Court Opinion

ID: 9722657
Source: CourtListenerOpinion
Date Created: 2023-08-26 09:43:38.920083+00
Date Added: 2024-06-11T18:24:38.077045
License: Public Domain

JEFFERSON (Bernard), J.
I concur in the result reached by Justice Dunn of affirming the order of dismissal following the sustaining of defendants’ demurrers to plaintiff’s third amended complaint.
Plaintiff contends that its failure to draw a distinction in its complaint between defendant Transport Underwriters Association and defendant Transport Indemnity is not fatal to a valid statement of its causes of action. This contention is unacceptable in light of the fact that the demurrers to plaintiff’s complaint were both special and general demurrers. A copy of the contract of reinsurance, attached to the complaint as an exhibit and incorporated therein by reference, shows that the contract was entered into between plaintiff and Transport Underwriters. In one paragraph of the complaint, however, plaintiff alleges that the contract was entered into by plaintiff as one. party with Transport Indemnity and Transport Underwriters “jointly” as the other party.
Plaintiff asserts that its complaint was good against demurrer without any allegation of agent-principal relationship between Transport Underwriters and Transport Indemnity since there was an allegation of the *1017ultimate fact of the making of the contract with defendant Transport Indemnity — a nonsignatoiy party to the contract. Plaintiff’s reliance for this view on Resetar v. Leonardi (1923) 61 Cal.App. 765 [216 P. 71] is . without substance. It is true that Resetar states that “in an action based upon a contract made by an agent it is proper to allege that it was made by the principal.” (Resetar, supra, 61 Cal.App. 765, at p. 767.) For this pleading rule, Resetar relies upon McGibbon v. Schmidt (1916) 172 Cal. 70 [155 P. 460],
But the McGibbon court points out that an allegation that a contract signed by one person was in fact the contract of another as a principal does not make a complaint containing such an allegation valid as against a special demurrer. Thus, the McGibbon court stated: “But where, as in the case here, the pleading shows that the agent alone signed the contract sued on, we are not prepared to say that the further statement that it ‘was in fact the contract of the defendant, duly authorized by him’ is not faulty, as being a conclusion of law.” (McGibbon, supra, 172 Cal. 70, at pp. 73-74.) McGibbon then proceeded to add: “But even if we concede that the complaint was defective in this particular, and that the defect may be reached without a special demurrer, we do not deem the ruling sufficient cause for reversal.” {Id., at p. 74.) (Italics added.)
In the case at bench, the allegation that the reinsurance contract in issue was a joint contract of Transport Underwriters and Transport Indemnity, although signed solely by Transport Underwriters, was clearly subject to the defendants’ special demurrers if not to their general demurrers. The trial court’s order sustaining the demurrers must be interpreted as referring to both the special and general demurrers in view of the language of the minute order: “All demurrers are sustained as to all causes of action per points and authorities and AT & SF v. Lan Franco, 267 CA2nd 881.” (Italics added.) In light of the McGibbon case, having been given án opportunity to amend its complaint upon the demurrers being sustained and, having failed to do so, plaintiff’s argument that its conclusiónaiy allegations were good against both the general and special demurrers is simply devoid of merit.
Plaintiff Security argues that Transport Indemnity, in its capacity as plaintiff’s insured, owed plaintiff, the insurer, a duty of good faith and fair dealing. Justice Dunn’s opinion rejects this argument by stating that the concept that an insured owes a duty of good faith and fair dealing to an insurer is derived from language used in Comunale v. Trader & General Ins. Co. (1958) 50 Cal.2d 654 [328 P.2d 198], but that *1018the language in Comunale leading to this view is dicta since the Comunale case actually dealt with the duty of the insurer to the insured.
I agree that the contract in Comunale concerned the covenant of good faith and fair dealing on the part of an insurer towards its insured. But it is my view that this is a well-settled rule of law that is applicable to each party in every contract and does not depend at all on any special relationship that exists between an insurer and an insured in insurance contracts. The rule of law that there exists as a part of every contract a covenant of good faith and fair dealing which imposes a duty upon each party not to do anything to injure the right of the other party to receive the benefits of the agreement, has been announced and applied, in a number of noninsurance contracts.
Thus, with respect to a written agreement relating to the production and sale of sugar beets which contained a discretionary power vested in one of the parties, it was stated that “where 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.” (Cal. Lettuce Growers v. Union Sugar Co. (1955) 45 Cal.2d 474, 484 [289 P.2d 785, 49 A.L.R.2d 496].)
In Brawley v. Crosby etc. Foundation, Inc. (1946) 73 Cal.App.2d 103 [166 P.2d 392], plaintiff and defendant had entered into a contract wherein plaintiff granted to defendant an exclusive license to exploit, manufacture and sell a rotary pump invention. Plaintiff claimed that the contract was invalid because it did not impose on defendant any obligation to use efforts to exploit, manufacture and sell the pump. In rejecting plaintiff’s contention, the court stated: “In this, as in eveiy contract, there is the implied covenant of good faith and fáir dealing; that neither party will do anything that would result in injuring or destroying the right of the other to enjoy the fruits of the agreement. [Citations.] The law will therefore imply that under its agreement appellant was obligated in good faith and by its reasonable and best efforts to develop, exploit, produce and make sales of the rotary pump in question.” (Brawley, supra, 73 Cal.App.2d 103, at p. 112.)
