Court Opinion

ID: 9857119
Source: CourtListenerOpinion
Date Created: 2023-09-24 07:16:26.808609+00
Date Added: 2024-06-11T09:38:02.721296
License: Public Domain

DENECKE, J.,
dissenting.
The majority opinion holds that in an action to recover the costs of defense as indemnity, Westway must prove that both Westway and Chrysler were liable to Mrs. Berger, and as between themselves, Chrysler ought to pay.
In my opinion that is incorrect in the context of this case. The action is for the costs of defense. Westway did not pay anything to Mrs. Berger. Mrs. Berger’s complaint alleged a cause of action against both Chrysler and Westway which if proved would have entitled Westway to indemnity from Chrysler. In this indemnity action Chrysler has made no allegations or offered any proof that Westway was independently liable to Mrs. Berger. In that state of the record I am of the opinion that the plaintiff is entitled to indemnity.
*376• ■ Mrs. Berger alleged that Westway and Chrysler were strictly liable and negligent:
“(1) In failing to design and construct the front seat of said automobile in its track of proper materials so that it would not become disengaged as so above alleged. (2) In failing to warn of the dangers inherent in the use of the automobile as herein alleged. (3) In failing to properly test the front seat and its track so that it would withstand the impact above alleged.”
I believe Westway has a right to indemnity from Chrysler even though Westway failed to test the seat and to warn Mrs. Berger of the danger. If Chrysler had alleged and proved facts which would have made Westway independently liable or jointly liable," Westway probably could not recover. For example, if Chrysler had proved that it warned Westway of the defect and relied upon Westway to remedy the defect but Westway failed to do so. Chrysler has not done this in the present case.
Section 93 (1) of the Restatement of Restitution provides:
“* * * The usual application of the rule, however, is with reference to persons who are under a duty of care to third persons and who are made liable because of a failure to use care in the inspection of the chattels. Thus, the seller of a dangerous chattel is normally under a duty of care to make some inspection before selling the chattel (see Restatement of Torts, 400-402). A master is under a duty of care to his servants to inspect tools which he purchases from third persons (see Restatement of Agency, § 502). In such cases the fact that the claimant was negligent with respect to the person harmed does not prevent him from obtaining indemnity from the supplier, if his negligence consisted merely in failing to make an inspection and *377his failure was because of his belief due to representations by the supplier that the chattels were not defective. * * Restatement 409, Restitution § 93 (1).
Comment a. of this section provides:
“The rule stated in this Subsection applies where a person has sold or rented to the claimant, machinery, utensils or other chattels which have injured a third person during their use by the claimant, by the injured person or by some other person to whom the claimant sold, rented or lent them. The rule applies only where both the supplier and the other are liable in tort to the injured person.” Restatement, Restitution, supra, at 408.
Illustration 3 to this section states:
“A contracts to purchase from B 1000 gallons of kerosene for resale. B carelessly supplies gasolene to A in containers marked kerosene. A careful inspection would have revealed that gasolene was supplied. A sells some of the gasolene to C as kerosene and as a result, C is seriously harmed. C recovers judgment against A who pays the judgment. A is entitled to indemnity from B unless A was reckless, in failing to inspect.”
. Examples of the application of this section are Quality Market v. Champ. Valley Fruit, 127 Vt 562, 255 A2d 183 (1969), and De La Forest v. Yandle, 171 Cal App2d 59, 340 P2d 52 (1959). In the former a-retailer purchased bananas from a wholesaler and in turn sold them to a customer. The wholesaler had left-a glass thermometer in the bananas and the customer injured herself on the thermometer. The customer sued the retailer and wholesaler; the retailer tendered the defense to the wholésaler which the wholesaler refused. The customer’s action was settled before trial by a. contribution from both the retailer and *378wholesaler. The retailer brought this action for indemnity for the amount it paid in settlement and its defense costs. The court awarded indemnity for both items. The wholesaler urged that the retailer could not obtain indemnity because the retailer was independently liable. The court answered:
“In this light the most that can be said for the plaintiff’s [retailer] misconduct is a failure to discover, in its retail operation, the presence of the thermometer which the defendant Camplain Valley [wholesaler] had inserted in the banana. This shortage, of itself, will not defeat the plaintiff’s right to indemnity against the seller [wholesaler] who put the harmful cause in motion. * * *.
is* ^
“* * * Since it appears that the plaintiffs’ fault in its duty to the injured person was secondary to the initial negligence of the defendant, its right to restitution.is established. Restatement, Restitution, 76, 93(1).” 127 Vt at 564-566.
