Community School District of Postville v. Gordon N. Peterson, Inc. , 1970 Iowa Sup. LEXIS 809 ( 1970 )

BECKER, Justice.

Plaintiff school district brought this action for damages against Gordon N. Peterson, Inc., hereinafter called Peterson, alleging breach of both express and implied warranties arising from a contract for construction of a new high school building by defendant. Plaintiff alleged that the roof on said building was defective in several respects, that a new roof must be installed, and that as a result plaintiff district had been damaged in the amount of $29,000. A series of third party petitions and cross-petitions brought in the other parties. An application for adjudication of law points was determined adversely to plaintiff resulting in dismissal of plaintiff’s claim and effectively disposing of all third party claims. Plaintiff appeals. We reverse and remand for trial.

Defendant Peterson filed a third party petition against Russell L. Rafoth, d/b/a Rafoth Furnace & Sheet Metal Works, hereinafter called Rafoth, the subcontractor who furnished the materials and performed the work necessary to install the roof in question, asking complete indemnity in case he should be liable to plaintiff school district.

Rafoth in turn filed a fourth party petition against The Flintkote Company, hereinafter called Flintkote, alleging that if the roof failed as alleged in plaintiff’s petition, such failure was caused by the negligence of Flintkote in manufacturing and distributing defective materials and in other respects. He also filed a fourth party petition against Toenjes and Stenson, a partnership company of David S. Toenjes and Marvin L. Stenson, and against them as individuals, alleging certain specific acts of negligence on their part. Rafoth prayed, in the event a judgment is obtained in this action in favor of the school district and against Peterson, and in the further event that Peterson obtains a judgment against Rafoth, that he (Rafoth) be granted a judgment over against Flintkote and against Toenjes and Stenson, individually and as a partnership, for any amount which Ra-foth is compelled to pay on account of or arising out of this action.

Thereafter, Toenjes and Stenson filed their fifth party petition against The Dow Chemical Company, a corporation, alleging that if the roof in question failed as alleged in plaintiff’s petition, the proximate cause of such failure was the negligence of Dow in misrepresenting and in making false warranties regarding its products used in the construction of the roof. Fifth party plaintiffs pray for judgment over against Dow.

By an amendment to his answer, third party defendant Rafoth alleged as an affirmative defense that on or about June 7, 1966, which was several months after commencement of this action, The Flintkote Company paid the sum of $5,640.00 to plaintiff school district and that plaintiff executed a release to Flintkote which fully released and discharged Rafoth. A copy of such release is attached to this amendment. By its terms it expressly releases The Flint-kote Company and Peerless Insurance Company.

Thereafter, the defendant Peterson and the other cross-petition defendants amended their respective answers to allege the giving of this release, which they maintain by operation of law released them from further liability to the plaintiff.

In its reply to the amendment to answer, plaintiff sets forth three contentions as follows:

1. That the instrument executed by it to Flintkote constitutes a covenant not to sue.

2. That the payment received by plaintiff does not constitute a full satisfaction of the claims and causes of action pleaded by plaintiff in its petition, was not intended by plaintiff and Flintkote to be a satisfaction thereof, and was not accepted by plaintiff in full satisfaction thereof.

3'. That defendant Peterson is estopped from maintaining that the receipt of such $5,640.00 from Flintkote and the delivery of the release, or purported release, released and discharged defendant Peterson from the claims made by plaintiff.

On October 7, 1968, the defendant and all cross-petition defendants filed herein an application for adjudication of law points wherein they joined in asking the court to determine whether the payment by Flintkote to plaintiff of the sum of $5,-640.00 and the release executed by plaintiff had the effect of releasing defendant Peterson from the alleged damages to plaintiff’s building prayed for in its petition.

After hearing, the trial court held the document entitled “Release” executed by plaintiff to The Flintkote Company and Peerless Insurance Company was not ambiguous, constituted full satisfaction to Flintkote and bondsman by its language, constituted a full and complete release and satisfaction of plaintiff’s claim for damages, and by operation of law released all other associate alleged wrongdoers, including the defendant Peterson. We disagree.

I. We view plaintiff’s second assignment of error as determinative of this appeal ; i.e., the assertion the release in question does not constitute.a full satisfaction, was not so intended and was not accepted as such. The trial court properly followed the rule recognized in Dungy v. Benda, 251 Iowa 627, 636, 637, 102 N.W.2d 170, 176:

“Basically, we think, much of the confusion arises from failure to realize that in considering the effect of a full release to one against whom the claim is made, the governing principle is that if the claim is satisfied as to the release it is thereby satisfied by operation of law against all others who may be or may be claimed to be liable for the same injury. It is then not competent to inquire as to the intent to release such other possible parties, because the law says they are released. Admitting the release and discharge of the one to whom the release runs, the claimant has admitted satisfaction of his claim, and there can be only one satisfaction. Such is the situation here.” (Emphasis supplied.)

