222 N. Y. 88
OTIS F. WOOD, Appellant,
v.
LUCY, LADY DUFF-GORDON, Respondent.
Appellate Division of the Supreme Court of the State of New York, First Department 

[88] 

Wood v. Duff-Gordon, 177 App. Div. 624, reversed.

(Argued November 14, 1917; decided December 4, 1917.)

APPEAL from a judgment entered April 24, 1917 upon an order of the Appellate Division of the Supreme Court in the first judicial department, which reversed an order of Special Term denying a motion by defendant for judgment in her favor upon the pleadings and granted said motion.

The nature of the action and the facts, so far as material, are stated in the opinion.

[89] John Jerome Rooney for appellant. Assuming that the contract does not contain an express covenant and agreement on the part of the plaintiff to use his best endeavors and efforts to place indorsements, make sales or grant licenses to manufacture, nevertheless such a covenant must necessarily be implied from the terms of the contract itself and all the circumstances. (Booth v. Cleveland Mill Co., 74 N. Y. 15; Wells v. Alexandre, 130 N. Y. 642; Jacquin v. Boutard, 89 Hun, 437; 157 N. Y. 686; Wil- son v. Mechanical Orguinette Co., 170 N. Y. 542; Horton v. Hall & Clarke Mfg. Co., 94 App. Div. 404; Hearn v. Stevens & Bros., Ill App. Div. 101; Baker Transfer Co. v. Merchants' R. I. Mfg. Co., 1 App. Div. 507; Wildman Mfg. Co. v. Adams T. C. M. Co., 149 Fed. Rep. 201.)

Edward E. Hoenig and William M. Sullivan for respondent. The motion for judgment on the pleadings was properly granted and the demurrer properly sustained by the appellate court, as the agreement upon which the action is based is nudum pactum and not binding upon this defendant for lack of mutuality and consideration. (Elliott on Cont. § 231; Grossman v. Schenker, 206 N. Y. 468; Levin v. Dietz, 194 N. Y. 376; Commercial W. & C. Co. v. Northampton P. C. Co., 115 App. Div. 393; 190 N. Y. 1; Wood v. G. F. Ins. Co., 174 App. Div. 834; White v. K. M. C. Co., 69 Misc. Rep. 628; Cook v. Cosier, 87 App. Div. 8; Vogel v. Pekoe, 30 L. R. A. 491; Moran v. Standard Oil Co., 211 N. Y. 189; City of New York v. Poali, 202 N. Y. 18; Barrel S. S. Co. v. Mexican R. R. Co., 134 N. Y. 15; First Presbyterian Church v. Cooper, 112 N. Y. 517; Acker v. Hotchkiss, 97 N. Y. 395; Marie v. Garrison, 43 N. Y. 14; Chicago & G. E. R. Co. v. Dane, 43 N. Y. 240; Jermyn v. Searing, 170 App. Div. 720; Rafolovitz v. Amer. Tobacco Co., 73 Hun, 87; Pollock v. Shubert, 146 App. Div. 628.) The order of the Appellate Division should be affirmed, for under the [90] contract the appellant assumes no obligation and there is no provision therein enforceable as against him. (Commercial W. & C. Co. v. Northampton P. C. Co., 115 App. Div. 393; 190 N. Y. 1; Pollock v. Shubert Theatrical Co., 146 App. Div. 629; Arnot v. P. & E. Coal Co., 68 N. Y. 565; Booth v. Milliken, 127 App. Div. 525; Vogel v. Pekoe, 30 L. R. A. 491.)

CARDOZO, J. The defendant styles herself "a creator of fashions." Her favor helps a sale. Manufacturers of dresses, millinery and like articles are glad to pay for a certificate of her approval. The things which she designs, fabrics, parasols and what not, have a new value in the public mind when issued in her name. She employed the plaintiff to help her to turn this vogue into money. He was to have the exclusive right, subject always to her approval, to place her indorsements on the designs of others. He was also to have the exclusive right to place her own designs on sale, or to license others to market them. In return, she was to have one-half of "all profits and revenues" derived from any contracts he might make. The exclusive right was to last at least one year from April 1, 1915, and thereafter from year to year unless terminated by notice of ninety days. The plaintiff says that he kept the contract on his part, and that the defendant broke it. She placed her indorsement on fabrics, dresses and millinery without his knowledge, and withheld the profits. He sues her for the damages, and the case comes here on demurrer.

The agreement of employment is signed by both parties. It has a wealth of recitals. The defendant insists, however, that it lacks the elements of a contract. She says that the plaintiff does not bind himself to anything. It is true that he does not promise in so many words that he will use reasonable efforts to place the defendant's indorsements and market her designs. [91] We think, however, that such a promise is fairly to be implied. The law has outgrown its primitive stage of formalism when the precise word was the sovereign talisman, and every slip was fatal. It takes a broader view to-day. A promise may be lacking, and yet the whole writing may be "instinct with an obligation," imperfectly expressed (SCOTT, J., in McCall Co. v. Wright, 133 App. Div. 62; Moran v. Standard Oil Co., 211 N. Y. 187, 198). If that is so, there is a contract.

The implication of a promise here finds support in many circumstances. The defendant gave an exclusive privilege. She was to have no right for at least a year to place her own indorsements or market her own designs except through the agency of the plaintiff. The acceptance of the exclusive agency was an assumption of its duties (Phoenix Hermetic Co. v. Filtrine Mfg. Co., 164 App. Div. 424; W. G. Taylor Co. v. Bannerman, 120 Wis. 189; Mueller v. Bethesda Mineral Spring Co., 88 Mich. 390). We are not to suppose that one party was to be placed at the mercy of the other (Hearn v. Stevens & Bro., Ill App. Div. 101, 106; Russell v. Allerton, 108 N. Y. 288). Many other terms of the agreement point the same way. We are told at the outset by way of recital that:

"The said Otis F. Wood possesses a business organization adapted to the placing of such indorsements as the said Lucy, Lady Duff-Gordon has approved."

The implication is that the plaintiff's business organization will be used for the purpose for which it is adapted. But the terms of the defendant's compensation are even more significant. Her sole compensation for the grant of an exclusive agency is to be one-half of all the profits resulting from the plaintiff's efforts. Unless he gave his efforts, she could never get anything. Without an implied promise, the transaction cannot have such business "efficacy, as both parties must have intended that at all events it should have." (BOWEN, L. J., in The Moorcock, 14 P. D. 64, [92] 68). But the contract does not stop there. The plaintiff goes on to promise that he will account monthly for all moneys received by him, and that he will take out all such patents and copyrights and trademarks as may in his judgment be necessary to protect the rights and articles affected by the agreement. It is true, of course, as the Appellate Division has said, that if he was under no duty to try to market designs or to place certificates of indorsement, his promise to account for profits or take out copyrights would be valueless. But in determining the intention of the parties, the promise has a value. It helps to enforce the conclusion that the plaintiff had some duties. His promise to pay the defendant one-half of the profits and revenues resulting from the exclusive agency and to render accounts monthly, was a promise to use reasonable efforts to bring profits and revenues into existence. For this conclusion, the authorities are ample (Wilson v. Mechanical Orguinette Co., 170 N. Y. 542; Phoenix Hermetic Co. v. Filtrine Mfg. Co., supra; Jacquin v. Boutard, 89 Hun, 437; 157 N. Y. 686; Moran v. Standard Oil Co., supra; City of N. Y. v. Paoli, 202 N. Y. 18; McIntyre v. Belcher, 14 C. B. [N. S.] 654; Devonald v. Rosser & Sons, 1906, 2 K. B. 728; W. G. Taylor Co. v. Bannerman, supra; Mueller v. Bethesda Mineral Spring Co., supra; Baker Transfer Co. v. Merchants R. & I. Mfg. Co., 1 App. Div. 507).

The judgment of the Appellate Division should be reversed, and the order of the Special Term affirmed, with costs in the Appellate Division and in this court.

CUDDEBACK, MCLAUGHLIN and ANDREWS, JJ., concur; HISCOCK, Ch. J., CHASE and CRANE, JJ., dissent.

Judgment reversed, etc.

Riggs, Ferris & Geer, New York City (John P. Hale, New York City, of counsel), for plaintiff.

Sereni, Herzfeld & Rubin, New York City (Herbert Rubin, Walter Herzfeld, New York City, of counsel), for defendant.

FRIENDLY, Circuit Judge.

The issue is, what is chicken? Plaintiff says "chicken" means a young chicken, suitable for broiling and frying. Defendant says "chicken" means any bird of that genus that meets contract specifications on weight and quality, including what it calls "stewing chicken" and plaintiff pejoratively terms "fowl". Dictionaries give both meanings, as well as some others not relevant here. To support its, plaintiff sends a number of volleys over the net; defendant essays to return them and adds a few serves of its own. Assuming that both parties were acting in good faith, the case nicely illustrates Holmes' remark "that the making of a contract depends not on the agreement of two minds in one intention, but on the agreement of two sets of external signs—not on the parties' having meant the same thing but on their having said the same thing." The Path of the Law, in Collected Legal Papers, p. 178. I have concluded that plaintiff has not sustained its burden of persuasion that the contract used "chicken" in the narrower sense.

The action is for breach of the warranty that goods sold shall correspond to the description, New York Personal Property Law, McKinney's Consol. Laws, c. 41, § 95. Two contracts are in suit. In the first, dated May 2, 1957, defendant, a New York sales corporation, confirmed the sale to plaintiff, a Swiss corporation, of

"US Fresh Frozen Chicken, Grade A, Government Inspected, Eviscerated

2½-3 lbs. and 1½-2 lbs. each

all chicken individually wrapped in cryovac, packed in secured fiber cartons or wooden boxes, suitable for export

75,000 lbs. 2½-3 lbs........@$33.0025,000 lbs. 1½-2 lbs........@$36.50per 100 lbs. FAS New York

scheduled May 10, 1957 pursuant to instructions from Penson & Co., New York."^[1]

The second contract, also dated May 2, 1957, was identical save that only 50,000 lbs. of the heavier "chicken" were called for, the price of the smaller birds was $37 per 100 lbs., and shipment was scheduled for May 30. The initial shipment under the first contract was short but the balance was shipped on May 17. When the initial shipment arrived in Switzerland, plaintiff found, on May 28, that the 2½-3 lbs. birds were not young chicken suitable for broiling and frying but stewing chicken or "fowl"; indeed, many of the cartons and bags plainly so indicated. Protests ensued. Nevertheless, shipment under the second contract was made on May 29, the 2½-3 lbs. birds again being stewing chicken. Defendant stopped the transportation of these at Rotterdam.

This action followed. Plaintiff says that, notwithstanding that its acceptance was in Switzerland, New York law controls under the principle of Rubin v. Irving Trust Co., 1953, 305 N.Y. 288, 305, 113 N.E.2d 424, 431; defendant does not dispute this, and relies on New York decisions. I shall follow the apparent agreement of the parties as to the applicable law.

Since the word "chicken" standing alone is ambiguous, I turn first to see whether the contract itself offers any aid to its interpretation. Plaintiff says the 1½-2 lbs. birds necessarily had to be young chicken since the older birds do not come in that size, hence the 2½-3 lbs. birds must likewise be young. This is unpersuasive—a contract for "apples" of two different sizes could be filled with different kinds of apples even though only one species came in both sizes. Defendant notes that the contract called not simply for chicken but for "US Fresh Frozen Chicken, Grade A, Government Inspected." It says the contract thereby incorporated by reference the Department of Agriculture's regulations, which favor its interpretation; I shall return to this after reviewing plaintiff's other contentions.

The first hinges on an exchange of cablegrams which preceded execution of the formal contracts. The negotiations leading up to the contracts were conducted in New York between defendant's secretary, Ernest R. Bauer, and a Mr. Stovicek, who was in New York for the Czechoslovak government at the World Trade Fair. A few days after meeting Bauer at the fair, Stovicek telephoned and inquired whether defendant would be interested in exporting poultry to Switzerland. Bauer then met with Stovicek, who showed him a cable from plaintiff dated April 26, 1957, announcing that they "are buyer" of 25,000 lbs. of chicken 2½-3 lbs. weight, Cryovac packed, grade A Government inspected, at a price up to 33¢ per pound, for shipment on May 10, to be confirmed by the following morning, and were interested in further offerings. After testing the market for price, Bauer accepted, and Stovicek sent a confirmation that evening. Plaintiff stresses that, although these and subsequent cables between plaintiff and defendant, which laid the basis for the additional quantities under the first and for all of the second contract, were predominantly in German, they used the English word "chicken"; it claims this was done because it understood "chicken" meant young chicken whereas the German word, "Huhn," included both "Brathuhn" (broilers) and "Suppenhuhn" (stewing chicken), and that defendant, whose officers were thoroughly conversant with German, should have realized this. Whatever force this argument might otherwise have is largely drained away by Bauer's testimony that he asked Stovicek what kind of chickens were wanted, received the answer "any kind of chickens," and then, in German, asked whether the cable meant "Huhn" and received an affirmative response. Plaintiff attacks this as contrary to what Bauer testified on his deposition in March, 1959, and also on the ground that Stovicek had no authority to interpret the meaning of the cable. The first contention would be persuasive if sustained by the record, since Bauer was free at the trial from the threat of contradiction by Stovicek as he was not at the time of the deposition; however, review of the deposition does not convince me of the claimed inconsistency. As to the second contention, it may well be that Stovicek lacked authority to commit plaintiff for prices or delivery dates other than those specified in the cable; but plaintiff cannot at the same time rely on its cable to Stovicek as its dictionary to the meaning of the contract and repudiate the interpretation given the dictionary by the man in whose hands it was put. See Restatement of the Law of Agency, 2d, § 145; 2 Mecham, Agency § 1781 (2d ed. 1914); Park v. Moorman Mfg. Co., 1952, 121 Utah 339, 241 P.2d 914, 919, 40 A.L.R.2d 273; Henderson v. Jimmerson, Tex.Civ.App.1950, 234 S.W. 2d 710, 717-718. Plaintiff's reliance on the fact that the contract forms contain the words "through the intermediary of: ", with the blank not filled, as negating agency, is wholly unpersuasive; the purpose of this clause was to permit filling in the name of an intermediary to whom a commission would be payable, not to blot out what had been the fact.

Plaintiff's next contention is that there was a definite trade usage that "chicken" meant "young chicken." Defendant showed that it was only beginning in the poultry trade in 1957, thereby bringing itself within the principle that "when one of the parties is not a member of the trade or other circle, his acceptance of the standard must be made to appear" by proving either that he had actual knowledge of the usage or that the usage is "so generally known in the community that his actual individual knowledge of it may be inferred." 9 Wigmore, Evidence (3d ed. 1940) § 2464. Here there was no proof of actual knowledge of the alleged usage; indeed, it is quite plain that defendant's belief was to the contrary. In order to meet the alternative requirement, the law of New York demands a showing that "the usage is of so long continuance, so well established, so notorious, so universal and so reasonable in itself, as that the presumption is violent that the parties contracted with reference to it, and made it a part of their agreement." Walls v. Bailey, 1872, 49 N.Y. 464, 472-473.

Plaintiff endeavored to establish such a usage by the testimony of three witnesses and certain other evidence. Strasser, resident buyer in New York for a large chain of Swiss cooperatives, testified that "on chicken I would definitely understand a broiler." However, the force of this testimony was considerably weakened by the fact that in his own transactions the witness, a careful businessman, protected himself by using "broiler" when that was what he wanted and "fowl" when he wished older birds. Indeed, there are some indications, dating back to a remark of Lord Mansfield, Edie v. East India Co., 2 Burr. 1216, 1222 (1761), that no credit should be given "witnesses to usage, who could not adduce instances in verification." 7 Wigmore, Evidence (3d ed. 1940), § 1954; see McDonald v. Acker, Merrall & Condit Co., 2d Dept.1920, 192 App.Div. 123, 126, 182 N.Y.S. 607. While Wigmore thinks this goes too far, a witness' consistent failure to rely on the alleged usage deprives his opinion testimony of much of its effect. Niesielowski, an officer of one of the companies that had furnished the stewing chicken to defendant, testified that "chicken" meant "the male species of the poultry industry. That could be a broiler, a fryer or a roaster", but not a stewing chicken; however, he also testified that upon receiving defendant's inquiry for "chickens", he asked whether the desire was for "fowl or frying chickens" and, in fact, supplied fowl, although taking the precaution of asking defendant, a day or two after plaintiff's acceptance of the contracts in suit, to change its confirmation of its order from "chickens," as defendant had originally prepared it, to "stewing chickens." Dates, an employee of Urner-Barry Company, which publishes a daily market report on the poultry trade, gave it as his view that the trade meaning of "chicken" was "broilers and fryers." In addition to this opinion testimony, plaintiff relied on the fact that the Urner-Barry service, the Journal of Commerce, and Weinberg Bros. & Co. of Chicago, a large supplier of poultry, published quotations in a manner which, in one way or another, distinguish between "chicken," comprising broilers, fryers and certain other categories, and "fowl," which, Bauer acknowledged, included stewing chickens. This material would be impressive if there were nothing to the contrary. However, there was, as will now be seen.

