Beachboard v. Southern Railway Company

Dec 20, 1972

7228SC56

Versions:

PARKER, Judge.

Appellant assigns error to the denial of its motions to dismiss Southern’s third-party complaint for failure to state a claim upon which relief can be granted, for judgment on the pleadings, for summary judgment, and for directed verdict, all of which were predicated, at least in part, on appellant’s contention that the contract of 8 November 1905 was not binding upon it and, if considered so, when correctly interpreted did not, and when lawfully enforced could not, impose upon appellant the obligation to indemnify Southern under the circumstances of this case. We first consider appellant’s contention that the contract, whatever its correct interpretation and legal enforceability as an indemnity contract, was in any event not binding upon it.

The contract of 8 November 1905 was on its face expressed to be between Southern, on the one part, and Champion Fibre Company, an Ohio corporation, on the other. The name of the Fibre Company was signed to this contract by its president, Peter G. Thomson. It appears from the record and exhibits before us that at the date of this contract the Fibre Company was not yet in existence and that it was not actually incorporated until 3 January 1906, when it became incorporated under the laws of Ohio. Its corporate charter lists Peter G. Thomson as one of the original incorporators. While no formal ratification of the agreement has been shown, the record does indicate that after the Fibre Company came into corporate existence it acted under the contract and for many years accepted its benefits, and it is the general rule under such circumstances that by accepting the benefits the company becomes bound to perform the obligations incident to such a contract. 18 Am. Jur. 2d, Corporations, § 122, p. 664. However that may be, the record before us further indicates that the following transactions occurred: By instrument dated 12 October 1936 the Fibre Company conveyed all of its assets to its parent corporation, The Champion Paper & Fibre Company, also an Ohio corporation, in complete cancellation or redemption of all of Fibre Company’s outstanding shares. The surviving parent corporation, The Champion Paper & Fibre Company, by written agreement dated 24 September 1937 executed by it and by Southern, expressly agreed with Southern that it would be bound by the contract of 8 November 1905, to which reference was expressly made, “to the same extent and with like effect as if the said The Champion Paper & Fibre Company . . . had originally made and executed” said agreement. By “Supplemental Agreement” dated 28 July 1959, also executed by Southern and by The Champion Paper & Fibre Company, certain changes and extensions in the location of the industrial tracks serving Champion’s plant were provided for, and by this Supplemental Agreement the contract of 8 November 1905 was again expressly recognized as continuing in effect. It also appears that The Champion Paper & Fibre Company, after changing its corporate name in 1961 to Champion Papers, Inc., merged with U. S. Plywood Corporation in 1967 to become the corporate entity which appears in the present action as the third-party defendant, and which for convenience is in this opinion referred to simply as “Champion.” We hold that by virtue of the foregoing transactions, Champion became bound by the contract of 8 November 1905 and became obligated to perform the duties which were therein imposed on the Fibre Company.

We next consider appellant’s contention that the 8 November 1905 contract, properly interpreted in accordance with appellant’s views, does not obligate it to indemnify Southern for the amount for which Southern became liable to plaintiff on account of his personal injuries in this case. In this connection appellant argues that the word “damage” as used in the covenant contained in paragraph 5 of the contract, under which appellant’s predecessor, the Fibre Company, agreed “[t]hat it will indemnify and save harmless the Southern Company against any and all damage resulting from the negligence of the Fibre Company, its servants and employees,” is a word of art used solely to designate injuries to property and does not include injuries to persons. Accepted authorities, however, do not support appellant’s view, and we perceive nothing in the context in which the word “damage” was here employed why its meaning should be so narrowly confined. Black’s Law Dictionary (4th Ed.) defines “damage” as “[l]oss, injury, or deterioration, caused by the negligence, design, or accident of one person to another, in respect of the latter’s person or property,” and Webster’s Third New International Dictionary defines “damage” as “injury or harm to person, property, or reputation.” (Emphasis added.) We hold that the phrase “any and all damage,” as employed in the contract now before us, was intended by the parties and did include injuries to persons and was not limited, as appellant contends, merely to property losses.