The above rule imports satisfaction as a matter of law. The true intent of the instrument is held to be immaterial. We are now required to reexamine the rule in light of our holdings in more recent cases. Such reexamination convinces us the holding in Dungy v. Benda, supra, should be overruled.

The central issue is whether we will treat releases as we do other contracts and seek to determine the intent of the contracting parties. The alternative accepted in Dungy v. Benda, supra, is to give a release a fixed legal meaning which excludes inquiry into the true intent of the contracting parties. We have recently reexamined our approach to interpretation of contracts and have clarified the proper limits to the parol evidence rule in Hamilton v. Wosepka, Iowa, 154 N.W.2d 164:

“Extrinsic evidence that throws light on the situation of the parties, the antecedent negotiations, the attendant circumstances and the objects they were thereby striving to attain is necessarily to be regarded as relevant to ascertain the actual significance and proper legal meaning of the agreement.

“Professor Corbin in the preface to Volume 3 of his work on contracts says:

“ ‘The purpose of interpretation as justice requires is always the discovery of actual intention: — the intentions of both parties if they are the same, — the actual intention of one party if the other knew or had reason to know what it was, — but absolutely never to give effect to the meaning of words that neither party in fact gave them, however many other people might have given them that meaning.’ ” (Loe. cit. 154 N.W.2d at page 168.)

Hamilton v. Wosepka, supra, examines our Iowa cases and numerous outside authorities in depth. It does not change the basic rules recognized by this court in addressing itself to the task of interpreting a written agreement but rather seeks to clarify rules of interpretation which, through the years, had reached the point of being contradictory.

“Professor Richard S. Hudson has collected, analyzed and criticized our own cases dealing with the problem since 1931 in articles appearing in 10 Drake L.Rev. 87 (1961) supplemented in 13 Drake L.Rev. 131, 151 (1964) and again in 15 Drake L.Rev. 61, 90 (1966). He suggests in his first article at page 89 that a ‘reconciliation of Iowa cases during the period under surveillance is not deemed to be worth while, or even possible.’ ” (Loe. cit. 154 N.W.2d at page 171.)

The rules laid down in Hamilton v. Wo-sepka, supra, presuppose a knowledge of our Rules of Civil Procedure, No. 344(f) (14):

“In the construction of written contracts, the cardinal principle is that the intent of the parties must control; and except in cases of ambiguity, this is determined by what the contract itself says.”

Hamilton v. Wosepka then points out that since the intent of the contracting parties is paramount, extrinsic evidence is admissible not to vary or contradict the terms of a written instrument but to aid in interpreting it.

“' * * * the “parol evidence rule” purports to exclude testimony “only when it is offered for the purpose of ‘varying or contradicting’ the terms of an ‘integrated’ contract; it does not purport to exclude evidence offered for the purpose of interpreting and giving a meaning to those terms. * * *.” ’ ” (Loe. cit. 154 N.W.2d at page 170.)

The principles recognized in Hamilton v. Wosepka, supra, apply to releases which are a specific type of contract. Atlantic Northern Airlines v. Schwimmer, 12 N.J. 293, 96 A.2d 652, one of the principle cases relied upon deals with interpretation of a release as a contract.

Defendants correctly argue that Pedersen v. Bring, 254 Iowa 288, 117 N.E.2d 509, approves the rule laid down in Dungy v. Benda, supra. It should be noted that while Pedersen v Bring, supra, approves what is said in Dungy v. Benda, the intent of the contracting parties was held to be a relevant fact question because the contract was said to be ambiguous. The ambiguity-on-its-face doctrine was later rejected in Hamilton v. Wosepka, supra.

We do not agree that Johnson v. Harnisch, 259 Iowa 1090, 147 N.W.2d 11, and Smith v. Conn, (Iowa) 163 N.W.2d 407 approved the principles recognized in Dungy v. Benda. On the contrary, both cases were carefully distinguished and in the former case the question of the distinction between release and satisfaction was specifically reserved. Both cases were factually different. It was unnecessary to overrule Dungy to come to the result reached. Both cases approved principles at odds with Dungy v. Benda, emphasized the need to inquire into the intent of the contracting parties and approved admission of extrinsic evidence to aid in interpretation of the contracts. Because we find it necessary to overrule Dungy v. Benda, supra, we should review some of the authorities recognized in Johnson v. Harnisch, supra.