Defendant's witness Weininger, who operates a chicken eviscerating plant in New Jersey, testified "Chicken is everything except a goose, a duck, and a turkey. Everything is a chicken, but then you have to say, you have to specify which category you want or that you are talking about." Its witness Fox said that in the trade "chicken" would encompass all the various classifications. Sadina, who conducts a food inspection service, testified that he would consider any bird coming within the classes of "chicken" in the Department of Agriculture's regulations to be a chicken. The specifications approved by the General Services Administration include fowl as well as broilers and fryers under the classification "chickens." Statistics of the Institute of American Poultry Industries use the phrases "Young chickens" and "Mature chickens," under the general heading "Total chickens." and the Department of Agriculture's daily and weekly price reports avoid use of the word "chicken" without specification.

Defendant advances several other points which it claims affirmatively support its construction. Primary among these is the regulation of the Department of Agriculture, 7 C.F.R. § 70.300-70.370, entitled, "Grading and Inspection of Poultry and Edible Products Thereof." and in particular § 70.301 which recited:

"Chickens. The following are the various classes of chickens:

(a) Broiler or fryer . . .

(b) Roaster . . .

(c) Capon . . .

(d) Stag . . .

(e) Hen or stewing chicken or fowl . . .

(f) Cock or old rooster . . .

Defendant argues, as previously noted, that the contract incorporated these regulations by reference. Plaintiff answers that the contract provision related simply to grade and Government inspection and did not incorporate the Government definition of "chicken," and also that the definition in the Regulations is ignored in the trade. However, the latter contention was contradicted by Weininger and Sadina; and there is force in defendant's argument that the contract made the regulations a dictionary, particularly since the reference to Government grading was already in plaintiff's initial cable to Stovicek.

Defendant makes a further argument based on the impossibility of its obtaining broilers and fryers at the 33¢ price offered by plaintiff for the 2½-3 lbs. birds. There is no substantial dispute that, in late April, 1957, the price for 2½-3 lbs. broilers was between 35 and 37¢ per pound, and that when defendant entered into the contracts, it was well aware of this and intended to fill them by supplying fowl in these weights. It claims that plaintiff must likewise have known the market since plaintiff had reserved shipping space on April 23, three days before plaintiff's cable to Stovicek, or, at least, that Stovicek was chargeable with such knowledge. It is scarcely an answer to say, as plaintiff does in its brief, that the 33¢ price offered by the 2½-3 lbs. "chickens" was closer to the prevailing 35¢ price for broilers than to the 30¢ at which defendant procured fowl. Plaintiff must have expected defendant to make some profit—certainly it could not have expected defendant deliberately to incur a loss.

Finally, defendant relies on conduct by the plaintiff after the first shipment had been received. On May 28 plaintiff sent two cables complaining that the larger birds in the first shipment constituted "fowl." Defendant answered with a cable refusing to recognize plaintiff's objection and announcing "We have today ready for shipment 50,000 lbs. chicken 2½-3 lbs. 25,000 lbs. broilers 1½-2 lbs.," these being the goods procured for shipment under the second contract, and asked immediate answer "whether we are to ship this merchandise to you and whether you will accept the merchandise." After several other cable exchanges, plaintiff replied on May 29 "Confirm again that merchandise is to be shipped since resold by us if not enough pursuant to contract chickens are shipped the missing quantity is to be shipped within ten days stop we resold to our customers pursuant to your contract chickens grade A you have to deliver us said merchandise we again state that we shall make you fully responsible for all resulting costs."^[2] Defendant argues that if plaintiff was sincere in thinking it was entitled to young chickens, plaintiff would not have allowed the shipment under the second contract to go forward, since the distinction between broilers and chickens drawn in defendant's cablegram must have made it clear that the larger birds would not be broilers. However, plaintiff answers that the cables show plaintiff was insisting on delivery of young chickens and that defendant shipped old ones at its peril. Defendant's point would be highly relevant on another disputed issue—whether if liability were established, the measure of damages should be the difference in market value of broilers and stewing chicken in New York or the larger difference in Europe, but I cannot give it weight on the issue of interpretation. Defendant points out also that plaintiff proceeded to deliver some of the larger birds in Europe, describing them as "poulets"; defendant argues that it was only when plaintiff's customers complained about this that plaintiff developed the idea that "chicken" meant "young chicken." There is little force in this in view of plaintiff's immediate and consistent protests.

When all the evidence is reviewed, it is clear that defendant believed it could comply with the contracts by delivering stewing chicken in the 2½-3 lbs. size. Defendant's subjective intent would not be significant if this did not coincide with an objective meaning of "chicken." Here it did coincide with one of the dictionary meanings, with the definition in the Department of Agriculture Regulations to which the contract made at least oblique reference, with at least some usage in the trade, with the realities of the market, and with what plaintiff's spokesman had said. Plaintiff asserts it to be equally plain that plaintiff's own subjective intent was to obtain broilers and fryers; the only evidence against this is the material as to market prices and this may not have been sufficiently brought home. In any event it is unnecessary to determine that issue. For plaintiff has the burden of showing that "chicken" was used in the narrower rather than in the broader sense, and this it has not sustained.

This opinion constitutes the Court's findings of fact and conclusions of law. Judgment shall be entered dismissing the complaint with costs.

[1] The Court notes the contract provision whereby any disputes are to be settled by arbitration by the New York Produce Exchange; it treats the parties' failure to avail themselves of this remedy as an agreement eliminating that clause of the contract.

[2] These cables were in German; "chicken", "broilers" and, on some occasions, "fowl," were in English.

C & J FERTILIZER, INC., Appellant, v. ALLIED MUTUAL INSURANCE COMPANY, Appellee.

No. 2-56355.

Supreme Court of Iowa.

March 19, 1975.

Rehearing Denied May 16, 1975.

Livingston, Day, Kehoe, Meeker & Bates, Washington, for appellant.

Bradshaw, Fowler, Proctor & Fairgrave, Des Moines, for appellee.

REYNOLDSON, Justice.

This action to recover for burglary loss under two separate insurance policies was tried to the court, resulting in a finding plaintiff had failed to establish a burglary within the policy definitions. Plaintiff appeals from judgment entered for defendant. We reverse and remand.

Trial court made certain findings of fact in support of its conclusion reached. Plaintiff operated a fertilizer plant in Olds, Iowa. At time of loss, plaintiff was insured under policies issued by defendant and titled “BROAD FORM STOREKEEPERS POLICY” and “MERCANTILE BURGLARY AND ROBBERY POLICY.” Each policy defined “burglary” as meaning,

“the felonious abstraction of insured property (1) from within the premises by a person making felonious entry therein by actual force and violence, of which force and violence there are visible marks made by tools, explosives, electricity or chemicals upon, or physical damage to, the exterior of the premises at the place of such entry.”

On Saturday, April 18, 1970, all exterior doors to the building were locked when plaintiff’s employees left the premises at the end of the business day. The following day, Sunday, April 19, 1970, one of plaintiff's employees was at the plant and found all doors locked and secure. On Monday, April 20,1970, when the employees reported for work, the exterior doors were locked, but the front office door was unlocked.

There were truck tire tread marks visible in the mud in the driveway leading to and from the plexiglas door entrance to the warehouse. It was demonstrated this door could be forced open without leaving visible marks or physical damage.

There were no visible marks on the exterior of the building made by tools, explosives, electricity or chemicals, and there was no physical damage to the exterior of the building to evidence felonious entry into the building by force and violence.

Chemicals had been stored in an interior room of the warehouse. The door to this room, which had been locked, was physically damaged and carried visible marks made by tools. Chemicals had been taken at a net loss to plaintiff in the sum of $9,582. Office and shop equipment valued at $400.30 was also taken from the building.

Trial court held the policy definition of “burglary” was unambiguous, there was nothing in the record “upon which to base a finding that the door to plaintiff’s place of business was entered feloniously, by actual force and violence,” and, applying the policy language, found for defendant.

Certain other facts in the record were apparently deemed irrelevant by trial court because of its view the applicable law required it to enforce the policy provision. Because we conclude different rules of law apply, we also consider those facts.

The “BROAD FORM STOREKEEPERS POLICY” was issued April 14, 1969; the “MERCANTILE BURGLARY AND ROBBERY POLICY” on April 14, 1970. Those policies are in evidence. Prior policies apparently were first purchased in 1968. The agent, who had power to bind insurance coverage for defendant, was told plaintiff would be handling farm chemicals. After inspecting the building then used by plaintiff for storage he made certain suggestions regarding security. There ensued a conversation in which he pointed out there had to be visible evidence of burglary. There was no testimony by anyone that plaintiff was then or thereafter informed the policy to be delivered would define burglary to require “visible marks made by tools, explosives, electricity or chemicals upon, or physical damage to, the exterior of the premises at the place of entry.”

The import of this conversation with defendant’s agent when the coverage was sold is best confirmed by the agent’s complete and vocally-expressed surprise when defendant denied coverage. From what the agent saw (tire tracks and marks on the interior of the building) and his contacts with the investigating officers “the thought didn’t enter my mind that it wasn’t covered. From the trial testimony it was obvious the only understanding was that there should be some hard evidence of a third-party burglary vis-a-vis an “inside job.” The latter was in this instance effectively ruled out when the thief was required to break an interior door lock to gain access to the chemicals.

The agent testified the insurance was purchased and “the policy was sent out afterwards.” The president of plaintiff corporation, a 37-year-old farmer with a high school education, looked at that portion of the policy setting out coverages, including coverage for burglary loss, the amounts of insurance, and the “location and description.” He could not recall reading the fine print defining “burglary” on page three of the policy.

Trial court’s “findings” must be examined in light of our applicable rules. Ordinarily in a law action tried to the court its findings of fact having adequate evidentiary support shall not be set aside unless induced by an erroneous view of the law. It follows, the rule does not preclude inquiry into the question whether, conceding the truth of a finding of fact, the trial court applied erroneous rules of law which materially affected the decision. Beneficial Finance Company of Waterloo v. Lamos, 179 N.W.2d 573, 578 (Iowa 1970) and citations.

Extrinsic evidence that throws light on the situation of the parties, the antecedent negotiations, the attendant circumstances and the objects they were thereby striving to attain is necessarily to be regarded as relevant to ascertain the actual significance and proper legal meaning of the agreement. Hamilton v. Wosepka, 261 Iowa 299, 306, 154 N.W.2d 164, 168 (1967); 3 Corbin on Contracts, 1971 pocket part § 543AA, pp. 91-95.

The question of interpretation, i. e., the meaning to be given contractual words, is one to be determined by the court unless the interpretation depends on extrinsic evidence or on a choice among reasonable inferences to be drawn from extrinsic evidence. See Restatement (Second) of Contracts § 238, p. 543 (Student Ed., Tent. Drafts Nos. 1—7, 1973). Construction of a contract means determination of its legal operation — its effect upon the action of the courts. Porter v. Iowa Power and Light Company, 217 N.W.2d 221, 228 (Iowa 1974); Boyer v. Iowa High School Athletic Association, 260 Iowa 1061, 1069, 152 N.W.2d 293, 298 (1967); 3 Corbin on Contracts § 534, pp. 7—9; 4 Williston on Contracts § 602, p. 320. “[C]onstruction [of a contract] is always a matter of law for the court.” 3 Corbin on Contracts § 554, p. 227. “[C]ourts in construing and applying a standardized contract seek to effectuate the reasonable expectations of the average member of the public who accepts it.” Restatement (Second) of Contracts, supra, § 237, comment e, p. 540.

Trial court in the case sub judice, concentrating on the policy “definition” of burglary, limited its consideration of the facts to the issue whether there was evidence which satisfied that provision. Thus we find the language “There was no physical damage to the exterior of the building to evidence felonious entry to the building by force and violence; ” “There is nothing in the record upon which to base a finding that the door to plaintiff’s place of business was entered feloniously, by actual force and violence; ” “The evidence in this case is just as consistent with a theory that an employee entered the building with a key as it is to a theory that the building was entered by force and violence." (Emphasis supplied.).

Trial court never made a finding there was or was not a burglary. We have noted its examination of the evidence was tailored to fit the policy “definition” of burglary: “ ‘Burglary’ means the felonious abstraction of insured property (1) from within the premises by a person making felonious entry therein by actual force and violence, of which force and violence there are visible marks(Emphasis supplied.).

Nor did trial court consider the evidence in light of the layman’s concept of burglary (who might well consider a stealing intruder in his home or business premises as a burglar, whether or not the door was entered by force and violence) or the legal definition of burglary, hereinafter referred to. Trial court made no determination regarding burglary in those contexts.

Insofar as trial court was construing the policy — that being a matter of law for the court — we are not bound by its conclusions. See Farmers Insurance Group v. Merryweather, 214 N.W.2d 184, 187 (Iowa 1974); E. Patterson, The Interpretation and Construction of Contracts, 64 Colum.L.Rev. 833, 836-37 (1964). Neither are we bound by trial court’s rule this case is controlled by the fineprint “definition” of burglary, if that rule was erroneously applied below. Beneficial Finance Company of Waterloo v. Lamos, supra.

Trial court did find “[T]here does not appear to have been a discussion of the policy provisions between the parties at the time the policy was secured. That finding is well supported: there is no evidence plaintiff knew of the definition of burglary contained in the policy until after the event. But both parties agree there was conversation concerning the type of insurance and the property to be insured. While plaintiff’s president’s testimony is ambivalent as to whether it occurred before or after the predecessor policies were issued, the defendant’s agent was clear the conversation occurred before any policies were delivered.

There is nothing about trial court’s factual findings which precludes this court from construing said contract to arrive at a proper determination of its legal operation as between these parties, or from considering whether the decision appealed from resulted from the application of an erroneous rule of law. And if the definition of “burglary” in defendant’s policy is not enforceable here, then trial court’s finding there was no evidence of forcible entry through an outside door is not controlling in the disposition of this case.

Plaintiff’s theories of recovery based on “reasonable expectations,” implied warranty and unconscionability must be viewed in light of accelerating change in the field of contracts.

I. Revolution in formation of contractual relationships.

Many of our principles for resolving conflicts relating to written contracts were formulated at an early time when parties of equal strength negotiated in the historical sequence of offer, acceptance, and reduction to writing. The concept that both parties assented to the resulting document had solid footing in fact.

Only recently has the sweeping change in the inception of the document received widespread recognition:

“Standard form contracts probably account for more than ninety-nine percent of all contracts now made. Most persons have difficulty remembering the last time they contracted other than by standard form; except for casual oral agreements, they probably never have. But if they are active, they contract by standard form several times a day. Parking lot and theater tickets, package receipts, department store charge slips, and gas station credit card purchase slips are all standard form contracts.

* * *

“The contracting still imagined by courts and law teachers as typical, in which both parties participate in choosing the language of their entire agreement, is no longer of much more than historical importance.”

—W. Slawson, Standard Form Contracts and Democratic Control of Lawmaking Power, 84 Harv.L.Rev. 529 (1971).

With respect to those interested in buying insurance, it has been observed that:

“His chances of successfully negotiating with the company for any substantial change in the proposed contract are just about zero. The insurance company tenders the insurance upon a ‘take it or leave it’ basis.

* * *

“ ‘Few persons solicited to take policies understand the subject of insurance or the rules of law governing the negotiations, and they have no voice in dictating the terms of what is called the contract. They are clear upon two or three points which the agent promises to protect, and for everything else they must sign ready-made applications and accept ready-made policies carefully concocted to conserve the interests of the company. The subject, therefore, is sui generis, and the rules of a legal system devised to govern the formation of ordinary contracts between man and man cannot be mechanically applied to it.’ ”

—7 Williston on Contracts § 900, pp. 29— 30 (3d Ed. 1963).

See also 3 Corbin on Contracts § 559, p. 266 (1960); 6A Corbin on Contracts § 1376, p. 21; Grismore on Contracts § 294, pp. 505-507 (Rev.Ed. J. E. Murray, Jr. 1965); R. Keeton, Insurance Law Rights At Variance With Policy Provisions, 83 Harv.L.Rev. 961, 966-67 (1970); F. Kessler, Contracts of Adhesion—Some Thoughts About Freedom of Contract, 43 Colum.L.Rev. 629 (1943); C. Oldfather, Toward a Usable Method of Judicial Review of the Adhesion Contractor’s Lawmaking, 16 Kansas L.Rev. 303 (1968).

It is generally recognized the insured will not read the detailed, cross-referenced, standardized, mass-produced insurance form, nor understand it if he does. 7 Willi-ston on Contracts § 906B, p. 300 (“But where the document thus delivered to him is a contract of insurance the majority rule is that the insured is not bound to know its contents”); 3 Corbin on Contracts § 559, pp. 265-66 (“One who applies for an insurance policy may not even read the policy, the number of its terms and the fineness of its print being such as to discourage him”); Note, Unconscionable Contracts: The Uniform Commercial Code, 45 Iowa L.Rev. 843, 844 (1960) (“It is probably a safe assertion that most involved standardized form contracts are never read by the party who ‘adheres’ to them. In such situations, the proponent of the form is free to dictate terms most advantageous to himself”); see Hully v. Aluminum Company of America, 143 F.Supp. 508, 513 (S.D.Iowa 1956), aff’d sub nom. Columbia Casualty Company v. Eichleay Corporation, 245 F.2d 1 (8 Cir. 1957); Collegiate Mfg. Co. v. McDowell’s Agency, Inc., 200 N.W.2d 854, 859 (Iowa 1972); Quinn v. Mutual Benefit Health & Acc. Ass’n of Omaha, 244 Iowa 6, 14, 55 N.W.2d 546, 550 (1952); Lankhorst v. Union Fire Ins. Co., 236 Iowa 838, 844, 20 N.W.2d 14, 17 (1945).

