Court Opinion

ID: 9458492
Source: CourtListenerOpinion
Date Created: 2023-08-04 20:53:26.968168+00
Date Added: 2024-06-11T17:35:47.111677
License: Public Domain

BUTZNER, Circuit Judge
(dissenting) :
The tort aspects of this controversy can be recounted quite briefly. Mc-Corkle, a New York resident, while intoxicated ran down Kline, a Virginian, at the edge of a road near Nags Head, North Carolina. Applying North Carolina tort law, the jury found that Mc-Corkle was negligent and awarded Kline $52,000 for his severe injuries. Unquestionably, the tort issues were properly decided under North Carolina law, the place where the accident occurred, Petrea v. Ryder Tank Lines, Inc., 264 N.C. 230, 141 S.E.2d 278 (1965); Shaw v. Lee, 258 N.C. 609, 129 S.E.2d 288 (1963), and no appeal of them has been noted.
Kinney, the company that rented a car to McCorkle, contends that under North Carolina tort law it is not liable for *188McCorkle’s negligence. The flaw in this contention is that Kinney’s relationship with McCorkle did not arise out of the tort. The relationship was created by the contract Kinney and McCorkle executed for the rental of the car, and it is to the contract that we should look to ascertain Kinney’s responsibility. I agree with the district judge that the rental agreement imposes liability on Kinney. Kline v. McCorkle, 330 F.Supp. 1089 (E.D.Va.1971).
I believe the Supreme Court of North Carolina would determine a car rental company’s liability for the torts of its customer by examining the terms of the contract which the parties executed for the hire of the car. This is certainly the common sense way to determine the company’s liability, and it is the method followed by Levy v. Daniel’s U-Drive Auto Renting Co., 108 Conn. 333, 143 A. 163 (1928), on which the district court relied. Therefore, we should apply the contracts conflict of laws rules of North Carolina. On this aspect of the case there can be no doubt. In the absence of exceptional circumstances which are not present here, see Cannaday v. Atlantic Coast Line R. R., 143 N.C. 439, 55 S. E. 836, 838 (1906), the settled North Carolina rule is that the law of the state in which the contract was made governs the rights and obligations of the parties. Roomy v. Allstate Insurance Co., 256 N.C. 318, 123 S.E.2d 817, 820 (1962).
In our case, the contract was made in New York between a New York resident and a corporation having its office and principal place of business in that state. McCorkle’s journey began in New York and was to end there. In fact, the only connection between the dispute and North Carolina was the purely fortuitous site of the accident, but this is insufficient to require the application of North Carolina law to the construction of the rental agreement. On this issue, Roomy v. Allstate Insurance Co., 256 N. C. 318, 123 S.E.2d 817 (1962), is precisely in point. That case involved a dispute over the coverage of an insurance policy that had been issued in New York. Although the accident occurred in North Carolina, and an identical policy written in North Carolina would have afforded coverage, the Court applied New York law to deny coverage.
North Carolina’s public policy will not be offended by following New York law. Sensible to the dangers to which the public is exposed by the operators of rented cars who may carry no insurance, the North Carolina legislature requires the lessor to carry insurance covering his own liability and that of his customers. N.C.Gen.Stat. § 20-281 (Supp. 1971). Although North Carolina’s method of securing this protection differs from New York’s, the public policies of both states are essentially similar.
Of course, in surveying New York law, the North Carolina Court would give initial consideration to New York’s conflict of laws rules. This question, however, presents little problem for it is reasonably clear that New York would apply its own substantive law. See Babcock v. Jackson, 12 N.Y.2d 473, 240 N.Y.S.2d 743, 191 N.E.2d 279 (1963); Auten v. Auten, 308 N.Y. 155, 124 N.E.2d 99 (1954).
The next step is to interpret the Kinney-McCorkle contract in accordance with the laws of New York. Although the agreement does not recite that Kinney will assume liability for McCorkle’s negligence, it imposes this liability by expressly conforming its terms to all pertinent New York statutes. Paragraph 9 of the rental contract provides in part:
“CONFLICT WITH STATE STATUTES: Notwithstanding anything herein contained, if any of the terms or conditions of this Rental Agreement conflict with the statutes of the state wherein Vehicle is rented, this Rental Agreement is hereby amended to conform to such statutes. . . . ”
For our purposes, it is significant to note that the parties contracted to have their relationship determined by the law of New York, where the rental agree*189ment was made, and not the law of North Carolina, where the accident occurred. I believe the conformity clause is broad enough to amend the rental agreement by incorporating N.Y.Vehicle & Traffic Law § 388, subd. 1 (McKinney 1970), which provides in part:
“Every owner of a vehicle used or operated in this state shall be liable and responsible for death or injuries to person or property resulting from negligence in the use or operation of such vehicle, in the business of such owner, or otherwise, by any person using or operating the same with the permission, express or implied, of such owner . . . . ”