We first noted and discussed Bolton v. Ziegler, (Iowa, Dist.Ct.), Ill F.Supp. S16, which reviews the earlier Iowa cases at length. Judge Graven concluded: “ * * But it seems clear that if the Iowa Supreme Court applies the maxim “a release of one joint tort-feasor releases all” at all, it does so only after it has been determined that the injured person has received full satisfaction for his injury. * * ” (Loc. cit. 147 N.W.2d at page 16.)¹

The federal court then recognized the right to introduce extrinsic evidence as an aid to interpretation: “* * * As to the applicability of the parol evidence rule in regard to the matter of satisfaction, see Middaugh v. Des Moines Ice and Cold Storage Co., supra at page 400 of 169 N.W.; Ryan v. Becker, supra at page 428 of 111 N.W.; Bell v. Perry & Townsend, supra at page 372 of 43 Iowa. * * (Loc. cit. Ill F.Supp. at page 526.)

We note Middaugh v. Des Moines Ice & Cold Storage Co., 184 Iowa 969, 984, 169 N.W. 395, 400 is distinguished and Ryan v. Becker, 136 Iowa 273, 111 N.W. 426, 14 L.R.A., N.S., 329 is specifically overruled by Dungy v. Benda, supra. However, these cases are consistent with what was later said in Hamilton v. Wosepka, supra, and are consistent with the rule now adopted.

We also quoted from Gronquist v. Olson, 242 Minn. 119, 64 N.W.2d 159: “* * * ‘We believe that the factors determinative of whether a release of one of several joint tort-feasors will operate to release the remaining wrongdoers should be and are: (1) The intention of the parties to the release instrument, and (2) whether or not the injured party has in fact received full compensation for his injury. If we apply that rule, then, where one joint tort-feasor is released, regardless of zvhat form that release may take, as long as it does not constitute an accord and satisfaction or an unqualified or absolute release, and there is no manifestation of any intention to the contrary in the agreement, the injured party should not be denied his right to pursue the remaining wrongdoers until he has received full satisfaction.’ ” (Loc. cit. 147 N.W.2d at page 16.)

We then noted the following from annotation at 73 A.L.R.2d 403, 425: “ ‘* * * § 11 Intention rule; illustrative cases. The modern view repudiates the common-law rule under which the release of one tort-feasor automatically discharges the liability of the others, and makes the intention of the parties to the release the test of whether it effects the release of other tortfeasors who are not parties thereto.’ ” (Loc. cit.' 147 N.W.2d at pages 16, 17.)

Finally, we noted but did not quote from, “McKenna v. Austin, 77 U.S.App.D.C. 228, 134 F.2d 659, 148 A.L.R. 1253 (opinion by Mr. Justice Rutledge, then Associate Justice of the United States Court of Appeals for the District of Columbia), Breen v. Peck, 28 N.J. 351, 146 A.2d 665, 73 A.L.R.2d 390, and the wealth of authorities cited therein and in the accompanying A.L.R. annotations.” (Loc. cit. 147 N.W.2d at page 17.)

All the foregoing authorities reject the automatic release of all obligors when one receives a release. We think our action in overruling Dungy v. Benda, supra, is of sufficient importance to justify quotation from the following authorities.

Harper and James, The Law of Torts, section 10.1, pp. 711-712: “* * * Properly speaking, a clear distinction should be made between a satisfaction and a release, since the existence of the latter doesnot necessarily indicate that the plaintiff has received full compensation for his injury, i. e., satisfaction. * * *

“It is submitted that these factors, whether the plaintiff has been fully compensated and whether the parties intended the result of their negotiations to be a complete freedom from further liability for all the tort-feasors, should be paramount in determining the effect of any agreement purported to operate as a release and should be inquired into whenever the problem arises in a case.”

Prosser, Law of Torts, Third Ed., § 46, pages 268-273: “The American courts, possibly because of the diminished effect given to the seal, have rather hopelessly confused release with satisfaction. * * *

“The only desirable rule would seem to be that a plaintiff should never be compelled to surrender his cause of action against any wrongdoer unless he has intentionally done so, or unless he has received such full compensation that he is no longer entitled to maintain it. If the statutes are taken into account, this is now the rule actually applied in some two-thirds of the American jurisdictions. Where there has been such full satisfaction, or where it is agreed that the amount paid under the release is so received no claim should remain as to any other tortfeasor; but these are questions of fact, and normally to be determined by the jury, where the amount of the claim is un-liquidated. * *

Prosser’s footnote 24 states in part: “See the excellent opinion of Rutledge, J., in McKenna v. Austin, 1943, 77 App.D.C. 228, 134 F.2d 659, 148 A.L.R. 1253, which seems to leave nothing more to be said. Also, Black v. Martin, 1930, 88 Mont. 256, 292 P. 577; Gronquist v. Olson, 1954, 242 Minn. 119, 64 N.W.2d 159. * * *.”