In De La Forest v. Yandle, supra (171 Cal App2d 59), Mast had a trailer that needed repairs. He took it to De La Forest for such purpose. De La Forest sublet the work to repairmen. The repairmen made the repairs and returned it to De La Forest who in turn delivered it to Mast. Mast used the trailer and as a result of defective repairs a person was lolled by the trailer. The decedent’s widow sued Mast and De La Forest who demanded that the repairmen defend them. They refused and Mast and De La Forest settled and brought this action against the repairmen for indemnity.
• The complaint by the decedent’s widow against Mast and De La Forest alleged they were negligent “ ‘in the driving, operating, ownership, sale, manufac*379ture, repair, inspection, control and maintenance of said trailer.5 55 The court stated:
“* * * De La Forest was charged with the duty of inspecting their work before installing the axle on the Mast trailer and Mast was charged with the duty of inspecting the axle before reinstallation and use. Nevertheless, according to the allegations of the complaint, appellants reasonably relied upon the care of respondents [repairmen] and such reliance was justified. Under the circumstances appellants are entitled to indemnity.55 171 Cal App2d at 61.
To the same effect see London Guar. & Acc. Co. v. Scale Co., 322 Mo 502, 512-513, 15 SW2d 766 (1929). The majority holds that in this transaction in which Mrs. Berger’s action never went to judgment, Westway cannot recover its costs of defense until and unless it proves in this indemnity action that both it and Chrysler were in reality liable to Mrs. Berger and Chrysler was “primarily liable.”
Logically, it seems to me to follow that the majority would also have to hold that if Westway successfully defended against Mrs. Berger’s action it also could not recover its defense costs unless it proved in an indemnity action against Chrysler that Westway and Chrysler were liable to Mrs. Berger. It would also seem to me that after successfully defending against Mrs. Berger’s claim Westway would be collaterally estopped from taking a contrary position and contending that it and Chrysler were liable.
If Westway were not collaterally estopped or if Westway, or Chrysler, as in this case, settled Mrs. Berger’s claim, it usually will not be practical for West-way to prove it and Chrysler liable. Westway’s costs of defense which ended before trial because of *380Chrysler’s settlement was $1,995.90. Westway’s cost to go through trial to prove itself and Chrysler liable would have to substantially exceed this amount. The accepted law is that the indemnitee cannot recover its costs in establishing its claims against its indemnitor. Pacific Tel. & Tel. Co. v. Chick, 202 Cal App2d 708, 719, 21 Cal Rptr 326 (1962); Continental Casualty Company v. Reddick, 196 S2d 239, 241 (Fla App 1967).① For this reason it would cost more for West-way or any other would-be indemnitee to attempt to secure indemnity than the amount sought to be recovered. The result is that as a practical matter Westway or one in its position will not secure indemnity.
In support of its decision the majority cites § 76 of the Restatement of Restitution and in footnote 1, decisions of this court. The distinction between the authorities cited by the majority and this case is that in the cases cited the party seeking indemnity paid something to' a third party claiming liability and the party seeking indemnity is seeking reimbursement for that sum paid. In the present case neither Westway nor United States Fire Ins. Co. paid Mrs. Berger anything.
. This distinction is significant.- If Westway made a payment to Mrs. Berger for which it had no liability,it would be a rank volunteer, and there would be no justification for its being reimbursed by anyone. If Chrysler were not liable to Mrs. Berger, Westway would be conferring no benefit on Chrysler by paying *381Mrs. Berger; so there is no basis for Westway being reimbursed by Chrysler.②
The expenditure by United States Fire Ins. Co. for defense is in a different category. Chrysler would not defend Westway. If Westway did not defend, its liability to Mrs. Berger would be established by default and Westway and United States Fire Ins. Co. could recover whatever they had to pay Mrs. Berger from Chrysler unless Chrysler pleaded and proved Westway was independently and “primarily” liable to Mrs. Berger. United States Fire Ins. Co.’s expenditure for defense inured to Chrysler’s benefit because Chrysler had no obligation to Mrs. Berger if United States Fire Ins. Co.’s defense was successful.
There are several reasons why Westway’s insurer, United States Fire Ins. Co., should be granted indemnity for its defense costs.