The concept that persons must obey public laws enacted by their own representatives does not offend a fundamental sense of justice: an inherent element of assent pervades the process.

But the inevitable result of enforcing all provisions of the adhesion contract, frequently, as here, delivered subsequent to the transaction and containing provisions never assented to, would be an abdication of judicial responsibility in face of basic unfairness and a recognition that persons’ rights shall be controlled by private lawmakers without the consent, express or implied, of those affected. See Grismore, supra § 294 at p. 506; K. Llewellyn, What Price Contract?—An Essay in Perspective, 40 Yale L.J. 704, 731 (1931); Meyer, Contracts of Adhesion and The Doctrine of Fundamental Breach, 50 Va.L.Rev. 1178, 1179 (1964); C. Oldfather, supra at 303-04. A question is also raised whether a court may constitutionally allow that power to exist in private hands except where appropriate safeguards are present, including a right to meaningful judicial review. See W. Slawson, supra at 553.

The statutory requirement that the form of policies be approved by the commissioner of, insurance, § 515.109, The Code, neither resolves the issue whether the fine-print provisions nullify the insurance bargained for in a given ease nor ousts the court from necessary jurisdiction. See, e. g., Benzer v. Iowa Mutual Tornado Insurance Ass’n, 216 N.W.2d 385 (Iowa 1974); Union Ins. Co. (Mutual) v. Iowa Hardware Mut. Ins. Co., 175 N.W.2d 413 (1970). In this connection it has been pertinently stated:

“Insurance contracts continue to be contracts of adhesion, under which the insured is left little choice beyond electing among standardized provisions offered to him, even when the standard forms are prescribed by public officials rather than insurers. Moreover, although statutory and administrative regulations have made increasing inroads on the insurer’s autonomy by prescribing some kinds of provisions and proscribing others, most insurance policy provisions are still drafted by insurers. Regulation is relatively weak in most instances, and even the provisions prescribed or approved by legislative or administrative action ordinarily are in essence adoptions, outright or slightly modified, of proposals made by insurers’ draftsmen.

“Under such circumstances as these, judicial regulation of contracts of adhesion, whether concerning insurance or some other kind of transaction, remains appropriate.”

—R. Keeton, supra at 966-67.

See also 3 Corbin on Contracts § 559, p. 267.

The mass-produced boiler-plate “contracts,” necessitated and spawned by the explosive growth of complex business transactions in a burgeoning population left courts frequently frustrated in attempting to arrive at just results by applying many of the traditional contract-construing stratagems. As long as fifteen years ago Professor Llewellyn, reflecting on this situation in his book “The Common Law Tradition-Deciding Appeals,” pp. 362-71 wrote,

“What the story shows thus far is first, scholars persistently off-base while judges grope over well-nigh a century in irregular but dogged fashion for escape from a recurring discomfort of imbalance that rests on what is in fact substantial nonagreement despite perfect semblance of agreement, (pp. 367-368).

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“The answer, I suggest, is this: Instead of thinking about ‘assent’ to boiler-plate clauses, we can recognize that so far as concerns the specific, there is no assent at all. What has in fact been assented to, specifically, are the few dickered terms, and the broad type of transaction, and but one thing more. That one thing more is a blanket assent (not a specific assent) to any not unreasonable or indecent terms the seller may have on his form, which do not alter or eviscerate the reasonable meaning of the dickered terms. The fine print which has not been read has no business to cut under the reasonable meaning of those dickered terms which constitute the dominant and only real expression of agreement, but much of it commonly belongs in.” (p. 370)

In fairness to the often-discerned ability of the common law to develop solutions for changing demands, it should be noted appellate courts take cases as they come, constrained by issues the litigants formulated in trial court — a point not infrequently overlooked by academicians. Nor can a lawyer in the ordinary case be faulted for not risking a client’s cause on an uncharted course when there is a reasonable prospect of reaching a fair result through familiar channels of long-accepted legal principles, for example, those grounded on ambiguity in language, the duty to define limitations or exclusions in clear and explicit terms, and interpretation of language from the viewpoint of an ordinary person, not a specialist or expert. See Benzer v. Iowa Mutual Tornado Insurance Ass’n, supra at 388.

Plaintiff’s claim it should be granted relief under the legal doctrines of reasonable expectations, implied warranty and unconscionability should be viewed against the above backdrop.

II. Reasonable expectations.

This court adopted the doctrine of reasonable expectations in Rodman v. State Farm Mutual Ins. Co., 208 N.W.2d 903, 905-908 (Iowa 1973). The Rodman court approved the following articulation of that concept:

“ ‘The objectively reasonable expectations of applicants and intended beneficiaries regarding the terms of insurance contracts will be honored even though painstaking study of the policy provisions would have negated those expectations.’ ”

—208 N.W.2d at 906.

See Gray v. Zurich Insurance Company, 65 Cal.2d 263, 54 Cal.Rptr. 104, 107-108, 419 P.2d 168, 171-172 (1966); Allen v. Metropolitan Life Ins. Co., 44 N.J. 294, 305, 208 A.2d 638, 644 (1965); Restatement (Second) of Contracts, supra, § 237, comments e and f, pp. 540-41; 1 Corbin on Contracts § 1, p. 2 (“That portion of the field of law that is classified and described as the law of contracts attempts the realization of reasonable expectations that have been induced by the making of a promise”); 7 Williston on Contracts § 900, pp. 33-34 (“Some courts, recognizing that very few insureds even try to read and understand the policy or application, have declared that the insured is justified in assuming that the policy which is delivered to him has been faithfully prepared by the company to provide the protection against the risk which he had asked for. Obviously this judicial attitude is a far cry from the old motto ‘caveat emptor.’ ”).

At comment f to § 237 of Restatement (Second) of Contracts, supra pp. 540-41, we find the following analysis of the reasonable expectations doctrine:

“Although customers typically adhere to standardized agreements and are bound by them without even appearing to know the standard terms in detail, they are not bound to unknown terms which are beyond the range of reasonable expectation. A debtor who delivers a check to his creditor with the amount blank does not authorize the insertion of an infinite figure. Similarly, a party who adheres to the other party’s standard terms does not assent to a term if the other party has reason to believe that the adhering party would not have accepted the agreement if he had known that the agreement contained the particular term. Such a belief or assumption may be shown by the prior negotiations or inferred from the circumstances. Reason to believe may be inferred from the fact that the term is bizarre or oppressive, from the fact that it eviscerates the non-standard terms explicitly agreed to, or from the fact that it eliminates the dominant purpose of the transaction. The inference is reinforced if the adhering party never had an opportunity to read the term, or if it is illegible or otherwise hidden from view. This rule is closely related to the policy against unconscionable terms and the rule of interpretation against the draftsman.”

Nor can it be asserted the above doctrine .does not apply here because plaintiff knew the policy contained the provision now complained of and cannot be heard to say it reasonably expected what it knew was not there. A search of the record discloses no such knowledge.

The evidence does show, as above noted, a “dicker” for burglary insurance coverage on chemicals and equipment. The negotiation was for what was actually expressed in the policies’ “Insuring Agreements”: the insurer’s promise “To pay for loss by burglary or by robbery of a watchman, while the premises are not open for business, of merchandise, furniture, fixtures and equipment within the premises.”

In addition, the conversation included statements from which the plaintiff should have understood defendant’s obligation to pay would not arise where the burglary was an “inside job.” Thus the following exclusion should have been reasonably anticipated:

“Exclusions

“This policy does not apply:

* * *

“(b) to loss due to any fraudulent, dishonest or criminal act by any Insured, a partner therein, or an officer, employee, director, trustee or authorized representative thereof

But there was nothing relating to the negotiations with defendant’s agent which would have led plaintiff to reasonably anticipate defendant would bury within the definition of “burglary” another exclusion denying coverage when, no matter how extensive the proof of a third-party burglary, no marks were left on the exterior of the premises. This escape clause, here triggered by the burglar’s talent (an investigating law officer, apparently acquainted with the current modus operandi, gained access to the steel building without leaving any marks by leaning on the overhead plexiglas door while simultaneously turning the locked handle), was never read to or by plaintiff’s personnel, nor was the substance explained by defendant’s agent.

Moreover, the burglary “definition” which crept into this policy comports neither with the concept a layman might have of that crime, nor with a legal interpretation. See State v. Murray, 222 Iowa 925, 931, 270 N.W. 355, 358 (1936) (“We have held that even though the door was partially open, by opening it farther, in order to enter the building, this is a sufficient breaking to comply with the demands of the statute”); State v. Ferguson, 149 Iowa 476, 478-479, 128 N.W. 840, 841-842 (1910) (“It need not appear that this office was an independent building, for it is well known that it is burglary for one to break and enter an inner door or window, although the culprit entered through an open outer door”); see State v. Hougland, 197 N.W.2d 364, 365 (Iowa 1972).

The most plaintiff might have reasonably anticipated was a policy requirement of visual evidence (abundant here) indicating the burglary was an “outside” not an “inside” job. The exclusion in issue, masking as a definition, makes insurer’s obligation to pay turn on the skill of the burglar, not on the event the parties bargained for: a bona-fide third party burglary resulting in loss of plaintiff’s chemicals and equipment.

The “reasonable expectations” attention to the basic agreement, to the concept of substance over form, was appropriately applied by this court for the insurer's benefit in Central Bearings Co. v. Wolverine Insurance Company, 179 N.W.2d 443 (Iowa 1970), a case antedating Rodman. We there reversed a judgment for the insured which trial court apparently grounded on a claimed ambiguity in the policy. In denying coverage on what was essentially a products liability claim where the insured purchased only a “Premises-Operations” policy (without any misrepresentation, misunderstanding or overreaching) we said at page 449 of 179 N.W.2d:

“In summation we think the insured as a reasonable person would understand the policy coverage purchased meant the insured was not covered for loss if the ‘accident’ with concomitant damage to a victim occurred away from the premises and after the operation or sale was complete.”

The same rationale of reasonable expectations should be applied when it would operate to the advantage of the insured. Appropriately applied to this case, the doctrine demands reversal and judgment for plaintiff.

III. Implied warranty.

Plaintiff should also prevail because defendant breached an implied warranty that the policy later delivered would be reasonably fit for its intended purpose: to set out in writing the obligations of the parties (1) without altering or impairing the fair meaning of the protection bargained for when read alone, and (2) in terms that are neither in the particular nor in the net manifestly unreasonable and unfair. See K. Llewellyn, The Common Law Tradition — Deciding Appeals, p. 371.

More than 75 years ago this court, without statutory support, recognized in contracts for sale of tangible property there was a warranty implied by law that the goods sold “were reasonably fit for the purpose for which they were intended.” Alpha Check-Rower Co. v. Bradley, 105 Iowa 537, 547, 75 N.W. 369, 372 (1898). This seminal concept of basic fairness grew by progressive court decisions and statutory enactments into that network of protection which today guards the chattel purchaser from exploitation. See, e. g., Hughes v. National Equipment Corporation, 216 Iowa 1000, 250 N.W. 154 (1933) (statement in written sales contract that it contained the entire agreement did not exclude implied warranty); State Farm Mut. Auto. Ins. Co. v. Anderson-Weber, Inc., 252 Iowa 1289, 110 N.W.2d 449 (1961) (privity of contract defense to breach of warranty repudiated; terms and limitations of fine-print express warranty do not relieve manufacturer or seller from implied warranty obligations); Turner v. Kunde, 256 Iowa 835, 128 N.W.2d 196 (1964) (voiding disclaimer of implied warranty in sales memorandum delivered to buyer after the bargain was made); Dailey v. Holiday Distributing Corporation, 260 Iowa 859, 151 N.W.2d 477 (1967) (fine-print conditions on back of purchase order not brought to buyer’s attention no defense to claim of implied warranty); § 554.1102(3), The Code (“the obligations of good faith, diligence, reasonableness and care prescribed by this chapter may not be disclaimed”); § 554.1201(10) (“Language in the body of a form is ‘conspicuous’ if it is in larger or other contrasting type or color”); § 554.1203 (“Every contract or duty imposes an obligation of good faith in its performance or enforcement”); § 554.2302 (effect of unconscionable contract clauses may be avoided by the court); § 554.2313 (express warranties); §§ 554.2314, 554.2315 (implied warranties); § 554.2316 (writing to exclude implied warranties of merchantability and fitness must be “conspicuous”).

“The final and perhaps most significant characteristic of insurance contracts differentiating them from ordinary, negotiated commercial contract, is the increasing tendency of the public to look upon the insurance policy not as a contract but as a special form of chattel. The typical applicant buys ‘protection’ much as he buys groceries.”

—7 Williston on Contracts § 900, p. 34.

We would be derelict in our duty to administer justice if we were not to judicially know that modern insurance companies have turned to mass advertising to sell “protection.” A person who has been incessantly assured a given company’s policies will afford him complete protection is unlikely to be wary enough to search his policy to find a provision nullifying his burglary protection if the burglar breaks open an inside, but not an outside, door.

There is little justification in depriving purchasers of merchandized “protection” of those remedies long available to purchasers of goods:

“Although implied warranties of fitness for intended purpose have traditionally been attached only to sales of tangible products, there is no reason why they should not be attached to ‘sales of promises’ as well. Whether a product is tangible or intangible, its creator ordinarily has reason to know of the purposes for which the buyer intends to use it, and buyers ordinarily rely on the creator’s skill or judgment in furnishing it. The reasonable consumer for example depends on an insurance agent and insurance company to sell him a policy that ‘works’ for its intended purpose in much the same way that he depends on a television salesman and television manufacturer. In neither case is he likely to be competent to judge the fitness of the product himself; in both, he must rely on common knowledge and the creator’s advertising and promotion.”

—W. Slawson, supra at 546-47.

See also K. Llewellyn, “The Common Law Tradition — Deciding Appeals,” p. 370-71.

Effective imposition of an implied warranty would encourage insurers to make known to insurance buyers those provisions which would limit the implied warranty inherent in the situation. These exclusions would then become part of the initial bargaining. Such provisions, mandated by the Uniform Commercial Code to be “conspicuous” in the sale of goods (§ 554.2316, The Code), should be conspicuously presented by the insurer in the sale of protection. This would be no more difficult than the manner in which they advertise their product’s desirable features. See Henningsen v. Bloomfield Motors, Inc., 32 N.J. 358, 400, 161 A.2d 69, 93 (1960). From a public policy viewpoint, such a requirement (in order to enforce what is essentially an exclusion) might promote meaningful competition among insurers in eliminating technical policy provisions which drain away bargained-for protection. The ultimate benefit would be a chance for knowledgeable selection by insurance purchasers among various coverages.

Recognition of an implied warranty is a small step, if indeed it is any, beyond a concept this court has long articulated in the policy reformation cases. Norem v. Iowa Implement Mut. Ins. Ass’n., 196 Iowa 983, 988, 195 N.W. 725, 727 (1923) (“The insured may generally, at least in taking out insurance, rely upon the company to issue a policy payable to the proper person and in a form to carry out its purpose.” [Emphasis supplied]); Smith v. National Fire Ins. Co., 201 Iowa 363, 367, 207 N.W. 334, 335 (1926) (“The plaintiff was not negligent in not reading the policy”).

Ten years ago this court banished the ancient doctrine of caveat emptor as the polestar for business. Syester v. Banta, 257 Iowa 613, 616, 133 N.W.2d 666, 668 (1965). In Mease v. Fox, 200 N.W.2d 791 (Iowa 1972) we joined a scant handful of courts pioneering the concept that implied warranty relief was not the captive of chattel sales law, but was available to resolve longstanding inequities in the law of dwelling leases. It is now time to provide buyers of protection the same safeguards provided for buyers of personalty and lessees of dwellings.

The policy provided by defendant in this instance breached the implied warranty of fitness for its intended purpose. It altered and impaired the fair meaning of the bargain these parties made for plaintiff’s insurance protection. This law theory further requires reversal of trial court’s decision.

IV. Unconscionability.

Plaintiff is also entitled to a reversal because the liability-avoiding provision in the definition of the burglary is, in the circumstances of this case, unconscionable.

We have already noted the policies were not even before the negotiating persons when the protection was purchased. The fair inference to be drawn from the testimony is that the understanding contemplated only visual evidence of bona-fide burglary to eliminate the risk of an “inside job.”

The policies in question contain a classic example of that proverbial fine print (six point type as compared with the twenty-four point type appearing on the face of the policies: “BROAD FORM STOREKEEPERS POLICY” and “MERCANTILE BURGLARY AND ROBBERY POLICY”) which “becomes visible only after the event.” Such print is additionally suspect when, instead of appearing logically in the “exclusions” of the policies, it poses as a part of an esoteric definition of burglary. A similar contract containing a vast volume of printed conditions neither mentioned nor discussed between the parties once elicited the following comment from this court,

“It is enough at this time to say that, if it be a contract it is like the Apostle’s conception of the human frame, ‘fearfully and wonderfully made,’ and one upon the construction and effect of which a competent and experienced lawyer may spend days of careful study, without exhausting its possibilities.”

—New Prague Flouring Mill Co. v. Spears, 194 Iowa 417, 438-39, 189 N.W. 815, 824 (1922).

