VINNELL COMPANY v. Pacific Electric Railway Company, a corporation, Appellant.*

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District Court of Appeal, Second District, Division 3, California.

VINNELL COMPANY, Inc., a corporation, Plaintiff and Respondent, v. PACIFIC ELECTRIC RAILWAY COMPANY, a corporation, et al., Defendants. Pacific Electric Railway Company, a corporation, Appellant.*

No. 23260.

Decided: January 19, 1959

E. D. Yeomans, Edward A. Hume, and James W. Obrien, Los Angeles, for appellant. Thelen, Marrin, Johnson & Bridges; Callaway, Kirtland & Packard, and Wallace C. Reed, Los Angeles, for respondent.

This action was submitted to the trial court upon an agreed statement of facts from which the following appears:

The Los Angeles County Flood Control District undertook the project of constructing a storm drain system to service a portion of the city of Long Beach, the terminal end of which was to lie underneath the Fairbanks Yard of the defendant and cross-complainant Pacific Electric Railway Company, hereinafter referred to as ‘railroad,’ and its outlet to be at the Los Angeles County Flood Control channel which borders the westerly side of the railway yard.

On or about the 21st day of October 1954 the plaintiff and cross-defendant Vinnell Company, hereinafter referred to as ‘Vinnell’ or ‘contractor,’ entered into a contract with the flood control district by the terms of which Vinnell agreed to construct, among other things, that portion of the storm drain project which was to lie below the surface of the railroad's Fairbanks Yard and to terminate at the Los Angeles Flood Control channel.

On or about the 28th day of December 1954 the flood control district entered into an agreement with the railroad whereby the railroad gave the flood control district the right to enter upon the Fairbanks Yard to construct a storm drain below the surface of the railroad tracks and an easement was granted to the flood control district for the use of the railroad's land for the described project. This right of entry and easement was granted by the railroad to the flood control district without charge.

On or about April 26, 1955, Vinnell and the railroad entered into an agreement whereby the railroad granted Vinnell the right to enter upon its Fairbanks Yard for the purpose of constructing the described storm drain. This agreement, after reciting that the railroad had entered into an agreement permitting the district to construct and maintain a storm drain under railroad's tracks located at its Fairbanks Yard and that Vinnell had entered into a contract with the district covering the work to be performed in connection with construction of said storm drain, in consequence of which it would be necessary for Vinnell, its agents and employees and subcontractors and the agents and employees of such subcontractors, to enter upon railroad's property and the premises adjacent thereto, provides that the railroad in consideration of the faithful performance of the promises and covenants contained in the agreement grants permission to Vinnell to enter upon its property. Among other things, Vinnell covenants and agrees to procure, in advance of performing any work upon the railroad's premises, contractors' public liability insurance with a limit of liability of not less than $200,000 for all damages arising out of bodily injuries to or death of any one person with a total limit of not less than $400,000 for all damages arising out of bodily injuries to or death of two or more persons in any one accident or occurrence. Also contractors' property damage liability insurance with a limit of not less than $50,000 for all damages arising out of injuries to or destruction of property in any one accident or occurrence with a total limit of not less than $100,000 for all damages arising out of injury to or destruction of property during the policy period and also ‘without limitation as to the generality of the foregoing * * * Public Liability and Property Damage Insurance in amounts not less than $200,000/400,000 Public Liability and $50,000/100,000 Property Damage Insurance, insuring the contractual liability of Contractor under the provisions of Section 8 hereof.’ Section 8 of the agreement last referred to reads as follows:

‘8. Contractor hereby releases and agrees to indemnify and save Railroad harmless from and against any and all injuries to and deaths of persons, claims, demands, cost, loss, damage and liability, howsoever same may be caused, resulting directly or indirectly from the performance of any or all work to be done upon the property and beneath the tracks of Railroad and upon the premises adjacent thereto under said agreement between District and Contractor, also from all injuries to and deaths of persons, claims, demands, cost, loss, damage and liability, howsoever same may be caused, either directly or indirectly, made or suffered by said Contractor, Contractor's agents, employes and subcontractors, and the agents and employees of such subcontractors, while engaged in the performance of said work.’