Appellant next contends that, even if it be conceded that the words “any and all damage” includes a loss involving personal injuries, the indemnification provision here before us was intended to apply only to damage caused by the sole negligence of Champion, and that Southern having also been found guilty of negligence in this case, Champion has no obligation to indemnify it. To adopt appellant’s interpretation effectively robs the indemnity clause of nearly all meaning. Three categories of “damage resulting from the negligence” of Champion are possible: (1) damage to property of Southern; (2) damage to property of Champion; and (3) damage to person or property of a third party (including an employee of either). Assuming in a particular case that damage is caused by negligence of Champion (which must exist, else the clause by its own language does not become operative), and that Southern is not negligent, then quite apart from the indemnity contract Southern would have a right of recovery against Champion for damage in the first category and would not itself be responsible for damage in the second and third categories. In such a case there would seem little reason for the indemnity provision. Indeed, it is only when damage results from the negligence both of Southern and Champion that the provision attains any real meaning. By inserting the provision in their contract the parties obviously contemplated that there might be claims for indemnity, and they must have been cognizant of the fact that in the ordinary case the occasion for Southern seeking indemnity would not arise unless it had itself been guilty of some fault, for otherwise no judgment could be recovered against it. In Gibbs v. Light Co., 265 N.C. 459, 144 S.E. 2d 393, our Supreme Court held that an indemnity provision in the contract then before it provided indemnity against claims based on the indemnitee’s negligence, pointing out that otherwise it had “no meaning or purpose.” Consistent with that reasoning, we hold that the language employed in the indemnity provision in the contract now before us obligates Champion to indemnify Southern in a case such as this, in which it has been determined that plaintiff’s injuries resulted from negligence of both Champion and Southern. While certainly any case involving interpretation of a written contract must be decided upon the exact words used by the parties viewed in the light of relevant circumstances peculiar to that case, other courts interpreting indemnity provisions in railroad spur track agreements have reached results consistent with our present holding. See cases in Annotation: “Construction and effect of liability exemption or indemnity clause- in spur track agreement,” 20 A.L.R. 2d 711.

Finally, appellant contends that to interpret the indemnity provision so as to make it operative to protect Southern from consequences of its own negligence renders the provision void as against public policy, citing the well established principle that a public service corporation or public utility cannot contract so as to escape liability from its own negligence occurring in the regular course of its business or in performing one of its duties of public service. However, “[e]ven a public service corporation is protected by an exculpatory clause when the contract is casual and private and in no way connected with its public service.” Gibbs v. Light Co., supra. Such was the contract here. Under it Southern obligated itself to perform acts and render services in connection with Champion’s privately owned railroad tracks and yard which it was not obligated to perform for the public generally. An exculpatory clause in a similar contract was held valid to protect the railroad in Slocumb v. R. R., 165 N.C. 338, 81 S.E. 335. By entering into and performing the agreement under which it furnished services on Champion’s yard, Southern subjected its equipment and employees to special hazards to which they were not normally exposed while furnishing services to the general public on Southern's own tracks. As the present case dramatically illustrates, one of these especial hazards was that a Southern employee might be injured by the active negligence of Champion’s employees engaged in operating Champion’s switch engine in the yard at the same time Southern’s employees were present. We perceive no grounds of public policy why the parties could not validly contract for Southern’s indemnity under such circumstances. Moreover, “[t]here is a distinction between contracts whereby one seeks to wholly exempt himself from liability for the consequences of his negligent acts, and contracts of indemnity against liability imposed for the consequences of his negligent acts. The contract in the instant case is of the latter class and is more favored in law.” Gibbs v. Light Co., supra. We hold the indemnity provision here involved valid and enforceable against Champion in this case. Appellant’s assignments of error based on the contrary assumption are overruled.