4 Corbin on Contracts, section 934, pp. 757-765 is harsher in its condemnation of the rule followed in Dungy v. Benda, supra. Rather than quote extensively we note the New Jersey court’s summary in Breen v. Peck, 28 N.J. 351, 146 A.2d 665, 73 A.L.R.2d 390, 397: “ * * * Corbin, supra, § 934 persuasively supports the position that the parol evidence rule does not preclude oral evidence that the parties to the release did not intend to discharge strangers thereto; he points out that the writing purports to be nothing but a release of the named re-leasee and does not purport to integrate matters affecting third parties; and he stresses that the oral understanding does not contradict or vary the written document but on the contrary is quite consistent with it. * *

We also note the Minnesota Supreme Court’s acknowledgment of Corbin’s thesis in Couillard v. Charles T. Miller Hospital, Inc., 253 Minn. 418, 92 N.W.2d 96, 102, 103: “Nor do we believe there is sufficient reason for holding, as we did in Smith v. Mann, [184 Minn. 485, 239 N.W. 223], supra, that parol evidence is not admissible to show the true nature and extent of the release, particularly in light of the fact that the subsequent joint tortfeasors in this instance, who might claim the protection of the rule, are neither parties to the release nor are they named in it. ‘The refusal to let such third parties hide behind the parol evidence rule, when the documentary “release” was not in fact intended to discharge claims against them and does not on its fact purport to express such an intention, is a thoroughly justified refusal. Testimony that is offered for this purpose should never be excluded whoever may be the parties to the suit in which it is offered.’ 4 Corbin, Contracts, § 934, p. 760.”

It is doubtful that any rule can now be termed a “majority rule.” Prosser notes that: 19 states have changed the rule by statute, 13 jurisdictions have recognized reservations of rights in releases, and at least six states have recognized extrinsic evidence to reach the true intent of the contracting parties. Prosser, Law of Torts, Third Ed., § 46, pp. 271-272. The number of jurisdictions recognizing one rule or the other should not be determinative. The reasons for the rule, or the change, are more important. These reasons were most strongly articulated by Justice Rutledge in McKenna v. Austin, 1943, 77 App.D.C. 228, 134 F.2d 659, 662, 148 A.L.R. 1253:

“The rule’s results are incongruous. More often than otherwise they are unjust and unintended. Wrongdoers who do not make or share in making reparations are discharged, while one willing to right the wrong and no more guilty bears the whole loss. Compromise is stifled, first, by inviting all to wait for the others to settle and second, because claimants cannot accept less than full indemnity from one when doing that discharges all. Many, not knowing this, accept less only to find later they have walked into a trap. The rule shortchanges the claimant or overcharges the person who settles, as the recurring volume and pattern of litigation show. Finally, it is anomalous in legal theory, giving tortfeasors an advantage wholly inconsistent with the nature of their liability.”

We therefore conclude a release of an obligor does not automatically release all others who are or may be liable. In the event the obligation is liquidated, payment of the full amount would, of course, constitute complete satisfaction and would bar further action for we have long held no double recovery will be tolerated. If the debt is unliquidated the intention of the parties to the release controls. This intent must be determined by the terms of the contract aided by such extrinsic evidence as may be properly offered to aid in the task of interpretation. The burden of proof on the issue is on the party who relies upon the affirmative of the issue. Rule 344(f) (5), R.C.P.

We should note the liability alleged against Peterson is in part at least for Peterson’s direct action. Where the co-obligor is liable vicariously (that is, as principal for the acts of his agent), additional problems are raised when a release or covenant not to sue is given to the agent or other source of liability insofar as vicarious liability is concerned. We do not resolve these problems in this opinion. Cf. Annotations, 20 A.L.R.2d 1044; 92 A.L.R. 2d 533 and IV Corbin on Contracts, §§ 933 et seq.

As we view this case the foregoing disposition of plaintiff’s error number 2 dispenses with any necessity to consider errors number 1 and 3. We would find it difficult to treat the instrument as a covenant not to sue but where the true intent is open to explanation the point is moot. As to estop-pel, the estoppel is asserted against a principle that has now been overruled.

Reversed and remanded.

All Justices concur, except LARSON, J., MOORE, C. J., and LeGRAND, J., who concur specially. UHLENHOPP, J., takes no part.

1 . In many of the quotations used herein the terminology used refers to tort-feasors. The broader term obligors is more accurate. The principles apply whether the actions sound in tort or contract and also whether the torts are joint or several. Of. 4 Corbin, Contracts, §§ 931 et seq., where the term obligors is used throughout.