Court Opinion

ID: 9655744
Source: CourtListenerOpinion
Date Created: 2023-08-23 19:20:32.534293+00
Date Added: 2024-06-11T18:13:19.662494
License: Public Domain

Hays, J.
(dissenting) — I am unable to agree with the majority opinion and respectfully dissent.
The single issue presented by this appeal is the construction to be placed upon the first of the two .clauses in the contract, quoted in the majority opinion, as all are agreed that no recovery may be had under the second clause thereof.
The primary rule of construction is to give effect to the intention of the parties and to avoid unfair and unreasonable results where possible. Darnall v. Day, 240 Iowa 665, 37 N.W.2d 277. In my judgment the majority opinion has failed to ascertain the intention of the parties and has reached an unfair and unreasonable result.
In ascertaining the intention, while each contract must be construed according to its own terms, and, if possible, effect be given to all the language used therein, the courts hold it to be important for them to consider not only the language employed but the circumstances surrounding the parties and the object in view which induced the making of it. Annotation 175 A. L. R. 8, 29, and authorities cited therein. Applying this formula to the instant case: We have a corporation and a copartnership dealing at arm’s length. The Railway Company has by virtue of its business certain well-defined and well-recognized duties to the public. By granting to the copartnership a right to use part of its facilities, that duty might be breached or enlarged because thereof. By the contract the Railway Company is seeking to protect itself from every and all possible damage that might *953arise against it on account of tbis new use. By no reasonable hypothesis am I able to find anything in the contract other than a desire, to protect the Railway Company from acts of the other party to the contract, over which it has no control.
It is conceded in the majority opinion that the claim for which recovery is sought is based upon voluntary and gratuitous expenditures made for the injured party, Stewart. To say that the Railway Company sought to protect itself against its own voluntary and gratuitous expenditures, and that is the effect of the holding in the majority opinion, is, to say the least, highly illogical. While it is true that parties may contract as they please so long as not against public policy, it is certainly contrary to experience and against reason that the copartnership should agree to assume and pay for the gratuitous acts of the Railway Company. It would make it an insurer, or impose a liability upon it, the extent of which would be uncertain, indefinite and entirely in the hands of the Railway Company.
Clause two of the contract, quoted by the majority opinion, is admitted to be one for indemnity. Clause one thereof is said to be more comprehensive than the second and constitutes an absolute and unqualified promise to pay. The majority opinion quotes from State v. Cordaro, 214 Iowa 1070, 1075, 241 N.W. 448, 450, to the effect that a contract of indemnity is quite different than an absolute promise to pay. This may be true, and the same opinion goes on to say:
“ ‘The law recognizes a well-defined difference between covenants of indemnity against loss, and covenants to assume or pay a liability. In the former class [indemnity contracts] the covenant is not broken, and no right of action accrues, until a loss has been suffered against which the covenant runs, while in the latter class [assume and agree to pay] the covenant is broken, and a right of action accrues, whenever the liability is fixed and absolute.’ ”
Also cited in the majority opinion is Hipwell v. National Surety Co., 130 Iowa 656, 105 N.W. 318, quoting “in no plainer language could the contractor have agreed »‘to promptly pay for all labor and materials used in and about the building.’ ” I do not take issue with the majority opinion as to its being an *954absolute promise to pay, but to pay what? In every case cited in tbe majority opinion the thing for which recovery was sought was a legal claim. They are no basis for holding the instant contract covers gratuitous expenditures.
The majority opinion also states: “The agreement * * * seems to have been intended not merely for plaintiff’s protection but also for the benefit of persons injured from use of the crossing. There is little doubt that Stewart, had he seen fit, could have recovered these expenses from defendants by virtue of the agreement”, citing rule 3, R. C. P., which specifically deals with public bonds, and rule 2, R. C. P., which allows one making a contract for the benefit of a third party to sue in his own name without joining the party for whose benefit the contract was made.
In my judgment' this contract is not such a contract for the benefit of a third party as would allow such third party to sue thereon. 17 C. J. S., Contracts, section 519(2)b, page 1127, says: “Beneficiaries of contracts to which they are not parties have been divided into donee beneficiaries, creditor beneficiaries, and incidental beneficiaries, it being held that only those falling within the first two classes may enforce contracts for their benefit.” To the same effect see Restatement, Contracts, section 147; In re Estate of Walker, 234 Iowa 1126, 15 N.W.2d 260. If the instant contract be for the benefit of a third party it must be under the third class above-stated, i.e., incidental beneficiary, as no one is expressly named therein. It is not a public bond hence rule 3, R. C. P., has no application. If rule 2, R. C. P., has any application it must be upon the theory that the contract was for the third party exclusively, which of course it is not. Brill v. Brill, 282 Pa. 276, 280, 127 A. 840, 842, announces what appears to me to be an excellent statement of the test as to the third person’s rights under the contract. It is: “whether the promise is made primarily for the benefit of the other party to the contract * * that is to say, whether the payment is in relief of the promisee and the fact that the money is to be paid to the third person is merely a matter of arrangement or convenience, for the other party to the contract, or whether the primary purpose and object of the promise are to benefit the *955third person.” Clearly, any benefits that accrue to the third party under the instant contract are merely incidental, the object being to protect the promisee thereof.
The majority opinion further states that if the only purpose of the quoted paragraph of the contract was to provide for indemnity (legal liability) the language in the first clause thereof is useless surplusage. I do not agree. Assuming that it goes further than a mere indemnity and is not merely an elaboration thereof, I think it gives to the Railway Company a benefit which it would not have under a strict indemnity contract. Rule 28, R. C. P., provides:
“An action heretofore cognizable only after another has been prosecuted to conclusion may be joined with the latter; and the court shall grant relief according to the substantive rights of the parties. But there shall he no joinder of an action against an indemnitor or insurer with one against the indemnified party-, unless a statute so provides(Italics added.)
Construing the contract in this light gives effect to both clauses and reaches a reasonable result.
I would hold that the parties contemplated only legal liability being covered by the contract; that by agreeing to assume and pay, the copartnership agreed to become a party to any suit against the Railway Company without requiring that a judgment be first obtained, as is the case under Clause two. I would reverse the judgment of the trial court.
MulroNey and THOMPSON, JJ., join in this dissent.