The situation before us plainly justifies application of the unconscionability doctrine:

“Standardized contracts such as insurance policies, drafted by powerful commercial units and put before individuals on the ‘accept this or get nothing’ basis, are carefully scrutinized by the courts for the purpose of avoiding enforcement of ‘unconscionable’ clauses.”

—6A Corbin on Contracts § 1376, p. 21.

The rule of selective elimination of unconscionable provisions is articulated in the tentative draft of the Restatement (Second) of Contracts, supra § 234, p. 528:

Ҥ 234. Unconscionable Contract or Term

“If a contract or term thereof is unconscionable at the time the contract is made a court may refuse to enforce the contract, or may enforce the remainder of the contract without the unconscionable term, or may so limit the application of any unconscionable term as to avoid any unconscionable result.”

The following statement appears in comment “a. Scope:

“Particularly in the case of standardized agreements, the rule of this Section permits the court to pass directly on the unconscionability of the contract or clause rather than to avoid unconscionable results by interpretation.”

Comment “d. Weakness in the bargaining process” incorporates the following observation,

“[G]ross inequality of bargaining power, together with terms unreasonably favorable to the stronger party, may confirm indications that the transaction involved elements of deception or compulsion, or may show that the weaker party had no meaningful choice, no real alternative, or did not in fact assent or appear to assent to the unfair terms.”

The resources of a court to avoid unconscionable provisions are not exhausted after a determination of inapplicability of the contra proferentum rule: “Even in such a case, the court may refuse to enforce an unconscionable provision and may give such remedy as justice requires. A contractor may defeat his own ends by the use of complex printed forms devised with intent to get the most and to give the least.” 3 Corbin on Contracts § 559, pp. 270-71. See Campbell Soup Co. v. Wentz, 172 F.2d 80 (3 Cir. 1948); Henningsen v. Bloomfield Motors, Inc., supra; § 554.2302, The Code.

The following reference to the Henningsen court and to the unconscionability relief in the commercial code (§ 554.2302, The Code) appears in Grismore, supra, § 294, pp. 508-509:

“After an extensive discussion of some of the cases, the court took the forthright position that the attempted disclaimer in the instant case was ‘so inimical to the public good as to compel an adjudication of its invalidity.’ This court said what it meant instead of .interpreting or constructing its way to the just result. This frontier decision may help to guide other courts to add to the development of a doctrine of unconscionability which will gain the necessary certainty by the traditional process of case-by-case adjudication.

“Adding to the probability that unconscionability will be the stated basis for refusing to enforce oppressive contracts or provisions in the future is the Uniform Commercial Code provision which permits courts to police contracts on this basis. [T]he section is an express recognition of the basic principle. Though the Code is technically applicable only to contracts for the sale of goods, its influence cannot help but be felt in other types of transactions so that most of our courts can say what they mean in refusing to enforce harsh contracts or provisions. Those who would obstruct the development of the unconscionability concept on grounds of uncertainty, indefiniteness and judicial lawmaking, must be characterized as misunderstanding the dynamic nature of the common law and statutory interpretation.”

The Iowa court quoted extensively from Henningsen and adopted its sound reasoning in State Farm Mut. Auto. Ins. Co. v. Anderson-Weber, Inc., supra.

A policy of relying solely on traditional techniques of construction in an effort to avoid the effect of unconscionable provisions ultimately compounds the problem:

“First, since they [such techniques] all rest on the admission that the clauses in question are permissible in purpose and content, they invite the draftsman to recur to the attack. Give him time, and he will make the grade. Second, since they do not face the issue, they fail to accumulate either experience or authority in the needed direction: that of making out for any given type of transaction what the minimum decencies are which a court will insist upon as essential to an enforceable bargain of a given type, or as being inherent in a bargain of that type. Third, since they purport to construe, and do not really construe, nor are intended to they seriously embarrass later efforts to get at the true meaning of those wholly legitimate contracts and clauses which call for their meaning to be got at instead of avoided.”

—Llewellyn, Book Review, 52 Harv.L. Rev. 700, 703 (1939).

See Note, supra, 45 Iowa L.Rev. at 845^6 (1960). In the same vein, see 3 Corbin on Contracts § 561, p. 279:

“[A] better brand of justice may be delivered by a court that is clearly conscious of its own processes, than by one that states hard-bitten traditional rules and doctrines and then attains an instinctively felt justice by an avoidance of them that is only half-conscious, accompanied by an extended exegesis worthy of a medieval theologian.”

It should be observed that even less justice is attained where, as here, trial court simply stopped with the hard-bitten rules.

Commentators suggest a court considering a claim of unconscionability should examine the factors of assent, unfair surprise, notice, disparity of bargaining power and substantive unfairness. W. Slawson, supra at 564, and citations, n. 79. We have already touched on those considerations in the factual discussions, above. In addition, it would seem appropriate, in every trial when the unconscionability of a contractual provision is a viable issue, to permit either party the right granted by § 554.2302(2), The Code:

“When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose and effect to aid the court in making the determination.”

In the case sub judice, plaintiff’s evidence demonstrated the definitional provision was unconscionable. Defendant never offered any evidence, let alone evidence which might support a conclusion the provision in issue, considered in its commercial setting, was either a reasonable limitation on the protection it offered or should have been reasonably anticipated by plaintiff.

Trial court’s decision must be reversed because the above provision is unconscionable in view of all the circumstances, including the initial negotiations of these parties.

We reverse and remand for judgment in conformance herewith.

Reversed and remanded.

HARRIS and McCORMICK, JJ., concur.

MASON and RAWLINGS, JJ., concur in Divisions I, II and IV and the result.

LeGRAND, J., MOORE, C. J., and REES and UHLENHOPP, JJ., dissent.

LeGRAND, Justice

(dissenting).

I dissent from the result reached by the majority because it ignores virtually every rule by which we have heretofore adjudicated such cases and affords plaintiff ex post facto insurance coverage which it not only did not buy but which it knew it did not buy.

The majority revokes, at least for this case, the principle that in law cases tried to the court the findings are binding on us if supported by substantial evidence and that we view the evidence in its most favorable light to sustain rather than defeat those findings. Long v. Glidden Mutual Insurance Association, 215 N.W.2d 271, 272 (Iowa 1974). It does so by characterizing them as erroneously applied conclusions of law rather than findings of fact, although I find this clearly contrary to prior authority. Brammer v. Allied Mutual Insurance Company, 182 N.W.2d 169, 172, 173 (Iowa 1970); Iowa-Des Moines National Bank v. Insurance Company of North America, (8th Cir. 1972), 459 F.2d 650, 653, 654; see also Rule 344(f)(1, 14, 17), Rules of Civil Procedure.

The result reached directly contravenes our previous decisions, particularly Long v. Glidden, supra, where we felt bound to hon- or the trial court’s findings that a loss had been shown under a theft policy. This court was divided 5 to 3 on that issue, with the dissenters arguing there was a total lack of evidence to support the trial court.

I concurred in the Long case for the same reason I dissent here. I could not say there, and I cannot say now, the trial court’s findings lacked substantial support on the disputed facts in either case.

It is interesting to note in Long our decision was bottomed on the failure of the policy to define “theft” and we therefore felt justified in giving it the “general and broad connotation” it usually has. In the present case “burglary” is clearly and unambiguously defined; but now the majority complains because it’s in the wrong place and in the wrong size type — this despite the universal rule of construction that a policy of insurance must be read and construed in its entirety. Hoefler v. Farm & City Insurance Company, 193 N.W.2d 538, 540 (Iowa 1972); Stover v. State Farm Mutual Insurance Company, 189 N.W.2d 588, 591 (Iowa 1971); Iowa-Des Moines National Bank v. Insurance Company of North America, supra, 459 F.2d at 650; Mallinger v. State Farm Mutual Auto Insurance Company, 253 Iowa 222, 226, 111 N.W.2d 647, 651 (1961); Lichtentag v. Millers National Fire Insurance Company of Texas, 250 So.2d 105, 107 (C.A.La.1971).

While it may be very well to talk in grand terms about “mass advertising” by insurance companies and “incessant” assurances as to coverage which mislead the “unwary,” particularly about “fine-print” provisions, such discussion should somehow be related to the case under review. Our primary duty, after all, is to resolve this dispute for these litigants under this record.

There is total silence in this case concerning any of the practices the majority finds offensive; nor is there any claim plaintiff was beguiled by such conduct into believing it had more protection than it actually did.

The record is even stronger against the majority’s fine-print argument, the stereotype accusation which serves as a coup de grace in all insurance cases. Except for larger type on the face sheet and black (but not larger) print to designate divisions and sub-headings, the entire policies are of one size and style of print. To compare the face sheet with the body of the policy is like comparing a book’s jacket cover with the narrative content; and the use of black type or other means of emphasis to separate one part of an instrument from another is an approved editorial expedient which serves to assist, not hinder, readability. In fact many of our opinions, including that of the majority in the instant case, resort to that device.

Tested by any objective standard, the size and style of type used cannot be fairly described as “fine print.” The majority’s description, right or wrong, of the plight of consumers generally should not be the basis for resolving the case now before us.

Like all other appeals, this one should be decided on what the record discloses — a fact which the majority concedes but promptly disregards.

Crucial to a correct determination of this appeal is the disputed provision of each policy defining burglary as “the felonious abstraction of insured property by a person making felonious entry by actual force and violence, of which force and violence there are visible marks made by tools, explosives, electricity or chemicals upon, or physical damage to, the exterior of the premises at the place of such entry. The starting point of any consideration of that definition is a determination whether it is ambiguous. Yet the majority does not even mention ambiguity.

The purpose of such a provision, of course, is to omit from coverage “inside jobs” or those resulting from fraud or complicity by the assured. The overwhelming weight of authority upholds such provisions as legitimate in purpose and unambiguous in application. Annot. 99 A.L.R.2d 129, 134 (1965); 44 Am.Jur.2d Insurance § 1400, § 1401 (1969); 10 Couch Cyclopedia of Insurance Law (2d Ed.) 42:128-42:1.30 (1962); 5 Appleman Insurance Law and Practice § 3176, § 3177; Lichtentag v. Millers Mutual Fire Insurance Company, 250 So.2d 105, 107 (C.A.La.1971); Johnson v. Pacific Indemnity Company, (1966), 242 Cal.App.2d 878, 52 Cal.Rptr. 76, 79; Offutt v. Liberty Mutual Insurance Company, 251 Md. 262, 247 A.2d 272, 276 (1968); Hazuka v. Maryland Casualty Company, 183 Neb. 336, 160 N.W.2d 174, 178 (1968); Swanson, Inc. v. Central Surety & Insurance Corporation, 343 Mo. 350, 121 S.W.2d 783, 786 (1938); Blank v. National Surety Company, 181 Iowa 648, 650, 651, 165 N.W. 46, 47 (1917).

Once this indisputable fact is recognized, plaintiff’s arguments virtually collapse. We may not — at least we should not — by any accepted standard of construction meddle with contracts which clearly and plainly state their meaning simply because we dislike that meaning, even in the case of insurance policies. Stover v. State Farm Mutual Insurance Corporation, 189 N.W.2d 588, 591 (Iowa 1971); Hein v. American Family Mutual Insurance Company, 166 N.W.2d 363, 366 (Iowa 1969); Mallinger v. State Farm Mutual Insurance Company, 253 Iowa 222, 226, 111 N.W.2d 647, 651 (1961); Wenthe v. Hospital Service, Inc., 251 Iowa 765, 768, 100 N.W.2d 903, 905 (1960); Hiatt v. Travelers Insurance Company, 197 Iowa 153, 156, 197 N.W. 3, 4, 33 A.L.R. 655 (1924).

Nor can the doctrine of reasonable expectations be applied here. We adopted that rule in Rodman v. State Farm Mutual Automobile Insurance Company, 208 N.W.2d 903, 906, 907 (Iowa 1973). We refused, however to apply it in that case, where we said:

“The real question here is whether the principle of reasonable expectations should be extended to cases where an ordinary layman would not misunderstand his coverage from a reading of the policy and where there are no circumstances attributable to the insurer which foster coverage expectations. Plaintiff does not contend he misunderstood the policy. He did not read it. He now asserts in retrospect that if he had read it he would not have understood it. He does not say he was misled by conduct or representations of the insurer. He simply asked trial court to rewrite the policy to cover his loss because if he had purchased his automobile insurance from another company the loss would have been covered, he did not know it was not covered, and if he had known it was not covered he would have purchased a different policy. Trial court declined to do so. We believe trial court correctly refused in these circumstances to extend the principle of reasonable expectations to impose liability.”

Yet here the majority would extend the doctrine far beyond the point of refusal in Rodman. Here we have affirmative and unequivocal testimony from an officer and director of the plaintiff corporation that he knew the disputed provision was in the policies because “it was just like the insurance policy I have on my farm.”

I cannot agree plaintiff may now assert it reasonably expected from these policies something it knew was not there.

These same observations should dispose of plaintiff’s claim of implied warranty, a theory incidentally for which there is no case authority at all. The majority apparently seeks to bring insurance contracts within the ambit of the Uniform Commercial Code governing sales of goods. I believe the definitional section of the Code itself precludes that notion. See § 554.2105, The Code. This should put an end to the majority’s argument that buying insurance protection is the same as buying groceries. The complete absence of support from other jurisdictions would also suggest it is indefensible. At least it has done so to some courts. See Drabbels v. Skelly Oil Company, 155 Neb. 17, 50 N.W.2d 229, 231 (Neb.1951).

The remaining ground upon which the majority invalidates the policies — unconscionability — has also been disavowed by the great majority of courts which have decided the question, usually in connection with public policy considerations. See Scanlon v. Western Fire Insurance Company, 4 Mich.App. 234, 144 N.W.2d 677, 679 (1966); Artess v. State Farm Fire & Casualty Company, 429 S.W.2d 430, 433 (Tenn.1968); Limberis v. Aetna Casualty & Surety Company, 263 A.2d 83, 86 (Maine 1970); Abrams v. National Fire Insurance Company, 186 A.2d 232, 233 (D.C.Mun.App.1962); Johnson v. Pacific Indemnity Company, 52 Cal.Rptr. 76, 79, 242 Cal.App.2d 878 (1966); Lichentag v. Millers Mutual Fire Insurance Company of Texas, 250 So.2d 105, 107 (C.A. La.1971); Klein & Brown, Inc. v. Fidelity & Deposit Company of Maryland, 59 Misc.2d 395, 299 N.Y.S.2d 298, 301-302 (1969); Offutt v. Liberty Mutual Insurance Company, 251 Md. 262, 247 A.2d 272 (1968); Hazuka v. Maryland Casualty Company, 183 Neb. 336, 160 N.W.2d 174, 177, 178 (1968).

For these several reasons — the principal one being that the findings of the trial court have substantial evidentiary support — I would affirm the judgment.

MOORE, C. J., and REES and UHLENHOPP, JJ., join this dissent.

MORIN BUILDING PRODUCTS COMPANY, INC., Plaintiff-Appellee, v. BAYSTONE CONSTRUCTION, INC., Defendant-Appellant.

No. 82-2451.

United States Court of Appeals, Seventh Circuit.

Argued May 12, 1983.

Decided Sept. 16, 1983.

Alan H. Lobley, Ice, Miller, Donadio & Ryan, Indianapolis, Ind., for defendant-appellant.

Craig Pinkus, Mitchell, Hurst, Pinkus, Jacobs & Dick, Indianapolis, Ind., for plaintiff-appellee.

Before POSNER and COFFEY, Circuit Judges, and FAIRCHILD, Senior Circuit Judge.

POSNER, Circuit Judge.

This appeal from a judgment for the plaintiff in a diversity suit requires us to interpret Indiana’s common law of contracts. General Motors, which is not a party to this case, hired Baystone Construction, Inc., the defendant, to build an addition to a Chevrolet plant in Muncie, Indiana. Bay-stone hired Morin Building Products Company, the plaintiff, to supply and erect the aluminum walls for the addition. The contract required that the exterior siding of the walls be of “aluminum type 3003, not less than 18 B & S gauge, with a mill finish and stucco embossed surface texture to match finish and texture of existing metal siding.” The contract also provided “that all work shall be done subject to the final approval of the Architect or Owner’s [General Motors’] authorized agent, and his decision in matters relating to artistic effect shall be final, if within the terms of the Contract Documents”; and that “should any dispute arise as to the quality or fitness of materials or workmanship, the decision as to acceptability shall rest strictly with the Owner, based on the requirement that all work done or materials furnished shall be first class in every respect. What is usual or customary in erecting other buildings shall in no wise enter into any consideration or decision.”

Morin put up the walls. But viewed in bright sunlight from an acute angle the exterior siding did not give the impression of having a uniform finish, and General Motors’ representative rejected it. Bay-stone removed Morin’s siding and hired another subcontractor to replace it. General Motors approved the replacement siding. Baystone refused to pay Morin the balance of the contract price ($23,000) and Morin brought this suit for the balance, and won.