This statute has been interpreted to allow the victim of the driver’s negligence a direct cause of action against the owner of the car. See Plath v. Justus, 28 N.Y.2d 16, 319 N.Y.S.2d 433, 268 N.E.2d 117 (1971). Moreover, there can be no doubt that the statute embraces permissive use evidenced by a rental agreement. Cf. Continental Auto Lease Corp. v. Campbell, 19 N.Y.2d 350, 28 N.Y.S.2d 123, 227 N.E.2d 28, 29 (1967).
Were it not for the conformity clause of the rental agreement, there might be some doubt about the propriety of incorporating the statute into the contract. In Cherwien v. Geiter, 272 N.Y. 165, 5 N.E.2d 185 (1936), the Court held that this statute was not by implication incorporated into the terms of a gratuitous bailment made in New York. There a Pennsylvania resident visiting in New York lent his car to his son, who injured New York residents in an accident that occurred in New Jersey. The Court absolved the owner of liability, reasoning that the statute applied only while the motor vehicle was operated on a public highway in New York. Even so, Cherwien is not the last word on the subject. Thirty-one years later, Farber v. Smolack, 20 N.Y.2d 198, 282 N.Y.S.2d 248, 229 N.E.2d 36, 39 (1967), expressly repudiated Chenoien’s “restrictive view.” New York now holds that the statute has extraterritorial effect despite its apparent restriction to operation of a vehicle “in this state.” Applying the statute to a gratuitous bailment made in New York when a New York resident was injured in North Carolina, the Court said:
“Nor should we place undue emphasis on the term to which reference has been made ‘in this state’ in the statute. It is clear that in adding the words ‘in this state’ to the predecessor of subdivision 1 of section 388 . . ., the Legislature was not concerned with extraterritorial effect. It was substituting ‘in this state’ for the former words ‘upon a public highway’ in order to cover the situation of an accident on private roadways and parking lots. ...” 229 N.E.2d at 39.
Moreover, the extraterritorial effect of the statute has been recognized even when the victim is not a New York resident. In Johnson v. Hertz Corp., 315 F.Supp. 302 (S.D.N.Y.1970), the court applied the statute when the operator of a vehicle which had been rented in New York injured a Massachusetts resident in New Jersey. Judge Tyler premised his conclusion in part upon the interplay between the statute and the extraterritorial effect the New York legislature has ascribed to its insurance laws. He noted that subdivision 4 of § 388 requires all insurance to afford coverage for the liability created by § 388, subd. 1.1 He also pointed out that N.Y.Vehicle & Traffic Law § 311, subd. 4(a) (McKinney 1970), specifies that insurance required for vehicles registered in New York include coverage for accidents oc*190curring elsewhere in the United States.2 Judge Tyler was undoubtedly correct in giving effect to the close relationship between the statute and New York insurance law. The reason for their inseparability is explained in Continental Auto Lease Corp. v. Campbell, 19 N.Y.2d 350, 280 N.Y.S.2d 123, 227 N.E.2d 28, 29 (1967), where the Court said:
“Section 388 . . . imputes to the owner of a motor vehicle the negligence of one who uses or operates it with his permission for the purpose of imposing on the owner liability to an injured third party. This enactment expresses the policy that one injured by the negligent operation of a motor vehicle should have recourse to a financially responsible defendant. The owner of the automobile is the obvious candidate, for he can most easily carry insurance to cover the risk.”
The New York Court of Appeals has also commented on the extraterritorial effect of the New York insurance law. Speaking of § 311, on which Judge Tyler relied, the Court observed that the legislature “has evinced commendable concern not only for residents of this State, but residents of other States who may be injured as a result of the activities of New York residents.” Tooker v. Lopez, 24 N.Y.2d 569, 577, 301 N.Y.S.2d 519, 526, 249 N.E.2d 394, 399 (1969).
In light of the New York statutory scheme that links the liability of the lessor of a car with the requirement that he carry insurance, it is apparent that the parties intended that some of the rent paid by McCorkle was to provide Kinney with insurance for the risk it assumed. The agreement, moreover, allowed McCorkle no discount when she used the car outside of New York. Therefore, we may assume that Kinney recognized that the contract would be interpreted in accordance with the laws of New York to continue its risk wherever the car was operated. I am confident that neither North Carolina nor New York would give Kinney or its insurance carrier a windfall at Kline’s expense because of the fortuitous site of the accident. I would affirm the judgment of the district court.

. N.Y. Vehicle & Traffic Law § 388, subd. 4:
“All . . . policies of insurance issued to the owner of any vehicle subject to the provisions of this section shall contain a provision for indemnity or security against the liability and responsibility provided in this section.

. N.Y. Vehicle & Traffic Law § 311, subd. 4(a) :
“ . . . Every such owner’s policy of liability insurance shall provide insurance subject to said regulation against loss from the liability imposed by law for damages, including damages for care and loss of services, because of bodily, injury to or death of any person and injury to or destruction of property arising out of the ownership, maintenance, use, or operation of a specific motor vehicle or motor vehicles within the state of New York, or elsewhere in the United States in North America or the Dominion of Canada.