This agreement was prepared by the railroad and submitted to Vinnell on April 18, 1955. At no time prior to the accident in question were the provisions of section 8 of said agreement discussed by the parties thereto. The agreement was executed by Vinnell with no modifications being made in the agreement and returned to the railroad on April 26, 1955. Thereafter, Vinnell entered upon the railroad's Fairbanks Yard and commenced its operations under its contract with the flood control district.

The nature of the construction by Vinnell was such that the railroad took up its tracks in stages and constructed detours, after which Vinnell excavated the required ditch and laid the storm drain conduits. The railroad's employees engaged in operating a frieght train through the yard mistakenly lined a switch in such fashion as to direct a railroad train along a track that had been terminated at the excavation rather than along a track that had been used as a detour. It is admitted by the railroad that such action on the part of the railroad's employees amounted to negligence. As a result the locomotive and train ran off the end of the track and into the excavation in which work was proceeding, damaging Vinnell's work in progress in the agreed sum of $1,591.55. The railroad's property was damaged in the agreed sum of $2,872.19. An employee of railroad suffered personal injuries as a result of this accident and has made a claim for damages against both Vinnell and the railroad.

The question presented is whether the provisions of section 8 of the agreement above quoted operate to exclupate the railroad from liability for its own negligent actions and whether by reason thereof Vinnell is required to indemnify the railroad for the damage to its locomotive and hold the railroad harmless from liability to its employee for his injuries suffered as a result of the accident in question.

The trial court held that by their agreement the parties did not intend that Vinnell should indemnify the railroad against liability for damage caused by the railroad's sole negligence or release the railroad from liability to Vinnell for damages sustained by it as a result of the railroad's negligence. From the ensuing judgment so declaring railroad appeals.

It was settled at a relatively early date in this state that except in cases where the public interest or some statutory provision was involved a party to a contract may absolve himself from liability for his future negligence. Stephens v. Southern Pac. Co., 1895, 109 Cal. 86, 41 P. 783, 29 L.R.A. 751. However, such contracts are not looked upon with favor by the courts and ‘where the language of an instrument purporting to exculpate one of the parties for its future negligence was prepared entirely by the party relying on its terms, words clearly and explicitly expressing that this was the intent of the parties are required.’ Basin Oil Co. of California v. Baash-Ross Tool Co., 1954, 125 Cal.App.2d 578, 595, 271 P.2d 122, 132. Nonetheless, ‘[w]here such is the clear intention of the parties the agreement will be enforced.’ Rice v. Pennsylvania R. Co., 2 Cir., 1953, 202 F.2d 861, 863.

That the language of the agreement here is sufficiently comprehensive to indemnify the railroad against loss or damage occasioned by its own negligence was directly held in Southern Pac. Co. v. Fellows, 1937, 22 Cal.App.2d 87, 71 P.2d 75. In ascertaining the intention of the parties to a contract resort is to be had to ‘the circumstances under which it was made, including the situation of the subject of the instrument, and of the parties to it.’ Code Civ.Proc. § 1860; Civ.Code, § 1647. Thus, the inquiry in each case is whether the language of the particular instrument when viewed in the light of the circumstances under which it was executed and the situation of the parties is such as to manifest that the parties intended this result. Basin Oil Co. of California v. Baash-Ross Tool Co., supra; Sproul v. Cuddy, 1955, 131 Cal.App.2d 85, 280 P.2d 158.

Construed in the light of the foregoing principles we are of the view that the language of the contract here in question clearly evidences the intention of the parties that Vinnell is required to indemnify the railroad against any loss or damage sustained by it as the result of the negligence of its agents and employees resulting directly or indirectly from the performance of any work done by Vinnell upon the railroad's property.