The only issue on appeal is the correctness of a jury instruction which, after quoting the contractual provisions requiring that the owner (General Motors) be satisfied with the contractor’s (Morin’s) work, states: “Notwithstanding the apparent finality of the foregoing language, however, the general rule applying to satisfaction in the case of contracts for the construction of commercial buildings is that the satisfaction clause must be determined by objective criteria. Under this standard, the question is not whether the owner was satisfied in fact, but whether the owner, as a reasonable person, should have been satisfied with the materials and workmanship in question.” There was much evidence that General Motors’ rejection of Morin’s exterior siding had been totally unreasonable. Not only was the lack of absolute uniformity in the finish of the walls a seemingly trivial defect given the strictly utilitarian purpose of the building that they enclosed, but it may have been inevitable; “mill finish sheet” is defined in the trade as “sheet having a nonuniform finish which may vary from sheet to sheet and within a sheet, and may not be entirely free from stains or oil.” If the instruction was correct, so was the judgment. But if the instruction was incorrect — if the proper standard is not whether a reasonable man would have been satisfied with Morin’s exterior siding but whether General Motors’ authorized representative in fact was — then there must be a new trial to determine whether he really was dissatisfied, or whether he was not and the rejection therefore was in bad faith.

Some cases hold that if the contract provides that the seller’s performance must be to the buyer’s satisfaction, his rejection— however unreasonable — of the seller’s performance is not a breach of the contract unless the rejection is in bad faith. See, e.g., Stone Mountain Properties, Ltd. v. Helmer, 139 Ga.App. 865, 869, 229 S.E.2d 779, 783 (1976). But most cases conform to the position stated in section 228 of the Restatement (Second) of Contracts (1979): if “it is practicable to determine whether a reasonable person in the position of the obligor would be satisfied, an interpretation is preferred under which the condition [that the obligor be satisfied with the obligee’s performance] occurs if such a reasonable person in the position of the obligor would be satisfied.” See Farnsworth, Contracts 556-59 (1982); Annot., 44 A.L.R.2d 1114, 1117, 1119-20 (1955). Indiana Tri-City Plaza Bowl, Inc. v. Estate of Glueck, 422 N.E.2d 670, 675 (Ind.App.1981), consistently with hints in earlier Indiana cases, see Andis v. Personett, 108 Ind. 202, 206, 9 N.E. 101, 103 (1886); Semon, Bache & Co. v. Coppes, Zook & Mutschler Co., 35 Ind.App. 351, 355, 74 N.E. 41, 43 (1905), adopts the majority position as the law of Indiana.

We do not understand the majority position to be paternalistic; and paternalism would be out of place in a case such as this, where the subcontractor is a substantial multistate enterprise. The requirement of reasonableness is read into a contract not to protect the weaker party but to approximate what the parties would have expressly provided with respect to a contingency that they did not foresee, if they had foreseen it. Therefore the requirement is not read into every contract, because it is not always a reliable guide to the parties’ intentions. In particular, the presumption that the performing party would not have wanted to put himself at the mercy of the paying party’s whim is overcome when the nature of the performance contracted for is such that there are no objective standards to guide the court. It cannot be assumed in such a case that the parties would have wanted a court to second-guess the buyer’s rejection. So “the reasonable person standard is employed when the contract involves commercial quality, operative fitness, or mechanical utility which other knowledgeable persons can judge .... The standard of good faith is employed when the contract involves personal aesthetics or fancy.” Indiana Tri-City Plaza Bowl, Inc. v. Estate of Glueck, supra, 422 N.E.2d at 675; see also Action Engineering v. Martin Marietta Aluminum, 670 F.2d 456, 460-61 (3d Cir.1982).

We have to decide which category the contract between Baystone and Morin belongs in. The particular in which Morin’s aluminum siding was found wanting was its •appearance, which may seem quintessentially a matter of “personal aesthetics,” or as the contract put it, “artistic effect.” But it is easy to imagine situations where this would not be so. Suppose the manager of a steel plant rejected a shipment of pig iron because he did not think the pigs had a pretty shape. The reasonable-man standard would be applied even if the contract had an “acceptability shall rest strictly with the Owner” clause, for it would be fantastic to think that the iron supplier would have subjected his contract rights to the whimsy of the buyer’s agent. At the other extreme would be a contract to paint a portrait, the buyer having reserved the right to reject the portrait if it did not satisfy him. Such a buyer wants a portrait that will please him rather than a jury, even a jury of connoisseurs, so the only question would be his good faith in rejecting the portrait. Gibson v. Cranage, 39 Mich. 49 (1878).

This case is closer to the first example than to the second. The building for which the aluminum siding was intended was a factory — not usually intended to be a thing of beauty. That aesthetic considerations were decidedly secondary to considerations of function and cost is suggested by the fact that the contract specified mill-finish aluminum, which is unpainted. There is much debate in the record over whether it is even possible to ensure a uniform finish within and among sheets, but it is at least clear that mill finish usually is not uniform. If General Motors and Baystone had wanted a uniform finish they would in all likelihood have ordered a painted siding. Whether Morin’s siding achieved a reasonable uniformity amounting to satisfactory commercial quality was susceptible of objective judgment; in the language of the Restatement, a reasonableness standard was “practicable.”

But this means only that a requirement of reasonableness would be read into this contract if it contained a standard owner’s satisfaction clause, which it did not; and since the ultimate touchstone of decision must be the intent of the parties to the contract we must consider the actual language they used. The contract refers explicitly to “artistic effect,” a choice of words that may seem deliberately designed to put the contract in the “personal aesthetics” category whatever an outside observer might think. But the reference appears as number 17 in a list of conditions in a general purpose form contract. And the words “artistic effect" are immediately followed by the qualifying phrase, “if within the terms of the Contract Documents,” which suggests that the “artistic effect” clause is limited to contracts in which artistic effect is one of the things the buyer is aiming for; it is not clear that he was here. The other clause on which Baystone relies, relating to the quality or fitness of workmanship and materials, may seem all-encompassing, but it is qualified by the phrase, “based on the requirement that all work done or materials furnished shall be first class in every respect” — and it is not clear that Morin’s were not. This clause also was not drafted for this contract; it was incorporated by reference to another form contract (the Chevrolet Division’s “Contract General Conditions”), of which it is paragraph 35. We do not disparage form contracts, without which the commercial life of the nation would grind to a halt. But we are left with more than a suspicion that the artistic-effect and quality-fitness clauses in the form contract used here were not intended to cover the aesthetics of a mill-finish aluminum factory wall.

If we are right, Morin might prevail even under the minority position, which makes good faith the only standard but presupposes that the contract conditioned acceptance of performance on the buyer’s satisfaction in the particular respect in which he was dissatisfied. Maybe this contract was not intended to allow General Motors to reject the aluminum siding on the basis of artistic effect. It would not follow that the contract put Morin under no obligations whatsoever with regard to uniformity of finish. The contract expressly required it to use aluminum having “a mill finish ... to match finish ... of existing metal siding.” The jury was asked to decide whether a reasonable man would have found that Morin had used aluminum sufficiently uniform to satisfy the matching requirement. This was the right standard if, as we believe, the parties would have adopted it had they foreseen this dispute. It is unlikely that Morin intended to bind itself to a higher and perhaps unattainable standard of achieving whatever perfection of matching that General Motors’ agent insisted on, or that General Motors would have required Baystone to submit to such a standard. Because it is difficult — maybe impossible — to achieve a uniform finish with mill-finish aluminum, Morin would have been running a considerable risk of rejection if it had agreed to such a condition, and it therefore could have been expected to demand a compensating increase in the contract price. This would have required General Motors to pay a premium to obtain a freedom of action that it could not have thought terribly important, since its objective was not aesthetic. If a uniform finish was important to it, it could have gotten such a finish by specifying painted siding.

All this is conjecture; we do not know how important the aesthetics were to General Motors when the contract was signed or how difficult it really would have been to obtain the uniformity of finish it desired. The fact that General Motors accepted the replacement siding proves little, for there is evidence that the replacement siding produced the same striped effect, when viewed from an acute angle in bright sunlight, that Morin’s had. When in doubt on a difficult issue of state law it is only prudent to defer to the view of the district judge, Murphy v. White Hen Pantry Go., 691 F.2d 350, 354 (7th Cir.1982), here an experienced Indiana lawyer who thought this the type of contract where the buyer cannot unreasonably withhold approval of the seller’s performance.

Lest this conclusion be thought to strike at the foundations of freedom of contract, we repeat that if it appeared from the language or circumstances of the contract that the parties really intended General Motors to have the right to reject Morin’s work for failure to satisfy the private aesthetic taste of General Motors’ representative, the rejection would have been proper even if unreasonable. But the contract is ambiguous because of the qualifications with which the terms “artistic effect” and “decision as to acceptability” are hedged about, and the circumstances suggest that the parties probably did not intend to subject Morin’s rights to aesthetic whim.

Affirmed.

[No. B092824.

Second Dist., Div. Three.

Aug. 26, 1997.]

SONDRA LOCKE et al., Plaintiffs and Appellants, v. WARNER BROS., INC., Defendant and Respondent.

Counsel

Peggy Garrity for Plaintiffs and Appellants.

O’Melveny & Myers, M. Randall Oppenheimer, Robert M. Schwartz and Nancy E. Sussman for Defendant and Respondent.

Opinion

KLEIN, P. J.

Plaintiffs and appellants Sondra Locke (Locke) and Caritas Films, a California corporation (Caritas) (sometimes collectively referred to as Locke) appeal a judgment following a grant of summary judgment in favor of defendant and respondent Warner Bros., Inc. (Warner).

The essential issue presented is whether triable issues of material fact are present which would preclude summary judgment.

We conclude triable issues are present with respect to whether Warner breached its development deal with Locke by categorically refusing to work with her, and whether Warner fraudulently entered into said agreement without the intention to work with Locke. The judgment therefore is reversed as to the second and fourth causes of action and otherwise is affirmed.

Factual and Procedural Background

1. Locke’s dispute with Eastwood.

In 1975, Locke came to Warner to appear with Clint Eastwood in The Outlaw Josey Wales (Warner Bros. 1976). During the filming of the movie, Locke and Eastwood began a personal and romantic relationship. For the next dozen years, they lived in Eastwood’s Los Angeles and Northern California homes. Locke also appeared in a number of Eastwood’s films. In 1986, Locke made her directorial debut in Ratboy (Warner Bros. 1986).

In 1988, the relationship deteriorated, and in 1989 Eastwood terminated it. Locke then brought suit against Eastwood, alleging numerous causes of action. That action was resolved by a November 21, 1990, settlement agreement and mutual general release. Under said agreement, Eastwood agreed to pay Locke additional compensation in the sum of $450,000 “on account of past employment and Locke’s contentions” and to convey certain real property to her.

2. Locke’s development deal with Warner.

According to Locke, Eastwood secured a development deal for Locke with Warner in exchange for Locke’s dropping her case against him. Contemporaneously with the Locke/Eastwood settlement agreement, Locke entered into a written agreement with Warner, dated November 27, 1990. It is the Locke/Warner agreement which is the subject of the instant controversy.

The Locke/Warner agreement had two basic components. The first element states Locke would receive $250,000 per year for three years for a “non-exclusive first look deal.” It required Locke to submit to Warner any picture she was interested in developing before submitting it to any other studio. Warner then had 30 days either to approve or reject a submission.

The second element of the contract was a $750,000 “pay or play” directing deal. The provision is called “pay or play” because it gives the studio a choice: It can either “play” the director by using the director’s services, or pay the director his or her fee.

Unbeknownst to Locke at the time, Eastwood had agreed to reimburse Warner for the cost of her contract if she did not succeed in getting projects produced and developed. Early in the second year of the three-year contract, Warner charged $975,000 to an Eastwood film, Unforgiven (Warner Bros. 1992).

Warner paid Locke the guaranteed compensation of $1.5 million under the agreement. In accordance with the agreement, Warner also provided Locke with an office on the studio lot and an administrative assistant. However, Warner did not develop any of Locke’s proposed projects or hire her to direct any films. Locke contends the development deal was a sham, that Warner never intended to make any films with her, and that Warner’s sole motivation in entering into the agreement was to assist Eastwood in settling his litigation with Locke.

3. Locke’s action against Warner.

On March 10, 1994, Locke filed suit against Warner, alleging four causes of action.

The first cause of action alleged sex discrimination in violation of public policy. Locke alleged Warner denied her the benefit of the bargain of the development deal on account of her gender.

The third cause of action, captioned “Tortious Breach of the Implied Covenant of Good Faith and Fair Dealing in Violation of Public Policy,” alleged a similar claim. Locke pled that in denying her the benefits of the Warner/Locke agreement, Warner was “motivated by [its] discriminatory bias against women in violation of . . . public policy.”1

The second cause of action alleged that Warner breached the contract by refusing to consider Locke’s proposed projects and thereby deprived her of the benefit of the bargain of the Warner/Locke agreement.

Lastly, the fourth cause of action alleged fraud. Locke pled that at the time Warner entered into the agreement with her, it concealed and failed to disclose it had no intention of honoring the agreement.

Warner answered, denied each and every allegation and asserted various affirmative defenses.

4. Warner’s motion for summary judgment and opposition thereto.

On January 6, 1995, Warner filed a motion for summary judgment. Warner contended it did not breach its contract with Locke because it did consider all the projects she presented, and the studio’s decision not to put any of those projects into active development or “hand” Locke a script which it already owned was not a breach of any express or implied contractual duty. Warner asserted the odds are slim a producer can get a project into development and even slimmer a director will be hired to direct a film. During the term of Locke’s deal, Warner had similar deals with numerous other producers and directors, who fared no better than Locke.

As for Locke’s sex discrimination claims, Warner averred there was no evidence it ignored Locke’s projects or otherwise discriminated against her on account of her gender. Finally, Warner urged the fraud claim was meritless because Locke had no evidence that when Warner signed the contract, it did not intend to honor the deal, and moreover, Warner had fulfilled its contractual obligations to Locke.

In opposing summary judgment, Locke contended Warner breached the agreement in that it had no intention of accepting any project regardless of its merits. Locke also asserted Warner committed fraud by entering into the agreement without any intention of approving any project with Locke or allowing Locke to direct another film.

Locke’s opposition papers cited the deposition testimony of Joseph Terry, who recounted a conversation he had with Bob Brassel, a Warner executive, regarding Locke’s projects. Terry had stated to Brassel: “ ‘Well, Bob, this woman has a deal on the lot. She’s a director that you want to work with. You have a deal with her. . . . I’ve got five here that she’s interested in.’ [¶] And then I would get nothing. [¶] ... [¶] I was told [by Brassel], ‘Joe, we’re not going to work with her,’ and then, ‘That’s Clint’s deal.’ And that’s something I just completely did not understand.”

Similarly, the declaration of Mary Wellnitz stated: She worked with Locke to set up projects at Warner, without success. Shortly after she began her association with Locke, Wellnitz submitted a script to Lance Young, who at the time was a senior vice-president of production at Warner. After discussing the script, Young told Wellnitz, “Mary, I want you to know that I think Sondra is a wonderful woman and very talented, but, if you think I can go down the hall and tell Bob Daly that I have a movie I want to make with her he would tell me to forget it. They are not going to make a movie with her here.”

5. Trial court’s ruling.

On February 17, 1995, the trial court granted summary judgment in favor of Warner. Thereafter, the trial court signed an extensive order granting summary judgment. The order stated:

“Under the contract, Warner had no obligation either to put into development any of the projects submitted to the studio for its consideration, or to ‘hand off’ to Locke any scripts for her to direct that it previously had acquired from someone else. The implied covenant of good faith and fair dealing cannot be imposed to create a contract different from the one the parties negotiated for themselves. Warner had the option to pass on each project Locke submitted. Warner was not required to have a ‘good faith’ or ‘fair’ basis for declining to exercise its right to develop her material. Such a requirement would be improper and unworkable. A judge or jury cannot and should not substitute its judgment for a film studio’s when the studio is making the creative decision of whether to develop or produce a proposed motion picture. Such highly subjective artistic and business decisions are not proper subjects for judicial review. Moreover, Warner had legitimate commercial and artistic reasons for declining to develop the projects Locke submitted.”

With respect to Locke’s claim she was defrauded by Warner when it entered into the agreement with the undisclosed intention not to honor its contractual obligations, the trial court ruled that because Warner did not breach its contractual obligations to Locke, the fraud claim was meritless. Also, it could not be inferred from the statements by Young and Brassel that two years earlier, when Warner entered into agreement, it had no intention of working with Locke.

As for the two causes of action alleging sex discrimination, the trial court found no evidence Warner declined to develop the projects Locke submitted, and declined to use her directing services, on account of her gender.

Locke filed a timely notice of appeal from the judgment.

Contentions

Locke contends: The trial court erred by granting Warner’s motion for summary judgment based on its conclusion there were no disputed issues of material fact; the trial court erred in weighing the evidence, resolving doubts against Locke, the nonmoving party, and adopting only those inferences favorable to Warner where the evidence supported contrary inferences; and the trial court committed reversible error first by failing to make any findings or evidentiary rulings and then by adopting Warner’s defective ruling.

Discussion

1. Standard of appellate review.

As we recently stated in PMC, Inc. v. Saban Entertainment, Inc. (1996) 45 Cal.App.4th 579, 590 [52 Cal.Rptr.2d 877], summary judgment “motions are to expedite litigation and eliminate needless trials. [Citation.] They are granted ‘if all the papers submitted show that there is no triable issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.’ [Citations.]”