A refusal to allow indemnity until and unless Westway proves that it and Chrysler were really liable to Mrs. Berger would substantially shrink the extent of indemnity. Westway is sued. It tenders the defense to Chrysler. Chrysler has a duty to accept the defense because any liability of Westway must be reimbursed by Chrysler. That Chrysler has a duty to defend is evidenced by the fact that if it fails to defend, and Mrs. Berger secures a judgment against Westway, and in the indemnity action Chrysler does not prove Westway was independently liable to Mrs. Berger, Chrysler must pay the amount of the judgment as well as Westway’s defense costs.
“* * * The original seller’s liability in rela*382tion thereto extends to damages sustained by his purchaser because of injuries to third persons to whom the property was resold proximately caused by breach of the warranties. * * *.
“In such situations, the liability of the original seller is concluded by a judgment obtained against his purchaser in an action against the latter for breach of the warranties, provided the seller was duly notified of the commencement of the prior action and was tendered the defense thereof. * * *. The seller’s liability under such circumstances extends to the amount of the judgment obtained against his purchaser and also the necessary expenses, including costs and attorney’s fees, incurred by the purchaser in defense of the action. * * Liberty Mutual Insurance Co. v. J. R. Clark Co., 239 Minn 511, 518, 59 NW2d 899 (1953).
If Westway is successful in defending or Chrysler changes its mind and settles for Westway after West-way has incurred some defense costs, it would seem Westway ought to be made as whole as it would if Mrs. Berger prevailed. Chrysler ought to be required to pay defense costs to a party who successfully defends for Chrysler as well as to one who unsuccessfully defends for Chrysler.
Robert Leñar wrote:
“* * * Other types of the right to indemnity are commonly called quasi contractual, or arising out of a ‘contract implied by law.’ Indemnity between persons liable for a tort falls within this type of case. As between such persons, the obligation to indemnify is not a consensual one; it is based altogether upon the law’s notion—influenced by an equitable background—of what is fair and proper between the parties. * * *. The quasi contractual idea of unjust enrichment of course underlies any holding that one who has been compelled in discharging his own legal obligation to pay off a *383claim which in fairness and good conscience should be paid by another can secure reimbursement from that other. * * Leflar, Contribution and Indemnity Between Tortfeasors, 81 Pa L Rev 130, 146-147 (1932).
About 40 years later William Prosser wrote in a similar vein:
“* * * Indemnity is a shifting of responsibility from the shoulders of one person to another; and the duty to indemnify will be recognized in cases where community opinion would consider that in justice the responsibility should rest upon one rather than the other. * * Prosser, Law of Torts (4th ed) 313, § 52.
At least to me it seems eminently “fair and proper” and in line with what I would consider to be the community opinion of “justice” that Chrysler should pay Westway’s costs of defense. Westway was “fighting Chrysler’s battle.” In the event Mrs. Berger won, Chrysler would have to reimburse Westway in full, including costs of its unsuccessful defense. Why is it not completely “fair and proper” for Chrysler to pay for Westway’s successful defense? If Westway is successful and prevents any liability from being imposed upon Chrysler, why is it not “fair and proper” to require Chrysler to pay for this service? Westway’s defense was for the benefit of Chrysler. The majority holds that if Westway is successful for the benefit of Chrysler, Westway must bear the expense. If West-way is. unsuccessful to the detriment of Chrysler, Chrysler must reimburse Westway for its expense.
None of the authorities cited by the majority hold or advocate the position the majority espouses. All the authorities the majority cites concern payments to the injured party, not payment of the costs *384of defending against a claim, which if successfully prosecuted would he the obligation of the. indemnitor.
I was of the opinion, as was the trial court, that this court had already decided that one in the position of Westway was entitled to indemnity. In St. Paul Fire & Marine v. Crosetti Bros., 256 Or 576, 475 P2d 69 (1970), the defendant and indemnitor, Crosetti Bros., rejected the tender of defense by the indemnitee; however, Crosetti later settled the action against it and the indemnitee. The indemnitee brought an action for the indemnitee’s defense costs. We held the indemnitee could recover. The facts are identical to those in this case except in Crosetti there was an express indemnity agreement. Our opinion, however, was not based upon this distinction.
The majority attempts to distinguish Crosetti. I do not believe the distinctions made are valid. The complete context of the paragraph quoted by the majority is as follows:
“The defendant also contends: £[T]he terms of the indemnity clause do not require a payment for defense costs where the indemnitee has not incurred some obligation for “damages,” either by way of a settlement or a judgment.’ Defendant cites in support thereof Hunter v. Missouri-Kansas-Texas Railroad Company, 276 P Supp 936, 944 (ND Okla 1967). The language of the indemnity contract in that case was similar to that in the present case and the decision does support the defendant’s position.