Examples of other cases similar to Brawley in which the covenant of good faith and fair dealing has been imposed with respect to noninsurance-type contracts are Brogdex Co. v. Walcott (1954) 123 Cal.App.2d 575 [267 P.2d 28] and Universal Sales Corp. v. Cal. etc. Mfg. Co. (1942) 20 Cal.2d 751 [128 P.2d 665]. It is my view, therefore, that *1019plaintiff makes a valid assertion in alleging that, as a part of its reinsurance contract with Transport Underwriters, Transport Underwriters, as the insured, owed to plaintiff Security, as the insurer, an obligation of good faith and fair dealing.
The major issue involved before us, however, is whether plaintiff has stated a good cause of action for a breach of this obligation of good faith and fair dealing. The breach urged is that Transport Indemnity executed a release to Flxible which constituted a destruction by the insured (Transport Indemnity) of the subrogation rights of plaintiff, the insurer. The release involved was declared valid in Gelfand v. Tanner Motor Tours, Ltd. (2d Cir. 1971) 450 F.2d 786, 787-788, in which the court stated; “The issue presented is the effect of a general release, executed by Tanner and unambiguous on its face, on Tanner’s claim for indemnity by Flxible [the Flxible Company] for liability incurred in a New York action stemming from the same accident in connection with which the release was signed. . . . [¶] . . . Tanner now claims that it can show by extrinsic evidence that the release does not, and was not intended to, bar Flxible’s liability for indemnity on any judgment the Gelfands are awarded against Tanner. The district court held that such a claim was barred as a matter of law. We agree.”
It is plaintiff’s contention that its complaint sets forth a good cause of action for breach in alleging that Tanner, the bus owner, whom plaintiff insured by virtue of its reinsurance contract with Transport, was entitled to be indemnified by Flxible, the bus manufacturer, with respect to injuries received by the Gelfands, who were injured as passengers on the Tanner bus and who sued Tanner to recover damages for their injuries.
Transport Indemnity suggests that the doctrine of equitable subrogation is inappropriate under the facts presented in the instant case. Transport Indemnity contends that Tanner had no right to be indemnified by Flxible and, hence, the giving of the release to Flxible is irrelevant and destroyed no subrogation rights against Flxible which could be asserted by plaintiff through Tanner. This argument is tenable and meritorious. Transport Indemnity relies on Atchison, T. & S. F. Ry. Co. v. Lan Franco (1968) 267 Cal.App.2d 881 [73 Cal.Rptr. 660], as supportive of the proposition that Tanner, and hence plaintiff Security, had no right of indemnification from Flxible. In my view, the Lan Franco case, decided on the pleadings, is not properly distinguishable from the case at bench and, hence, the plaintiff’s complaint stated no cause of action for equitable indemnity against the defendants.
*1020The allegations in the complaint (cross-complaint) for indemnity in Lan Franco were stronger than those in the case at bench. In Lan Franco the injured plaintiff filed a lawsuit against Santa Fe and Lan Franco and alleged that her injuries were due to the concurring negligence of Santa Fe and the Lan Franco truck. However, in Santa Fe’s cross-complaint for indemnity against Lan Franco, the railroad alleged that its liability was predicated solely upon the fact of its duty to exercise the highest degree of care toward its passengers and that the accident was solely and proximately caused by the negligence of the truck driver and that Santa Fe’s liability would rest solely on the doctrine of its being a common carrier with a higher degree of care. The Lan Franco court held that the pleadings, which included plaintiff’s complaint against Santa Fe and Lan Franco, as well as Santa Fe’s cross-complaint against Lan Franco, indicated that both Santa Fe and Lan Franco could be held liable to plaintiff as joint tortfeasors, with the result that Santa Fe’s claim against Lan Franco would be a case of contribution and not indemnity.
In the instant case, we do not have before us the pleadings of the Gelfands, who were injured as passengers on the Tanner bus and who sued Tanner to recover damages for their injuries. In paragraph 10 of the third amended complaint, Security alleges that the Tanner bus accident was proximately caused by a defect in the bus, owned and operated by Tanner, but which was designed and manufactured by Flxible Company, against whom Security claims Tanner had a right of indemnity, and that Security was subrogated to this right. Paragraph 10 further alleges that the accident was proximately caused by the active negligence of Flxible and that Tanner’s liability to the Gelfands would be based upon the high duty of care owed by Tanner as a common carrier and that a breach of this duty would amount to only the passive negligence on the part of Tanner.
As I view paragraph 10 of plaintiff’s complaint, it consists of nothing but conclusionary statements in exactly the same way as Santa Fe’s cross-complaint in the Lan Franco case contained only conclusionary statements. The Lan Franco court obviously paid no attention to the conclusionary allegations of the right to indemnity contained in Santa Fe’s cross-complaint, in light of the allegations in the injured plaintiff’s complaint — alleging concurrent negligence on the part of Santa Fe and Lan Franco.
In the case at bench, had plaintiff Security set forth the allegations contained in the Gelfands’ complaint against Tanner, we would be in a *1021position to determine whether the Gelfands’ basis of asserted liability againsUTanner was that of passive negligence only. In the instant case, the trial judge sustained the demurrers with leave to Security to amend its complaint. Since Security did not amend, it is my view that it is pure speculation to consider paragraph 10 of the complaint as alleging sufficiently that Tanner’s liability to the Gelfands would be predicated solely upon passive negligence as contrasted with Flxible’s liability based upon active negligence.
The failure and refusal of plaintiff to amend its third amended complaint, although given an adequate opportunity to do so, precludes plaintiff from validly claiming error by the trial court in sustaining defendants’ demurrers to the complaint — demurrers that were both general and special — and in the trial court’s order of dismissal following plaintiff’s failure and refusal to amend.