A defendant meets its burden upon such a motion if it negates an essential element of the plaintiff’s cause of action, or establishes a complete defense, or if it demonstrates the absence of evidence to support the plaintiff’s case. Once the moving defendant has met its initial burden, the burden shifts to the plaintiff to show that a triable issue of one or more material facts exists. (PMC, Inc. v. Saban Entertainment, Inc., supra, 45 Cal.App.4th at p. 590; Leslie G. v. Perry & Associates (1996) 43 Cal.App.4th 472, 482 [50 Cal.Rptr.2d 785].)

On appeal, “we exercise ‘an independent assessment of the correctness of the trial court’s ruling, applying the same legal standard as the trial court . . . .’ [Citations.] ‘[W]e construe the moving party’s affidavits strictly, construe the opponent’s affidavits liberally, and resolve doubts about the propriety of granting the motion in favor of the party opposing it.’ [Citations.]” (PMC, Inc., v. Saban Entertainment, Inc., supra, 45 Cal.App.4th at p. 590.)

Our review is guided by the foregoing principles.2

2. A triable issue exists as to whether Warner breached its contract with Locke by failing to evaluate Locke’s proposals on their merits.

As indicated, the second cause of action alleged Warner breached the contract by “refusing to consider the projects prepared by [Locke] and depriving [Locke] of the benefit of the bargain of the Warner-Locke agreement.”3

In granting summary judgment on this claim, the trial court ruled “[a] judge or jury cannot and should not substitute its own judgment for a film studio’s when the studio is making the creative decision of whether to develop or produce a proposed motion picture. Such highly-subjective artistic and business decisions are not proper subjects for judicial review.”

The trial court’s ruling missed the mark by failing to distinguish between Warner’s right to make a subjective creative decision, which is not reviewable for reasonableness, and the requirement the dissatisfaction be bona fide or genuine.

a. General principles.

“‘[W]here a contract confers on one party a discretionary power affecting the rights of the other, a duty is imposed to exercise that discretion in good faith and in accordance with fair dealing.’ [Citations.]” (Perdue v. Crocker National Bank (1985) 38 Cal.3d 913, 923 [216 Cal.Rptr. 345, 702 P.2d 503]; accord, Kendall v. Ernest Pestana, Inc. (1985) 40 Cal.3d 488, 500 [220 Cal.Rptr. 818, 709 P.2d 837].) It is settled that in “ ‘every contract there is an implied covenant that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract. . . .’” (Kendall, supra, at p. 500; accord, Waller, v. Truck Ins. Exchange, Inc., supra, 11 Cal.4th at p. 36.)

Therefore, when it is a condition of an obligor’s duty that he or she be subjectively satisfied with respect to the obligee’s performance, the subjective standard of honest satisfaction is applicable. (1 Witkin, Summary of Cal. Law (9th ed. 1987) Contracts, § 729, p. 659; Rest.2d Contracts, § 228, corns, a, b, pp. 182-183.) “Where the contract involves matters of fancy, taste or judgment, the promisor is the sole judge of his satisfaction. If he asserts in good faith that he is not satisfied, there can be no inquiry into the reasonableness of his attitude. [Citations.] [¶] Traditional examples are employment contracts . . . and agreements to paint a portrait, write a literary or scientific article, or produce a play or vaudeville act. [Citations.]” (1 Witkin, Summary of Cal. Law, supra, § 730, p. 660; accord, Schuyler v. Pantages (1921) 54 Cal.App. 83, 85-87 [201 P. 137].) In such cases, “the promisor’s determination that he is not satisfied, when made in good faith, has been held to be a defense to an action on the contract. [Citations.]” (Mattei v. Hopper (1958) 51 Cal.2d 119, 123 [330 P.2d 625], italics added.)

Therefore, the trial court erred in deferring entirely to what it characterized as Warner’s “creative decision” in the handling of the development deal. If Warner acted in bad faith by categorically rejecting Locke’s work and refusing to work with her, irrespective of the merits of her proposals, such conduct is not beyond the reach of the law.

b. Locke presented evidence from which a trier of fact reasonably could infer Warner breached the agreement by refusing to consider her proposals in good faith.

Merely because Warner paid Locke the guaranteed compensation under the agreement does not establish Warner fulfilled its contractual obligation. As pointed out by Locke, the value in the subject development deal was not merely the guaranteed payments under the agreement, but also the opportunity to direct and produce films and earn additional sums, and most importantly, the opportunity to promote and enhance a career.

Unquestionably, Warner was entitled to reject Locke’s work based on its subjective judgment, and its creative decision in that regard is not subject to being second-guessed by a court. However, bearing in mind the requirement that subjective dissatisfaction must be an honestly held dissatisfaction, the evidence raises a triable issue as to whether Warner breached its agreement with Locke by not considering her proposals on their merits.

As indicated, the deposition testimony of Joseph Terry recounted a conversation he had with Bob Brassel, a Warner executive, regarding Locke’s projects. In that conversation, Brassel stated “ ‘Joe, we’re not going to work with her,’ and then, ‘That’s Clint’s deal.’ ”

Similarly, the declaration of Mary Wellnitz recalled a conversation she had with Lance Young, a senior vice-president of production at Warner. After discussing the script with Wellnitz, Young told her: “Mary, I want you to know that I think Sondra is a wonderful woman and very talented, but, if you think I can go down the hall and tell Bob Daly that I have a movie I want to make with her he would tell me to forget it. They are not going to make a movie with her here.”

The above evidence raises a triable issue of material fact as to whether Warner breached its contract with Locke by categorically refusing to work with her, irrespective of the merits of her proposals. While Warner was entitled to reject Locke’s proposals based on its subjective dissatisfaction, the evidence calls into question whether Warner had an honest or good faith dissatisfaction with Locke’s proposals, or whether it merely went through the motions of purporting to “consider” her projects.

c. No merit to Warner’s contention Locke seeks to rewrite the instant agreement to limit Warner’s discretionary power.

Warner argues that while the implied covenant of good faith and fair dealing is implied in all contracts, it is limited to assuring compliance with the express terms of the contract and cannot be extended to create obligations not contemplated in the contract. (Racine & Laramie, Ltd. v. Department of Parks & Recreation (1992) 11 Cal.App.4th 1026, 1032 [14 Cal.Rptr.2d 335].)

This principle is illustrated in Carma Developers (Cal.), Inc. v. Marathon Development California, Inc. (1992) 2 Cal.4th 342, 351-352 [6 Cal.Rptr.2d 467, 826 P.2d 710], wherein the parties entered into a lease agreement which stated that if the tenant procured a potential sublessee and asked the landlord for consent to sublease, the landlord had the right to terminate the lease, enter into negotiations with the prospective sublessee, and appropriate for itself all profits from the new arrangement. Carma recognized “[tjhe covenant of good faith finds particular application in situations where one party is invested with a discretionary power affecting the rights of another.” (Id., at p. 372.) The court expressed the view that “[s]uch power must be exercised in good faith.” (Ibid.) At the same time, Corma upheld the right of the landlord under the express terms of the lease to freely exercise its discretion to terminate the lease in order to claim for itself—and deprive the tenant of—the appreciated rental value of the premises. (Id., at p. 376.)

In this regard, Carma stated: “We are aware of no reported case in which a court has held the covenant of good faith may be read to prohibit a party from doing that which is expressly permitted by an agreement. On the contrary, as a general matter, implied terms should never be read to vary express terms. [Citations.] ‘The general rule [regarding the covenant of good faith] is plainly subject to the exception that the parties may, by express provisions of the contract, grant the right to engage in the very acts and conduct which would otherwise have been forbidden by an implied covenant of good faith and fair dealing. ...[¶] This is in accord with the general principle that, in interpreting a contract “an implication . . . should not be made when the contrary is indicated in clear and express words.” 3 Corbin, Contracts, § 564, p. 298 (1960). . . . [¶] As to acts and conduct authorized by the express provisions of the contract, no covenant of good faith and fair dealing can be implied which forbids such acts and conduct. And if defendants were given the right to do what they did by the express provisions of the contract there can be no breach.’ [Citation.]” (Carma Developers (Cal.), Inc. v. Marathon Development California, Inc., supra, 2 Cal.4th at p. 374, italics added.)

In Third Story Music, Inc. v. Waits (1995) 41 Cal.App.4th 798, 801 [48 Cal.Rptr.2d 747], the issue presented was “whether a promise to market music, or to refrain from doing so, at the election of the promisor is subject to the implied covenant of good faith and fair dealing where substantial consideration has been paid by the promisor.”

In that case, Warner Communications obtained from Third Story Music (TSM) the worldwide right to manufacture, sell, distribute and advertise the musical output of singer/songwriter Tom Waits. (Third Story Music, Inc. v. Waits, supra, 41 Cal.App.4th at pp. 800-801.) The agreement also specifically stated that Warner Communications “ ‘may at our election refrain from any or all of the foregoing.’ ” (Id., at p. 801.) TSM sued Warner Communications for contract damages based on breach of the implied covenant of good faith and fair dealing, claiming Warner Communications had impeded TSM’s receiving the benefit of the agreement. (Id., at p. 802.) Warner Communications demurred to the complaint, alleging the clause in the agreement permitting it to “ ‘at [its] election refrain’ from doing anything to profitably exploit the music is controlling and precludes application of any implied covenant.” (Ibid.) The demurrer was sustained on those grounds. (Ibid.)

The reviewing court affirmed, holding the implied covenant was unavailing to the plaintiff. (Third Story Music, Inc. v. Waits, supra, 41 Cal.App.4th at pp. 808-809.) Because the agreement expressly provided Warner Communications had the right to refrain from marketing the Waits recordings, the implied covenant of good faith and fair dealing did not limit the discretion given to Warner Communications in that regard. (Ibid.; Carma Developers (Cal.), Inc. v. Marathon Development California, Inc., supra, 2 Cal.4th at p. 374.)

Warner’s reliance herein on Third Story Music, Inc., is misplaced. The Locke/Warner agreement did not give Warner the express right to refrain from working with Locke. Rather, the agreement gave Warner discretion with respect to developing Locke’s projects. The implied covenant of good faith and fair dealing obligated Warner to exercise that discretion honestly and in good faith.

In sum, the Warner/Locke agreement contained an implied covenant of good faith and fair dealing, that neither party would frustrate the other party’s right to receive the benefits of the contract. (Comunale v. Traders & General Ins. Co., supra, 50 Cal.2d at p. 658; Waller v. Truck Ins. Exchange, Inc., supra, 11 Cal.4th at p. 36.) Whether Warner violated the implied covenant and breached the contract by categorically refusing to work with Locke is a question for the trier of fact.

3. A triable issue exists as to whether Warner made a fraudulent promise.

In the fourth cause of action, Locke pled at the time Warner entered into the agreement with her, it concealed and failed to disclose it had no intention of honoring the agreement.4

The trial court held that because Warner did not breach any express or implied obligations owed to Locke, she could not prevail on the fraud claim. However, as explained above, a triable issue exists as to whether Warner breached the agreement with Locke. Therefore, the trial court’s rationale for disposing of the fraud claim is undermined.

The trial court also ruled Locke could not prevail on the fraud claim because there was no evidence Warner had a fraudulent intent at the time the parties entered into the contract. The trial court acknowledged Locke “filed a declaration of her development assistant, Mary Wellnitz, in which Ms. Wellnitz states that a Warner Bros, executive, Lance Young, remarked in late 1992 that Warner Bros, was ‘not going to make a movie’ with Ms. Locke. [Locke] also offered the deposition testimony of a third party, Joe Terry, in which he recalled a 1993 conversation with another Warner Bros, production executive, Bob Brassel, in which Mr. Brassel said that the studio was not going to work with Ms. Locke. However, the Court does not believe that these statements would permit a jury to infer that two years earlier, when plaintiffs and the defendant entered into their contract, Warner Bros, intended to breach its obligations.”

We disagree. Fraudulent intent must often be established by circumstantial evidence, and may be “inferred from such circumstances as defendant’s . . . failure even to attempt performance, . . .” (Tenzer v. Superscope, Inc., supra, 39 Cal.3d at p. 30.) Based on the above evidence that Warner had expressed an absolute unwillingness to work with Locke, a trier of fact reasonably could infer Warner never intended to give Locke’s proposals a good faith evaluation and that Warner entered into the agreement with Locke solely as an accommodation to Eastwood, who had promised to reimburse Warner for any losses under the agreement. The trial court erred in concluding such an inference could not be drawn from the evidence. We conclude the issue of fraudulent intent is one for the trier of fact.

4. Locke waived any error in the trial court’s ruling with respect to her causes of action alleging gender bias.

Locke’s opening brief does not assert any error in the trial court’s disposition of her two causes of action alleging sex discrimination. Accordingly, this court may treat the claims as having been waived.

Belatedly, Locke’s reply brief contends she presented evidence which raised the inference she was discriminated against because of her gender. “Ordinarily, [appellants’] failure to raise an issue in their opening brief waives the issue on appeal. [Citation.]” (Tisher v. California Horse Racing Bd. (1991) 231 Cal.App.3d 349, 361 [282 Cal.Rptr. 330]; accord, 1119 Delaware v. Continental Land Title Co. (1993) 16 Cal.App.4th 992,1004 [20 Cal.Rptr.2d 438]; Regency Outdoor Advertising, Inc. v. Carolina Lanes, Inc. (1995) 31 Cal.App.4th 1323, 1333 [37 Cal.Rptr.2d 552].) Locke has not shown good cause for the untimely contention. Therefore, we disregard Locke’s argument the trial court erred in granting summary judgment on the first and third causes of action.

5. Remaining issues not reached.

Because we find triable issues are present with respect to the second and fourth causes of action, it is unnecessary to address Locke’s remaining contentions.

Disposition

The judgment is reversed with respect to the second and fourth causes of action and is otherwise affirmed. Locke to recover costs on appeal.

Kitching, J., and Aldrich, J., concurred.

A petition for a rehearing was denied September 24, 1997, and respondent’s petition for review by the Supreme court was denied November 19, 1997.

1

We construe both the first and third causes of action as purporting to allege a claim for tortious wrongful discharge in violation of the public policy against sex discrimination. (Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 665-671 [254 Cal.Rptr. 211, 765 P.2d 373]; Rojo v. Kliger (1990) 52 Cal.3d 65, 88-91 [276 Cal.Rptr. 130, 801 P.2d 373].)

2

Warner interposed extensive evidentiary objections, including objections to portions of Wellnitz’s declaration and Terry’s deposition testimony. However, we specifically note the absence of any objection by Warner to Terry’s statement, “I was told, ‘Joe, we’re not going to work with her,’ and then, ‘That’s Clint’s deal.’ ” Also, the only objection below to Wellnitz’s assertion that Young told her “if you think I can go down the hall and tell Bob Daly that I have a movie I want to make with her he would tell me to forget it. They are not going to make a movie with her here,” is that Young’s statement was irrelevant. The trial court disposed of all the objections by ruling: “To the extent the parties’ evidentiary objections are pertinent to the Court’s decision on the motion for summary judgment, the defendant’s evidentiary objections are sustained and the plaintiffs’ objections are overruled.” This sweeping ruling was erroneous because, inter alia, the relevancy objection was meritless and should have been overruled. Therefore, the subject statements are properly before this court.

3

Contrary to Warner’s contention Locke is raising an unpled claim for breach of the implied covenant of good faith and fair dealing, the second cause of action for breach of contract adequately alleges Warner deprived Locke of the benefit of the bargain of the development deal by refusing to consider her projects. Such conduct by Warner, if proven, would amount to a breach of the covenant, implied “in every contract that neither party will do anything which will injure the right of the other to receive the benefits of the agreement. [Citation.]” (Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654, 658 [328 P.2d 198, 68 A.L.R.2d 883]; accord, Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 36 [44 Cal.Rptr.2d 370, 900 P.2d 619].)

4

Although Warner contends Locke has an unalleged claim for fraudulent concealment, the fourth cause of action adequately pled a cause of action for fraud. In addition to pleading a promise was made and was not fulfilled, Locke alleged Warner did not intend to perform when it made the promise. (Civ. Code, § 1710, subd. 4; Tenzer v. Superscope, Inc. (1985) 39 Cal.3d 18, 30 [216 Cal.Rptr. 130, 702 P.2d 212]; 5 Witkin, Summary of Cal. Law (9th ed. 1988) Torts, § 685, pp. 786-787.)

(No. 70942.

ROGER J. BALLA, Appellee, v. GAMBRO, INC., et al., Appellants.

Opinion filed December 19, 1991.

FREEMAN, J., dissenting.

Pedersen & Houpt, P.C., of Chicago (Arthur B. Sternberg, of counsel), for appellants.

Alan O. Amos & Associates, P.C., of Chicago (Alan O. Amos and Marilyn Martin, of counsel), for appellee.

Robert P. Cummins, Jerry Kokolis and Donald K.S. Petersen, of Bickel & Brewer, of Chicago, for amicus curiae American Corporate Counsel Association.

Maurice E. Bone and Dennis A. Rendleman, of Springfield, for amicus curiae Illinois State Bar Association.

JUSTICE CLARK

delivered the opinion of the court:

The issue in this case is whether in-house counsel should be allowed the remedy of an action for retaliatory discharge.