First, let us look at the situation of the parties at the time the agreement was executed. The railroad had granted, without charge, an easement to the flood control district to construct a storm drain below the surface of its property and railroad tracks, following which it, by the agreement in question, granted Vinnell a license to go upon its property in order to perform the necessary work required to construct the storm drain under Vinnell's contract with the district. The railroad derived no benefit from the construction of the terminal end of the flood control project beneath the surface of its property other than the incidental benefit which every owner of real property within the flood control district receives as the result of the construction of flood control projects therein. Thus, without any commensurate benefit to itself, the railroad granted Vinnell a license to go upon its property and conduct operations thereon which, to say the least, could reasonably be anticipated by the parties as creating a hazard to the railroad's operations. Under the circumstances, it is only reasonable to assume that the parties intended that the railroad should be protected against such hazards, for unless the purpose of the execution of the agreement by the railroad and Vinnell was to afford protection to the former there was no occasion for its execution for no benefits were thereby conferred upon the railroad as it would remain liable for the negligence of its agents and employees.

In the light of this situation we direct our attention to the provisions of the license agreement. In the first place, as previously noted, Vinnell was required to procure and maintain in full force and effect contractors' public liability insurance for all damages arising out of bodily injuries to or death of any person and contractors' property damage liability insurance for all damages arising out of injuries to or destruction of property. It is apparent that the liability which Vinnell was required to insure against by this provision was for loss or damages to persons and property occasioned by the acts of its agents and employees and necessarily included loss or damage so occasioned to the railroad's property and employees. If the parties contemplated that this was the extent of Vinnell's liability to the railroad the agreement could well have stopped here. Additionally, however, Vinnell was required to procure and maintain in full force and effect public liability and property damage insurance ‘insuring the contractual liability of Contractor under the provisions of Section 8 hereof,’ which is the indemnity provision which we have hereinabove quoted at length.

Here we have a clear recognition by the parties that the contractual liability assumed by Vinnell under the provisions of section 8 comprehends something other and in addition to liability for loss or damage resulting from the acts of Vinnell, its agents and employees and for which in any event it would be responsible even though there were no express agreement to that effect. And what could this be other than for loss or damage resulting from the acts or conduct of the railroad's employees or agents for which it might be responsible?

As pointed out in City of Cleveland, Ohio v. Baltimore & O. R. Co., 6 Cir., 1934, 71 F.2d 89, to hold, as respondent contends and the trial court determined, that the provisions of the agreement above referred to were intended to indemnify the railroad only against the acts of Vinnell and its agents is to render the same meaningless. The railroad needed no protection against the negligence of Vinnell or its employees for it could in no event be responsible therefor. Vinnell was not engaged in performing any work for the railroad and it and its employees were in no sense the agents or employees of the railroad.

The case last cited in its factual aspect is strikingly similar to the case at bar. There the railroad company had granted an easement to the city of Cleveland to construct a sewer under the railroad's right of way under an agreement which among other things contained a provision reading as follows (at page 90): “To indemnify and save the Railroad free and harmless from any and all damages to person or persons (including employees of the Railroad) or property (including that belonging to or in the custody of the Railroad), by reason of or in any way connected with the erection, construction, reconstruction, maintenance, alteration and/or repair of said sewer at such crossing, with the Railroad track by the City and/or its contractors, agents, employees or the sub-contractors thereof.”

As the result of the railroad's negligence an injury was caused to an employee of the contractor performing the work of constructing the sewer for the city. The injured employee commenced an action against the railroad which was settled by the payment of $8,000 by the railroad, which thereupon instituted an action against the city for reimbursement under the terms of the indemnity clause of the contract quoted above. In affirming judgment in favor of the railroad the court said (at page 91): ‘Contracts must be construed with reference to the situation and surroundings of the parties. The sewer was appellant's project. It desired the easement and appellee was willing to grant it but upon the express provision that the work should be at the sole cost and expense of appellant. Appellee naturally desired that it should itself protect and support its track during the construction work and agreed to do so and to furnish the labor, material and work necessary thereto but upon the condition that the cost should be paid by appellant. * * * Further than the privilege of connecting with the sewer the agreement conferred no benefit upon appellee. Under such circumstances it was but natural that appellee should demand protection from the consequences of its own acts in doing its part of the work. It had the right to require such an obligation. * * *

To hold that the agreement indemnifies against the acts of appellant and its agents only is to destroy its value. Appellee needed no protection against the misconduct of appellant or those acting for it for the law could not hold appellee responsible therefor, since appellant, its contractors and employees were in no sense the agents of appellee.'

