an estoppel could arguably give rise to an implied agreement
modifying the terms of the lease at issue. The majority treats that statement as dictum and then rejects it.
___ Or App at ___ (slip opinion at 21 n 3). Whether or not it is correct on that point, in Mittleman we
clearly treated Gillman v. Emel, 89 Or App 153, 747 P2d 390 (1987), as properly stating the law and
considered the plaintiff's estoppel arguments on their merits. We repeated that statement, relying on both
Bramwell and Gillman, a few days later in Collver v. Salem Insurance Agency, Inc., 132 Or App 52, 60,
887 P2d 836 (1994). The repeated statements of this court on an important point of law deserve greater
respect than the majority seems willing to give them in this case.

***** END FOOTNOTE(S) HERE *****