Appellee, Roger Balla, formerly in-house counsel for Gambro, Inc. (Gambro), filed a retaliatory discharge action against Gambro, its affiliate Gambro Dialysatoren, KG (Gambro Germany), its parent company Gambro Lundia, AB (Gambro Sweden), and the president of Gambro in the circuit court of Cook County (Gambro, Gambro Germany and Gambro Sweden collectively referred to as appellants). Appellee alleged that he was fired in contravention of Illinois public policy and sought damages for the discharge. The trial court dismissed the action on appellants’ motion for summary judgment. The appellate court reversed. (203 Ill. App. 3d 57.) We granted appellant’s petition for leave to appeal (134 Ill. 2d R. 315) and allowed amicus curiae briefs from the American Corporate Counsel Association and Illinois State Bar Association.

Gambro is a distributor of kidney dialysis equipment manufactured by Gambro Germany. Among the products distributed by Gambro are dialyzers which filter excess fluid and toxic substances from the blood of patients with no or impaired kidney function. The manufacture and sale of dialyzers is regulated by the United States Food and Drug Administration (FDA); the Federal Food, Drug, and Cosmetic Act (Federal Act) (21 U.S.C. §331 et seq. (1988)); FDA regulations (21 C.F.R. §§820.150 through 820.198 (1987)); and the Illinois Food, Drug and Cosmetic Act (Ill. Rev. Stat. 1985, ch. 56½, par. 501 et seq.).

Appellee, Roger J. Balla, is and was at all times throughout this controversy an attorney licensed to practice law in the State of Illinois. On March 17, 1980, appellee executed an employment agreement with Gambro which contained the terms of appellee’s employment. Generally, the employment agreement provided that appellee would “be responsible for all legal matters within the company and for personnel within the company’s sales office.” Appellee held the title of director of administration at Gambro. As director of administration, appellee’s specific responsibilities included, inter alia: advising, counseling and representing management on legal matters; establishing and administering personnel policies; coordinating and overseeing corporate activities to assure compliance with applicable laws and regulations, and preventing or minimizing legal or administrative proceedings; and coordinating the activities of the manager of regulatory affairs. Regarding this last responsibility, under Gambro’s corporate hierarchy, appellee supervised the manager of regulatory affairs, and the manager reported directly to appellee.

In August 1983, the manager of regulatory affairs for Gambro left the company and appellee assumed the manager’s specific duties. Although appellee’s original employment agreement was not modified to reflect his new position, his annual compensation was increased and Gambro’s corporate organizational chart referred to appellee’s positions as “Dir. of Admin./Personnel; General Counsel; Mgr. of Regulatory Affairs.” The job description for the position described the manager as an individual “responsible for ensuring awareness of and compliance with federal, state and local laws and regulations affecting the company’s operations and products.” Requirements for the position were a bachelor of science degree and three to five years in the medical device field plus two years experience in the area of government regulations. The individual in the position prior to appellee was not an attorney.

In July 1985 Gambro Germany informed Gambro in a letter that certain dialyzers it had manufactured, the clearances of which varied from the package insert, were about to be shipped to Gambro. Referring to these dialyzers, Gambro Germany advised Gambro:

“For acute patients risk is that the acute uremic situation will not be improved in spite of the treatment, giving continuous high levels of potassium, phosphate and urea/ creatine. The chronic patient may note the effect as a slow progression of the uremic situation and depending on the interval between medical check-ups the medical risk may not be overlooked.”

Appellee told the president of Gambro to reject the shipment because the dialyzers did not comply with FDA regulations. The president notified Gambro Germany of its decision to reject the shipment on July 12,1985.

However, one week later the president informed Gambro Germany that Gambro would accept the dialyzers and “sell [them] to a unit that is not currently our customer but who buys only on price.” Appellee contends that he was not informed by the president of the decision to accept the dialyzers but became aware of it through other Gambro employees. Appellee maintains that he spoke with the president in August regarding the company’s decision to accept the dialyzers and told the president that he would do whatever necessary to stop the sale of the dialyzers.

On September 4, 1985, appellee was discharged from Gambro’s employment by its president. The following day, appellee reported the shipment of the dialyzers to the FDA. The FDA seized the shipment and determined the product to be “adulterated within the meaning of section 501(h) of the [Federal Act].”

On March 19, 1986, appellee filed a four-count complaint in tort for retaliatory discharge seeking $22 million in damages. Counts III and IV for emotional distress were dismissed from the action, as was the president in an order entered by the trial court on November 5, 1986.

On July 28, 1987, Gambro filed a motion for summary judgment. Gambro argued that appellee, as an attorney, was precluded from filing a retaliatory discharge action in light of the appellate court opinion in Herbster v. North American Co. for Life & Health Insurance (1986), 150 Ill. App. 3d 21. Gambro Germany and Gambro Sweden joined in Gambro’s motion. Appellee argued that while the Herbster opinion declined to extend the tort of retaliatory discharge to the plaintiff/attorney before the court, the opinion did not foreclose the possibility of extending the tort in the future. Appellee argued that the plaintiff in Herbster was in-house counsel for a corporation whose duties were restricted to legal matters (Herbster, 150 Ill. App. 3d at 26); whereas he served as the director of administration and personnel and manager of regulatory affairs as well as general counsel for Gambro. Appellee argued that a question of fact existed as to whether he was discharged for the performance of a purely legal function.

On November 30, 1988, the trial court granted appellants’ motion for summary judgment. In its opinion, the trial court specifically stated that “the very ground [appellee is] claiming as the basis for retaliatory discharge all [sic] involves the decisions which he made applying law to fact to determine whether these things complied with the federal regulations, and that is clearly legal work.” Thus, the trial court concluded that the duties appellee was performing which led to his discharge were “conduct clearly within the attorney-client relationship” and that Gambro had the “absolute right” to discharge its attorney. On appeal, the court below held that an attorney is not barred as a matter of law from bringing an action for retaliatory discharge. (203 111. App. 3d 57.) Rather, determination of whether an attorney has standing to bring the action was based on the following three-part test:

“(1) whether [the attorney’s] discharge resulted from information he learned as a ‘layman’ in a nonlegal position; (2) whether [the attorney] learned the information as a result of the attorney/client relationship, if so, whether the information was privileged, and if it was privileged, whether the privilege was waived; and (3) whether there were any countervailing public policies favoring disclosure of privileged information learned from the attorney/ client relationship.” (203 Ill. App. 3d at 63.)

The court remanded for a determination of these questions of fact.

We agree with the trial court that appellee does not have a cause of action against Gambro for retaliatory discharge under the facts of the case at bar. Generally, this court adheres to the proposition that “ ‘an employer may discharge an employee-at-will for any reason or for no reason [at all].’ ” (Fellhauer v. City of Geneva (1991), 142 Ill. 2d 495, 505, quoting Barr v. Kelso-Burnett Co. (1985), 106 Ill. 2d 520, 525.) However, in Kelsay v. Motorola, Inc. (1978), 74 Ill. 2d 172, this court first recognized the limited and narrow tort of retaliatory discharge. In Kelsay, an at-will employee was fired for filing a worker’s compensation claim against her employer. After examining the history and purpose behind the Workers’ Compensation Act to determine the public policy behind its enactment, this court held that the employee should have a cause of action for retaliatory discharge. This court stressed that if employers could fire employees for filing workers’ compensation claims, the public policy behind the enactment of the Workers’ Compensation Act would be frustrated.

Subsequently, in Palmateer v. International Harvester Co. (1981), 85 Ill. 2d 124, this court again examined the tort of retaliatory discharge. In Palmateer, an employee was discharged for informing the police of suspected criminal activities of a co-employee, and because he agreed to provide assistance in any investigation and trial of the matter. Based on the public policy favoring the investigation and prosecution of crime, this court held that the employee had a cause of action for retaliatory discharge. Further, we stated:

“All that is required [to bring a cause of action for retaliatory discharge] is that the employer discharge the employee in retaliation for the employee’s activities, and that the discharge be in contravention of a clearly mandated public policy.” Palmateer, 85 Ill. 2d at 134.

In this case it appears that Gambro discharged appellee, an employee of Gambro, in retaliation for his activities, and this discharge was in contravention of a clearly mandated public policy. Appellee allegedly told the president of Gambro that he would do whatever was necessary to stop the sale of the “misbranded and/or adulterated” dialyzers. In appellee’s eyes, the use of these dialyzers could cause death or serious bodily harm to patients. As we have stated before, “[t]here is no public policy more important or more fundamental than the one favoring the effective protection of the lives and property of citizens.” (See Palmateer, 85 Ill. 2d at 132; Wheeler v. Caterpillar Tractor Co. (1985), 108 Ill. 2d 502, 511; Ill. Const. 1970, Preamble.) However, in this case, appellee was not just an employee of Gambro, but also general counsel for Gambro.

As noted earlier, in Herbster v. North American Co. for Life & Health Insurance (1986), 150 Ill. App. 3d 21, our appellate court held that the plaintiff, an employee and chief legal counsel for the defendant company, did not have a claim for retaliatory discharge against the company due to the presence of the attorney-client relationship. (See Herbster, 150 Ill. App. 3d 30.) Under the facts of that case, the defendant company allegedly requested the plaintiff to destroy or remove discovery information which had been requested in lawsuits pending against the company. The plaintiff refused arguing that such conduct would constitute fraud and violate several provisions of the Illinois Code of Professional Responsibility. Subsequently, the defendant company discharged the plaintiff.

The appellate court refused to extend the tort of retaliatory discharge to the plaintiff in Herbster primarily because of the special relationship between an attorney and client. The court stated:

“The mutual trust, exchanges of confidence, reliance on judgment, and personal nature of the attorney-client relationship demonstrate the unique position attorneys occupy in our society.” (Herbster, 150 Ill. App. 3d at 29.)

The appellate court recited a list of factors which make the attorney-client relationship special such as: the attorney-client privilege regarding confidential communications, the fiduciary duty an attorney owes to a client, the right of the client to terminate the relationship with or without cause, and the fact that a client has exclusive control over the subject matter of the litigation and a client may dismiss or settle a cause of action regardless of the attorney’s advice. (See Herbster, 150 Ill. App. 3d at 27-29.) Thus, in Herbster, since the plaintiff’s duties pertained strictly to legal matters, the appellate court determined that the plaintiff did not have a claim for retaliatory discharge.

We agree with the conclusion reached in Herbster that, generally, in-house counsel do not have a claim under the tort of retaliatory discharge. However, we base our decision as much on the nature and purpose of the tort of retaliatory discharge, as on the effect on the attorney-client relationship that extending the tort would have. In addition, at this time, we caution that our holding is confined by the fact that appellee is and was at all times throughout this controversy an attorney licensed to practice law in the State of Illinois. Appellee is and was subject to the Illinois Code of Professional Responsibility (see the Rules of Professional Conduct which replaced the Code of Professional Responsibility, effective August 1, 1990), adopted by this court. The tort of retaliatory discharge is a limited and narrow exception to the general rule of at-will employment. (See Fellhauer, 142 Ill. 2d at 505.) The tort seeks to achieve “ ‘a proper balance *** among the employer’s interest in operating a business efficiently and profitably, the employee’s interest in earning a livelihood, and society’s interest in seeing its public policies carried out.’ ” (Fellhauer, 142 Ill. 2d at 507, quoting Palmateer, 85 Ill. 2d at 129.) Further, as stated in Palmateer, “[t]he foundation of the tort of retaliatory discharge lies in the protection of public policy ***.” (Emphasis added.) Palmateer, 85 Ill. 2d at 133.

In this case, the public policy to be protected, that of protecting the lives and property of citizens, is adequately safeguarded without extending the tort of retaliatory discharge to in-house counsel. Appellee was required under the Rules of Professional Conduct to report Gambro’s intention to sell the “misbranded and/or adulterated” dialyzers. Rule 1.6(b) of the Rules of Professional Conduct reads:

“A lawyer shall reveal information about a client to the extent it appears necessary to prevent the client from committing an act that would result in death or serious bodily injury.” (Emphasis added.) (134 Ill. 2d R. 1.6(b).)

Appellee alleges, and the FDA’s seizure of the dialyzers indicates, that the use of the dialyzers would cause death or serious bodily injury. Thus, under the above-cited rule, appellee was under the mandate of this court to report the sale of these dialyzers.

In his brief to this court, appellee argues that not extending the tort of retaliatory discharge to in-house counsel would present attorneys with a “Hobson’s choice.” According to appellee, in-house counsel would face two alternatives: either comply with the client/employer’s wishes and risk both the loss of a professional license and exposure to criminal sanctions, or decline to comply with client/employer’s wishes and risk the loss of a full-time job and the attendant benefits. We disagree. Unlike the employees in Kelsay which this court recognized would be left with the difficult decision of choosing between whether to file a workers’ compensation claim and risk being fired, or retaining their jobs and losing their right to a remedy (see Kelsay, 74 Ill. 2d at 182), in-house counsel plainly are not confronted with such a dilemma. In-house counsel do not have a choice of whether to follow their ethical obligations as attorneys licensed to practice law, or follow the illegal and unethical demands of their clients. In-house counsel must abide by the Rules of Professional Conduct. Appellee had no choice but to report to the FDA Gambro’s intention to sell or distribute these dialyzers, and consequently protect the aforementioned public policy.

In addition, we believe that extending the tort of retaliatory discharge to in-house counsel would have an undesirable effect on the attorney-client relationship that exists between these employers and their in-house counsel. Generally, a client may discharge his attorney at any time, with or without cause. (Rhoades v. Norfolk & Western Ry. Co. (1979), 78 Ill. 2d 217, 228.) This rule applies equally to in-house counsel as it does to outside counsel. Further, this rule “recognizes that the relationship between an attorney and client is based on trust and that the client must have confidence in his attorney in order to ensure that the relationship will function properly.” (Rhoades, 78 Ill. 2d at 228; Miller v. Solomon (1964), 49 Ill. App. 2d 156, 167; Fracasse v. Brent (1972), 6 Cal. 3d 784, 790, 494 P.2d 9, 13, 100 Cal. Rptr. 385, 389.) As stated in Herbster, “the attorney is placed in the unique position of maintaining a close relationship with a client where the attorney receives secrets, disclosures, and information that otherwise would not be divulged to intimate friends.” (Herbster, 150 Ill. App. 3d at 27.) We believe that if in-house counsel are granted the right to sue their employers for retaliatory discharge, employers might be less willing to be forthright and candid with their in-house counsel. Employers might be hesitant to turn to their in-house counsel for advice regarding potentially questionable corporate conduct knowing that their in-house counsel could use this information in a retaliatory discharge suit.

We recognize that under the Illinois Rules of Professional Conduct, attorneys shall reveal client confidences or secrets in certain situations (see 134 Ill. 2d Rules 1.6(a), (b), (c)), and thus one might expect employers/clients to be naturally hesitant to rely on in-house counsel for advice regarding this potentially questionable conduct. However, the danger exists that if in-house counsel are granted a right to sue their employers in tort for retaliatory discharge, employers might further limit their communication with their in-house counsel. As stated in Upjohn Co. v. United States (1981), 449 U.S. 383, 389, 66 L. Ed. 2d 584, 591, 101 S. Ct. 677, 682, regarding the attorney-client privilege:

“Its purpose is to encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and administration of justice. The privilege recognizes that sound legal advice or advocacy serves public ends and that such advice or advocacy depends upon the lawyer being fully informed by the client.” (Emphasis added.)

If extending the tort of retaliatory discharge might have a chilling effect on the communications between the employer/client and the in-house counsel, we believe that it is more wise to refrain from doing so.

Our decision not to extend the tort of retaliatory discharge to in-house counsel also is based on other ethical considerations. Under the Rules of Professional Conduct, appellee was required to withdraw from representing Gambro if continued representation would result in the violation of the Rules of Professional Conduct by which appellee was bound, or if Gambro discharged the appellee. (See 134 Ill. 2d Rules 1.16(a)(2), (a)(4).) In this case, Gambro did discharge appellee, and according to appellee’s claims herein, his continued representation of Gambro would have resulted in a violation of the Rules of Professional Conduct. Appellee argues that such a choice of withdrawal is “simplistic and uncompassionate, and is completely at odds with contemporary realities facing in-house attorneys.” These contemporary realities apparently are the economic ramifications of losing his position as in-house counsel. However difficult economically and perhaps emotionally it is for in-house counsel to discontinue representing an employer/client, we refuse to allow in-house counsel to sue their employer/client for damages because they obeyed their ethical obligations. In this case, appellee, in addition to being an employee at Gambro, is first and foremost an attorney bound by the Rules of Professional Conduct. These Rules of Professional Conduct hope to articulate in a concrete fashion certain values and goals such as defending the integrity of the judicial system, promoting the administration of justice and protecting the integrity of the legal profession. (See Ill. Const. 1970, Preamble.) An attorney’s obligation to follow these Rules of Professional Conduct should not be the foundation for a claim of retaliatory discharge.

We also believe that it would be inappropriate for the employer/client to bear the economic costs and burdens of their in-house counsel’s adhering to their ethical obligations under the Rules of Professional Conduct. Presumably, in situations where an in-house counsel obeys his or her ethical obligations and reveals certain information regarding the employer/client, the attorney-client relationship will be irreversibly strained and the client will more than likely discharge its in-house counsel. In this scenario, if we were to grant the in-house counsel the right to sue the client for retaliatory discharge, we would be shifting the burden and costs of obeying the Rules of Professional Conduct from the attorney to the employer/client. The employer/client would be forced to pay damages to its former in-house counsel to essentially mitigate the financial harm the attorney suffered for having to abide by Rules of Professional Conduct. This, we believe, is impermissible for all attorneys know or should know that at certain times in their professional career, they will have to forgo economic gains in order to protect the integrity of the legal profession.