In Rice v. Pennsylvania R. Co., supra, 2 Cir., 1953, 202 F.2d 861, the action was brought by the owner of a scow for damages resulting from the negligent manner in which it had been loaded, the loading having been done by the United States Government under a contract with a purchaser of the cargo. The contract of purchase contained among other provisions, the following (at page 862): ‘The contractor [purchaser] agrees to keep and hold the Government safe and harmless from any and all claims of whatsoever nature or kind for damages for injuries to person or property, occurring during the removal of the said material.’ The trial court held that the provision did not protect the government from damage caused by its own negligence. The court of appeals reversed and, in the course of its opinion, said (at page 862): ‘With the generally accepted rule that contracts will not be construed to indemnify a person against his own negligence unless such intention is expressed in unequivocal terms, we are in complete accord. * * * In the case at bar, however, the damage was caused by negligence in the way the scrap iron was dropped on the deck of the scow; and the covenantor agreed to save the covenantee harmless from claims of damages ‘for injuries to person or property occurring during the removal’ of the scrap. The scrap was in the possession of the United States and it had agreed to load it. No one else had anything to do with the loading. It is impossible to conceive how any valid claim could arise against the Government for injuries ‘occurring during the removal’ unless its employees were negligent. Consequently we see no way to interpret the covenant otherwise than as an unequivocal expression of intent to indemnify the United States against the negligence of its own employees. Where such is the clear intention of the parties the agreement will be enforced.' Citing among other cases, Southern Pac. Co. v. Fellows, supra, 22 Cal.App.2d 87, 71 P.2d 75.

We see no merit in respondent's contention that to construe the agreement here as indemnifying the railroad against loss or damage occasioned by its own negligence would result in requiring Vinnell to indemnify the railroad for damages resulting from ‘an accident hundreds of miles from the work site between two of its trains occasioned solely by the negligent rerouting of the trains by the railroad itself.’ Obviously such an accident could not reasonably be said to result directly or indirectly from the performance of any work by the contractor upon the railroad's premises; and we do not understand the respondent to contend that the damage here was unrelated to a condition created by Vinnell upon the railroad's premises.

None of the California cases relied upon by the respondent is factually in point with the instant case. In the first of these, Pacific Indemnity Co. v. California Electric Works, 29 Cal.App.2d 260, 262, 84 P.2d 313, the facts were these: The Standard Oil Company was engaged in constructing a building in the city of San Diego at a total cost of $30,000. In connection therewith, they entered into a contract with the defendant Electric Works for the furnishing of material and labor in the sum of approximately $3,700. This contract contained an indemnification provision somewhat similar to that here involved. An employee of Electric Works was injured on the job and brought suit against the Standard Oil Company in which he recovered a judgment of $5,594.03. Pacific Indemnity Co. had insured Standard Oil on the construction of the building and thereafter it and the oil company instituted an action claiming indemnification under the terms of the contract. At the outset of its opinion the court, after observing (29 Cal.App.2d at page 272, 84 P.2d at page 320) that ‘[t]he language used in the contract would seem to be sufficiently broad to indemnify the Standard Oil Company against its own negligence if there exists no extrinsic ambiguity therein,'1 proceeded to say (29 Cal.App.2d at page 273, 84 P.2d at page 320): ‘The rule, therefore, is that if there is any reasonable room for doubt as to what the contract means or as to what the exact words thereof apply to, then parol evidence is properly admitted. In the instant case we think there is ample room for doubt as to whether or not the contract was meant to apply to the indemnity of the Standard Oil Company against its own wrong.’ The court then proceeded to hold that the trial court did not err ‘in the admission of evidence to explain what the parties intended by what they said in the contract,’ and concluded as follows (29 Cal.App.2d at page 275, 84 P.2d at page 321): ‘As we understand the record, the appellants [plaintiffs] have no complaint as to the finding of the trial court herein, if it was proper to admit evidence other than the contract itself. That is to say, when the evidence was admitted, it was legally susceptible of the interpretation placed on it by the learned trial judge,’ to the effect that the provisions of the contract did not operate to indemnify the Standard Oil Company from liability for damage occasioned by its own negligence.