Appellant’s contention that Southern is not entitled to invoke the indemnity clause in the 8 November 1905 contract because “it neither alleged nor offered evidence to establish that it had undertaken to comply with the alleged contract” is without merit. In general, “[w]here a complaint is based on contract, all that is necessary to state is the making of the contract, the obligation thereby assumed, and the breach.” 61 Am. Jur. 2d, Pleading, § 89, p. 524. This Southern did in its third-party complaint, to which Champion responded in its answer by what was in effect simply a general denial. If as a defense Champion intended to rely upon some asserted breach or failure to perform by Southern, it should have set forth affirmatively any such failure of consideration or “other matter constituting an avoidance or affirmative defense.” G.S. 1A-1, Rule 8(c). Only when the contract sued upon contains some condition precedent to defendant’s liability thereunder is it necessary for plaintiff to plead performance, 61 Am. Jur. 2d, Pleading, § 94, p. 528, and even in such case “it is sufficient to aver generally that all conditions precedent have been performed and have occurred,” in which event any denial thereof upon which defendant intends to rely “shall be made specifically and with particularity.” G.S. 1A-1, Rule 9(c). The 8 November 1905 contract contains no express condition precedent to make the indemnity clause therein operative, and we find nothing in the contract which by reasonable construction implies that full and exact performance by Southern must first be established before the indemnity clause comes into play. We hold, therefore, that Southern was not required to allege and prove full performance on its part but that it was incumbent upon Champion to come forward with allegation and proof as to any asserted failure of performance by Southern upon which it intended to rely to relieve it of its indemnity obligation. Champion made no such allegation and there is no evidence in the record to indicate that Southern failed to comply substantially with its obligations under the contract.

Appellant assigns error to the trial judge’s refusal to submit to the jury an issue as to plaintiff’s contributory negligence. In this we find no error. Southern’s third-party action against Champion was not predicated upon Champion’s liability to plaintiff under the general law of torts, under which plaintiff’s contributory negligence would have been a defense, but upon the indemnity contract under which Champion became obligated to indemnify and save harmless Southern “against any and all damage resulting from the negligence” of Champion. The jury determined that plaintiff’s injuries did result from Champion’s negligence. As a consequence of that negligence, Southern became obligated to plaintiff under F.E.L.A. for its failure to furnish him a safe place to work, and Champion in turn by contract became obligated to indemnify and save harmless Southern. Under these circumstances the contributory negligence of plaintiff, if any existed, would not have been a defense to Southern’s contract action against Champion to enforce the indemnity agreement. Chicago, R.I. & P.R. Co. v. Dobry Flour Mills, 211 F. 2d 785 (10th Cir. 1954), cert. denied, 348 U.S. 832; Annotation: “Claim, for Contribution or Indemnity Against Joint Tortfeasor, of Employer Liable to Employee under Federal Employer’s Liability Act, As Affected by Contributory Negligence of Employee,” 6 A.L.R. 3d 1307. Plaintiff’s contributory negligence, if any, was available in mitigation of damages in plaintiff’s F.E.L.A. action against Southern, but it should be noted that in this case the amount of plaintiff’s recovery was ultimately settled by the consent judgment of 11 May 1971 in which all parties, including Champion, joined.

During the trial Champion offered in evidence and the court excluded a certain written “Memorandum of Understanding” dated 6 September 1905, which was signed by Peter G. Thomson and by Southern. This document was properly excluded from evidence. It expressly provided that “[t]his memorandum is to be used as a basis for a formal contract to be prepared by the Railway Company for execution within the next ten days, or as early thereafter as possible,” and in general it dealt with the same matters which were expanded and covered in greater detail by the written contract of 8 November 1905. It is clear that the later contract was intended by the parties to supersede all prior agreements.

The trial court also properly excluded from evidence a document dated 6 December 1916 which was executed solely by the Fibre Company and by which it conveyed to Southern an easement to use a strip of land 12% feet wide on either side of the center line of industrial tracks on the Fibre Company’s property. This document was not relevant to any issue in this case.

The court properly refused to permit appellant’s counsel the right to argue to the jury the legal effect of the indemnity contract between the parties. The sole issue before the jury was whether plaintiff had been injured through negligence of Champion. The jury could not properly base its findings on that issue upon the legal consequences of its verdict under the written agreement between the parties. The legal consequences flowing from the jury’s verdict in this case presented solely a question of law for the court to decide. G.S. 84-14, which provides that “[i]n jury trials the whole case as well of law as of fact may be argued to the jury,” does not authorize counsel to argue law which is not applicable to the issues properly presented for jury decision. In re Will of Farr, 277 N.C. 86, 175 S.E. 2d 578.

We have carefully examined all of appellant’s remaining assignments of error which are brought forward in its brief and find no prejudicial error.

No error.

Chief Judge Mallard and Judge Morris concur.