Our review of cases from other jurisdictions dealing with this issue does not persuade us to hold otherwise. In Willy v. Coastal Corp. (S.D. Tex. 1986), 647 F. Supp. 116, the district court declined to extend the tort of retaliatory discharge to the wrongful termination of in-house counsel. In that case, the plaintiff, in-house counsel for the defendant company, alleged that he was fired because he required the defendant to comply with environmental laws. The court held that the ethical canons and disciplinary rules set forth the standards for attorneys to follow and that they require an attorney presented with ethical conflicts to withdraw from representation. (Willy, 647 F. Supp. at 118.) Further, once the client elects to terminate the relationship, “the attorney is required mandatorily to withdraw from any further representation of that client.” (Emphasis in original.) Willy, 647 F. Supp. at 118.

Also, in Nordling v. Northern States Power Co. (Minn. App. 1991), 465 N.W.2d 81, the appellate court of Minnesota, relying exclusively on our appellate court’s decision in Herbster, held that the plaintiff’s status as in-house counsel precluded not only a breach-of-contract claim against the defendant company, but also the plaintiff’s retaliatory discharge claim. (Nordling, 465 N.W.2d at 86 n.l.) In Nordling, the court stated:

“The client’s unfettered right to discharge an attorney is deemed necessary because of the confidential nature of the relationship between attorney and client and the evil that would be engendered by friction or distrust.” (Nordling, 465 N.W.2d at 85.)

Since the relationship between the plaintiff and the defendant company required an atmosphere of continued mutual trust, the breakdown of that trust allowed the defendant to discharge the plaintiff without liability.

In contrast to the two cases discussed above which specifically held that in-house counsel do not have a right to sue for retaliatory discharge, two other cases have allowed in-house counsel to sue their employer for wrongful termination. However, both cases are distinguishable from our holding. In Parker v. M & T Chemicals, Inc. (1989), 236 N.J. Super. 451, 566 A.2d 215, the superior court of New Jersey construed that State’s “Whistleblowers Act” as compelling “a retaliating employer to pay damages to an employee-attorney who is wrongfully discharged or mistreated *** for any reason which is violative of law, fraudulent, criminal, or incompatible with a clear mandate of New Jersey’s public policy concerning public health, safety or welfare.” (Parker, 236 N.J. Super. at 460, 566 A.2d at 220.) The court also noted in distinguishing the aforementioned Herbster and Willy opinions that they did not involve “whistleblower” statutes, only the right of in-house counsel to maintain a cause of action for retaliatory discharge at common law. Parker, 236 N.J. Super, at 460, 566 A.2d at 220.

In Mourad v. Automobile Club Insurance Association (1991), 186 Mich. App. 715, 465 N.W.2d 395, the plaintiff, as in-house counsel for the defendant company, sued the defendant for, inter alia, breach of employment contract and retaliatory demotion. The appellate court of Michigan determined that the plaintiff had a cause of action for breach of a just-cause contract, but not for retaliatory demotion. The court distinguished the aforementioned Herbster, Willy and Parker cases as involving the issue of whether the “state will recognize a public policy exception to the typical employment-at-will contract.” (Mourad, 186 Mich. App. at 723, 465 N.W.2d at 399.) In this case, however, the Michigan court stated that the defendant company’s policy manual and pamphlets had created a contract to terminate for just cause. (Mourad, 186 Mich. App. at 720, 465 N.W.2d at 398.) Thus, plaintiff’s claim for retaliatory demotion was an alternative theory of recovery from a breach of a just-cause contract, and could not be sustained as an independent claim for recovery. (Mourad, 186 Mich. App. at 726, 465 N.W.2d at 400.) The Michigan court made no statements regarding the propriety of in-house counsel’s bringing claims for retaliatory discharge.

In light of our decision that in-house counsel generally are not entitled to bring a cause of action for retaliatory discharge against their employer/client, we must consider appellee’s argument that he learned of the dialyzers’ defect and Gambro’s noncompliance with FDA regulations in his role as manager of regulatory affairs at Gambro, and not as corporate counsel. Appellee argues that, if he did learn of Gambro’s alleged violation of FDA regulations as manager of regulatory affairs, and acted pursuant to his duties as manager of regulatory affairs, he is merely an “employee” at Gambro and therefore should be entitled to bring a cause of action for retaliatory discharge. The appellate court in this matter agreed with appellee and held that a question of fact exists as to whether “[appellee’s] discharge resulted from information he learned as a ‘layman’ in a nonlegal position.” 203 Ill. App. 3d at 63.

We disagree. A motion for summary judgment should be granted when the pleadings, depositions, and affidavits reveal that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. (See Ill. Rev. Stat. 1989, ch. 110, par. 2—1005(c).) In this case, there is no issue of fact as to whether appellee learned of Gambro’s violations of FDA regulations as a “layman,” as opposed to general counsel for Gambro. After examining the pleadings, exhibits and appellee’s deposition testimony, we find that appellee was acting as Gambro’s general counsel throughout this ordeal. As noted earlier, at the time of this controversy, appellee not only was acting as general counsel for Gambro, but also was its manager of regulatory affairs. Under the corporate hierarchy at Gambro, the corporate counsel supervised the manager of regulatory affairs. Thus, appellee “supervised” himself in his role as manager of regulatory affairs. More importantly, based on the official job descriptions supplied by Gambro, it is clear that the general counsel and the manager of regulatory affairs performed essentially the same roles with regards to FDA compliance. The job description for the director of administration, which defined the position of general counsel, required appellee to “coordinate[ ] and oversee[ ] corporate activities to assure compliance with applicable laws and regulations and prevent[ ] or minimize[ ] [the] possibility of legal or administrative proceedings.” Along the same vein, the job description for manager of regulatory affairs required appellee to “establish programs and procedures to ensure compliance with applicable FDA laws and regulations.” Thus, both roles had equivalent duties for assuring compliance with FDA regulations.

Appellee’s deposition testimony discredits his claim that he learned of the dialyzers in his role as manager of regulatory affairs. First, appellee conceded that the question of whether a medical device could be legally sold under an FDA regulation is essentially a legal question. Second, appellee admitted that he did not consciously change “frames of mind” when acting as general counsel or manager of regulatory affairs. Third, in response to a question of whether he had a legal opinion as to whether the dialyzers were “misbranded and/or adulterated,” appellee stated that “as a private person and as an attorney, I was of the opinion that the dialyzers were misbranded and/or adulterated.” Fourth, appellee stated that he was acting as corporate counsel when he advised the president of Gambro of the criminal penalties for the interstate shipment of “misbranded and/or adulterated” products. Lastly, appellee admitted that he was always an attorney licensed by the State of Illinois whenever he performed his duties as manager of regulatory affairs.

Appellee relies on the fact that previous managers of regulatory affairs at Gambro were not attorneys, and the position only required a bachelor of science degree and three to five years experience in the medical device field as evidence that this position is a nonlegal position. We disagree. Although previous managers evidently were not attorneys, the two roles appellee performed for Gambro were so intertwined and inextricably bound, we fail to see how appellee was not performing his general counsel functions in this matter. As support for our conclusion, we quote from the ABA Formal Opinion No. 328, which addressed the dual role situation appellee confronted:

“If the second occupation is so law-related that the work of the lawyer in such occupation will involve, inseparably, the practice of law, the lawyer is considered to be engaged in the practice of law while conducting that occupation.” (ABA Formal Opinion No. 328, at 65 (June 1972).)

In this case, as the trial court explained, appellee investigated certain facts, applied the law to those investigated facts and reached certain conclusions as to whether these dialyzers complied with the FDA regulations. In that sense, appellee inescapably engaged in the practice of law. Consequently, although appellee may have been the manager of regulatory affairs for Gambro, his discharge resulted from information he learned as general counsel, and from conduct he performed as general counsel.

For the foregoing reasons, the decision of the appellate court is reversed, and the decision of the trial court is affirmed.

Appellate court reversed; circuit court affirmed.

JUSTICE FREEMAN,

dissenting:

I respectfully dissent from the decision of my colleagues. In concluding that the plaintiff attorney, serving as corporate in-house counsel, should not be allowed a claim for retaliatory discharge, the majority first reasons that the public policy implicated in this case, i.e., protecting the lives and property of Illinois citizens, is adequately safeguarded by the lawyer’s ethical obligation to reveal information about a client as necessary to prevent acts that would result in death or serious bodily harm (134 Ill. 2d R 1.6(b)). I find this reasoning fatally flawed.

The majority so reasons because, as a matter of law, an attorney cannot even contemplate ignoring his ethical obligations in favor of continuing in his employment. I agree with this conclusion “as a matter of law.” However, to say that the categorical nature of ethical obligations is sufficient to ensure that the ethical obligations will be satisfied simply ignores reality. Specifically, it ignores that, as unfortunate for society as it may be, attorneys are no less human than nonattorneys and, thus, no less given to the temptation to either ignore or rationalize away their ethical obligations when complying therewith may render them unable to feed and support their families.

I would like to believe, as my colleagues apparently conclude, that attorneys will always “do the right thing” because the law says that they must. However, my knowledge of human nature, which is not much greater than the average layman’s, arid, sadly, the recent scandals involving the bench and bar of Illinois are more than sufficient to dispel such a belief. Just as the ethical obligations of the lawyers and judges involved in those scandals were inadequate to ensure that they would not break the law, I am afraid that the lawyer’s ethical obligation to “blow the whistle” is likewise an inadequate safeguard for the public policy of protecting lives and property of Illinois citizens.

As reluctant as I am to concede it, the fact is that this court must take whatever steps it can, within the bounds of the law, to give lawyers incentives to abide by their ethical obligations, beyond the satisfaction inherent in their doing so. We cannot continue to delude ourselves and the people of the State of Illinois that attorneys’ ethical duties, alone, are always sufficient to guarantee that lawyers will “do the right thing.” In the context of this case, where doing “the right thing” will often result in termination by an employer bent on doing the “wrong thing,” I believe that the incentive needed is recognition of a cause of action for retaliatory discharge, in the appropriate case.

The majority also bases its holding upon the reasoning that allowing in-house counsel a cause of action for retaliatory discharge will have a chilling effect on the attorney-client relationship and the free flow of information necessary to that relationship. This reasoning completely ignores what is very often one of the basic purposes of the attorney-client relationship, especially in the corporate client — in-house counsel setting. More importantly, it gives preeminence to the public policy favoring an unfettered right to discharge an attorney, although “[t]here is no public policy more important or more fundamental than the one favoring the effective protection of the lives and property of citizens.” Palmateer v. International Harvester Co. (1981), 85 Ill. 2d 124, 132 (citing, inter alia, Ill. Const. 1970, Preamble).

One of the basic purposes of the attorney-client relationship, especially in the corporate client — in-house counsel setting, is for the attorney to advise the client as to, exactly, what conduct the law requires so that the client can then comply with that advice. Given that purpose, allowing in-house counsel a cause of action for retaliatory discharge would chill the attorney-client relationship and discourage a corporate client from communicating freely with the attorney only where, as here, the employer decides to go forward with particular conduct, regardless of advice that it is contrary to law. I believe that, just as in-house counsel might reasonably so assume, this court is entitled to assume that corporate clients will rarely so decide. As such, to allow a corporate employer to discharge its in-house counsel under such circumstances, without fear of any sanction, is truly to give the assistance and protection of the courts to scoundrels.

Moreover, to recognize and sanction the corporate employer’s freedom (as opposed to its “right”) to discharge its in-house counsel under such circumstances, by denying the in-house counsel a cause of action for retaliatory discharge, is to exalt the at-will attorney-client contractual relationship above all other considerations, including the most important and fundamental public policy of protecting the lives and property of citizens. Such a result manifestly ignores one of the fundamental rules of contract law, viz., that individuals are presumed to have contracted with knowledge of the existing law and such laws enter into and form part of their contract as fully as if they were expressly referred to and incorporated into its terms. (Schlosser v. Jursich (1980), 87 Ill. App. 3d 824.) Admittedly, this is not, strictly speaking, a contract construction case. However, where, as here, the court’s holding in essence involves the construction of a contract and the impact of competing public policies thereon, the foregoing rule should not be ignored.

In holding as it does, the majority also reasons that an attorney’s obligation to follow the Rules of Professional Conduct should not be the basis for a claim of retaliatory discharge.

Preliminarily, I would note that were an employee’s desire to obey and follow the law an insufficient basis for a retaliatory discharge claim, Palmateer would have been decided differently. In this regard, I do not believe any useful purpose is served by distinguishing attorneys from ordinary citizens. It is incontrovertible that the law binds all men, kings and paupers alike. (See City of Chicago v. Weiss (1972), 51 Ill. 2d 113, 122, quoting Cox v. Louisiana (1965), 379 U.S. 559, 574, 13 L. Ed. 2d 487, 498, 85 S. Ct. 476, 486 (“ ‘[t]here is *** a plain duty and responsibility on the part of all citizens to obey all valid laws and regulations’ ”).) An attorney should not be punished simply because he has ethical obligations imposed' upon him over and above the general obligation to obey the law which all men have. Nor should a corporate employer be protected simply because the employee it has discharged for “blowing the whistle” happens to be an attorney.

I find the majority’s reasoning that an attorney's ethical obligations should not be the basis of a retaliatory discharge claim faulty for another reason. In so concluding, the majority ignores the employer’s decision to persist in the questionable conduct which its in-house counsel advised was illegal. It is that conduct, not the attorney’s ethical obligations, which is the predicate of the retaliatory discharge claim. That conduct is the true predicate of the claim because it is what required the attorney to act in compliance with his ethical obligations and thereby resulted in his discharge by the employer. As such, granting the attorney a claim for retaliatory discharge simply allows recovery against the party bent on breaking the law, rather than rewarding an attorney for complying with his ethical obligations.

Additionally, I cannot share the majority’s solicitude for employers who discharge in-house counsel, who comply with their ethical obligations, by agreeing that they should not bear the economic burden which that compliance imposes upon the attorney. Unlike the majority, I do not believe that it is the attorney’s compliance with his ethical obligations which imposes economic burdens upon him. Rather, those burdens are imposed upon him by the employer’s persistence in conduct the attorney has advised is illegal and by the employer’s wrongful termination of the attorney once he advises the employer that he must comply with those obligations.

Similarly, I do not believe that this case implicates any knowledge on an attorney’s part that, in order to protect the integrity of the legal profession, he will have to forgo prospective economic gain. Plaintiff here did not merely forgo the prospect of economic gain in order to comply with his ethical obligations. Rather, he was wrongfully deprived of continued employment and its attendant benefits, economic and otherwise, simply because he sought to competently represent his client within the bounds of the law. 134 Ill. 2d Preamble 472, Rules of Professional Conduct.

In this same regard, it should be borne in mind that this case involves an attorney discharged from his employment, not one who has voluntarily resigned due to his ethical obligations. I believe the majority’s reasoning, in general, and with respect to the question of who should bear the economic burdens of the attorney’s loss of job, specifically, would be valid grounds for denying a cause of action to an attorney who voluntarily resigns, rather than is discharged. By focusing upon the immediate economic consequences of the discharge, the majority overlooks the very real possibility that in-house counsel who is discharged, rather than allowed to resign in accordance with his ethical obligations once the employer’s persistence in illegal conduct is evident to him, will be stigmatized within the legal profession. That stigma and its apparent consequences, economic and otherwise, in addition to the immediate economic consequences of a discharge, also militate strongly in favor of allowing the attorney a claim for retaliatory discharge.

Finally, with respect to the foreign case law cited and ' discussed by the majority, suffice it to say that I do not find it as clearly one-sided as does the majority.

Of particular relevance is Parker v. M & T Chemicals, Inc. (1989), 236 N.J. Super. 451, 566 A.2d 215. The majority distinguishes Parker as involving the New Jersey “whistleblower” statute, rather than a common law action for retaliatory discharge, like this case and Herbster v. North American Co. for Life & Health Insurance (1986), 150 Ill. App. 3d 21. In so doing, the majority ignores that the New Jersey Superior Court viewed the statute as a recognition by the New Jersey legislature of a preexisting common law tort cause of action for retaliatory discharge. (Parker, 236 N.J. Super, at 456, 566 A.2d at 218.) It also ignores that the Parker court specifically distinguished Herbster as not involving the constitutionality of a “whistle-blower” statute, rather than as merely involving a common law retaliatory discharge claim. 236 N.J. Super, at 459, 566 A.2d at 220.

Inasmuch as the “whistleblower” statute being construed in Parker recognized a preexisting common law tort cause of action for retaliatory discharge, the fact that Herbster and this case involve such actions is an insufficient ground upon which to distinguish Parker. As such, the reasoning of the Parker court in allowing an attorney a claim for retaliatory discharge, albeit on a statutory basis, should not be so blithely dismissed by the majority.

Ultimately, the court’s decision in the instant case does nothing to encourage respect for the law by corporate employers nor to encourage respect by attorneys for their ethical obligations. (Cf. Parker, 236 N.J. Super, at 460, 463, 566 A.2d at 220, 222 (the court recognized that its holding should discourage employers from inducing employee-attorneys to participate in or condone illegal schemes, encourage an attorney’s resolve to resist such inducements because they would henceforth enjoy some specific statutory protections, and reinforce integrity and ethical professional practice).) Therefore, I must respectfully dissent.