The opinion does not disclose what the extrinsic evidence therein referred to consisted of and the decision would seem to stand for no more than that the language of the contract there involved when construed in the light of the extrinsic evidence did not evidence an intent upon the part of the Electric Works to indemnify the Standard Oil Company from damage occasioned or loss sustained by it as the result of its own negligence.

In Basin Oil Co. of California v. Baash-Ross Tool Co., supra, 125 Cal.App.2d 578, 271 P.2d 122, the plaintiff instituted the action to recover damages sustained by it as a result of defective suspension plugs manufactured and sold to it by the defendant. The latter sought to escape liability for its negligence in the manufacture of the plugs by reason of provisions contained in the invoices, sent by the defendant to the plaintiff following the deliveries of the plugs, reading in part as follows (125 Cal.App.2d at page 589, 271 P.2d at page 128). ‘All goods and materials are carefully tested and inspected before leaving point of manufacture, but as it is impossible to always detect imperfections, the only guarantee that is given by us, or for which we are in any way liable, is to replace such goods as prove defective when used for the purpose for which manufactured, f. o. b. at point of delivery to carrier of goods being replaced, or allow credit for such goods at our option. All replaced goods are to be returned to us transportation prepaid. Under no circumstances are we responsible for any damages beyond the price of the goods. No damages or charges of any kind, either for labor, expenses or otherwise, suffered or incurred by the customer in repairing or replacing defective goods, or occasioned by them will be allowed.’

Speaking of the effect of the foregoing language the court said (125 Cal.App.2d at page 596, 271 P.2d at page 132): ‘Examined in their entire context, it is patent from an analytical reading of the documents in question that they go no further than to limit Baash-Ross's liability for breach of warranty. Their language indicates that it is fundamental that reasonable care in relation to the manufacture of the product will be used. But a seller's obligation to a buyer for breach of a warranty is one of strict and absolute liability. (Citations.) Where a breach of warranty is established, liability is imposed entirely independent of the question of negligence on the part of the seller. (Citations.) The sense of the conditions on the documents indicates a dominant purpose to escape from the full consequences of such strict liability. The language quoted plainly shows that Baash-Ross, asseverating that it would carefully test and inspect its products, was seeking exculpation not from its own affirmative negligence as a manufacturer and supplier of goods but from liability that might be fastened upon it from sales of goods which might prove defective despite its exercise of reasonable care. In short, its liability was limited in the event of a breach of any warranty upon which the sales were made and not in the event of a breach of its duty of care to its customers.’

It is at once apparent from a reading of the terms of the contract there involved that it differs materially from that with which we are here concerned. As the court in its opinion points out, the language of the agreement, far from indicating an intent that the defendant was to be absolved from liability for its own negligence, affirmatively asserted that it had exercised due care and inspection in the manufacture of the products which produced the damage.

In Sproul v. Cuddy, supra, 131 Cal.App.2d 85, 280 P.2d 158, the defendant leased an invalid walker to the plaintiff which toppled over throwing plaintiff to the floor and injuring her. The lease agreement provided as did the invoices in the Basin Oil Company case that the defendant had used great care to have all of its equipment in good order and repair but gave no warranty express or implied as to the condition or quality thereof and would in no way be responsible for damages resulting from the use thereof. Speaking of the language of the contract there involved, the court said (131 Cal.App.2d at page 95, 280 P.2d at page 164): ‘Measured by the above criteria, it is at once apparent that not only does Exhibit ‘A’ contain no reference to negligence, nor any clear and explicit indication that defendants were attempting to relieve themselves of their duty of using due care with reference to their rental of the ‘invalid walker,’ but the exact contrary appears from the opening asseveration that the licensor ‘uses great care to have all its equipment in good order and repair.’ This statement, even if attenuated so as to relate to reasonable care rather than ‘great care,’ permeates the entire limitation notice and is the pre-condition for the operation of the comprehensive exculpatory declarations which follow. It qualifies and limits, at least to the extent there announced, the ensuing language. Such an interpretation is plainly dictated by the principles to which we have hitherto adverted. It seems also to give all the language used a harmonious construction and avoids perverting the notice into nothing more than a semantic trap for the unwary.' And continuing at page 96 of 131 Cal.App.2d, at page 164 of 280 P.2d, the court said: ‘Similarly, here, it cannot be reasonably contened that a party who announces that he uses great care to have his rental equipment in good order and repair was attempting to exculpate himself from liability if the facts should show that he used no care whatsoever, or indeed, was grossly negligent.’