“In St. Paul Fire v. U. S. Nat. Bank, 251 Or 377, 446 P2d 103 (1968), we recently awarded defense costs to an indemnitee although the indemnitee obtained a judgment in his favor and, therefore, did not incur any obligation to pay damages. No issue, however, was raised in that case on this particular point.
*385“The rule in most jurisdictions, regardless of whether indemnity is based upon an implied or an express agreement, is that when a claim is made against an indemnitee for which he is entitled to indemnification, the indemnitor is liable for any reasonable expenses incurred by the indemnitee in defending against such claim, regardless of whether the indemnitee is ultimately held not liable. * * *.” 256 Or at 579.
The basis of our holding was that an indemnitee is entitled to reimbursement for its defense costs regardless of whether it is ever proved that the indemnitee is liable to a third party and this rule should apply whether the indemnity be contractual or implied.
Section 80 of the Restatement of Restitution is entitled “Amount of Recovery” in indemnity. Comment b. states:
“* * * If suit is brought against a person liable as surety upon an obligation he can notify the principal obligor and give him an opportunity to defend the suit; upon failure of the principal obligor so to do the secondary obligor is entitled to all expenses of suit, .whether successful- or unsuccessful, if the conduct of the suit is reasonable. * Restatement 357, Restitution § 80. (In this section the Restatement .appears to use “surety” as synonymous with “payor,” its synonym for “indemnitee.” . . .
Section 107 of the Restatement of Judgments provides, in part: . ■ . - .....f-; •
“In ah action, for indemnity between two. persons who stand in such relation to each-other that -one of them has a duty of indemnifying the other upon, a claim by a third person, if, the thi,rd.person bas obtained a valid judgment'on this claim in a separate action against ■ '":
“(a) the indemnitee, both are bound as to the *386existence and extent of the liability of the indemnitee, if the indemnitee gave to the indemnitor reasonable notice of the action and requested him to defend it or to participate in the defense; * * Restatement 511, Judgments § 107.
Comment i. to this section states:
“Where a right of indemnity exists, the relation between the parties ordinarily entitles the indemnitee to recover not merely the amount of the judgment against him but also the amount of the expenses for attorney’s fees. This is true even if the judgment is in his favor. Thus where an agent becomes a party to a contract at the request of the principal and is sued for breach of contract by the other contracting party, if the breach is without his fault he is entitled to indemnity from the principal for the expense of maintaining a successful defense (see the Restatement of Agency § 439). This result does not depend upon any principle of res judicata.” Restatement, Judgments, supra, at 518.
The phrase, “Where a right of indemnity exists,” must be read, “Where the right of indemnity would exist if the third party suing the indemnitee had prevailed.” This must be the meaning otherwise the phrase would be inconsistent with the statement, “This is true even if the judgment is in his [indemnitee] favor.” If the judgment is in the indemnitee’s favor there can be no right to indemnity except for the cost of the successful defense.
The majority construes Paliaga v. Luckenbach Steamship Company, 301 F2d 403 (2d Cir 1962), differently than I do. A longshoreman sued a ship for injuries. The ship impleaded the stevedore contending that if it were liable to the longshoreman it was entitled to indemnity from the stevedore because the ultimate fault was that of the stevedore. There was no *387contract of indemnity. The stevedore settled the longshoreman’s claim and the longshoreman’s claim against the ship was dismissed. There was no decision that either the ship or the stevedore had any liability to the third party, the longshoreman. These facts are exactly parallel to those in onr case. The court held the ship was entitled to recover its costs of defense from the stevedore.
I believe that the majority opinion is incorrect for the further reason that it would discourage settlements, whereas, the law normally seeks to encourage settlement. Westway has nothing to gain by settling. Westway’s best posture is to put up a “half-hearted” defense and hope it loses. Chrysler can thwart West-way by settling at any time before judgment. If West-way will not agree to a dismissal against itself and goes on to win, according to the majority, Westway must go on to prove that Chrysler and itself were liable to Mrs. Berger before it can recover defense costs.
Based upon the fundamental purposes of the law of indemnity, what I believe to be unsatisfactory practical consequences of the majority decision, and the past decisions of this court and the other authorities, I am of the opinion the majority decision is incorrect.
Tongue, J., also dissents.

 These are contract indemnity cases; however, if costs are not payable in contract indemnity a fortiori they are not payable in ..actions to secure implied indemnity.

 I am omitting any reference to the situation in which indemnitee proves that, the settlement was reasonable and in good faith. In the present case the indemnitor, Chrysler, not the indemnitee, made the settlement.