It will be noted that in each of the foregoing authorities upon which respondent relies the contract in which the claimed covenant of indemnification appeared was one under which the party claiming indemnification derived a direct benefit and the covenant was merely incidental to the principal object of the contract. Here, on the contrary, as we have previously pointed out, the appellant derived no benefit whatsoever from the work performed by the respondent under its contract with the flood control district, and the sole purpose of the agreement between the parties was to afford protection to the railroad from loss or damage howsoever caused resulting directly or indirectly from the performance of the work by the contractor upon its premises pursuant to Vinnell's contract with the flood control district. Moreover, the language of the agreements involved in the Basin Oil case and in the Sproul case was, to say the least, equivocal and in nowise comparable to that found in the agreement here.

City of Oakland v. Oakland Unified School Dist., 141 Cal.App.2d 733, 297 P.2d 752 also relied upon by the respondent, is even less in point. There the plaintiff had leased to the defendant the arena of its municipal auditorium building in which to hold a music festival. The lease contained a provision reading as follows (141 Cal.App.2d at page 735, 297 P.2d at page 753): “That the lessee will hold the lessor free from any liability or claim for damages or suit for or by reason of any injuries to any person or property, of any kind whatsoever, from any cause whatsoever arising out of the use and occupation of the premises by the lessee; and the lessee hereby covenants and agrees to indemnify and save harmless the lessor from all liability or damage on account of or by reason of any such injuries or damages.' (Emphasis added.)'

A patron who had attended a performance in the auditorium after leaving it and while walking on a walkway in front of and adjoining the auditorium building stepped in a hole and sustained injuries. The court after stating that there was no question ‘but that the indemnity provision is a valid one’ held that it did not operate to indemnify the plaintiff from liability for the reason that the damage sustained by the patron did not occur upon the leased premises.

While it is true that the agreement here, having been prepared by the appellant, is to be strictly construed against it and all ambiguities are to be resolved in favor of the respondent, where the meaning is clear and the intention of the parties apparent this salutary rule cannot operate to change the nature of the contract or the obligations assumed by the parties thereunder. It must still be interpreted according to the intention of the parties as expressed in the instrument. Baine v. Continental Assur. Co., 1942, 21 Cal.2d 1, 5, 129 P.2d 396, 142 A.L.R. 1253.

We find it unnecessary to review the other authorities from other jurisdictions cited by the respective parties. Admittedly, they are not entirely harmonious but the decision in each case must of necessity depend in large measure not only upon the language of the particular instrument involved but as well upon the situation of the parties and the purposes and objects thereof.

For the reasons hereinabove set forth we are of the view that the parties to the agreement here intended that the appellant should be indemnified against loss and damage resulting directly or indirectly from the performance of work by the respondent upon the appellant's premises, including such as may have been occasioned by the negligence of appellant's agents and employees.

The judgment is reversed and the trial court is directed to amend its findings of fact and conclusions of law and enter judgment in favor of the appellant in accordance with the views herein expressed.

FOOTNOTES

1.  While this case was decided more than a year after the decision in Southern Pac. Co. v. Fellows, supra, 22 Cal.App.2d 87, 71 P.2d 75, seemingly the latter case was not called to the court's attention for it is not mentioned in the opinion and it is stated therein that (29 Cal.App.2d at page 275, 84 P.2d at page 321) ‘[i]n California, so far as we are aware, the question has not been directly passed upon.’

PATROSSO, Justice pro tem.

SHINN, P. J., and PARKER WOOD, J., concur.