Dixie Container Corp. of North Carolina v. Dale

160 S.E.2d 708 (1968) 273 N.C. 624

DIXIE CONTAINER CORPORATION of North Carolina
v.
W. E. DALE, t/a W. E. Dale Construction Company.

No. 359.

Supreme Court of North Carolina.

May 1, 1968.

Simpson & Simpson, Morganton, and James C. Smathers, Hickory, for plaintiff appellant.

Carpenter, Webb & Golding, Charlotte, E. P. Dameron, Marion, Patton & Starnes, Morganton, for defendant appellee.

SHARP, Justice.

This action is based, not upon allegations of defendant's actionable negligence, but upon the premise that plaintiff was a third-party beneficiary of a building contract between Delos and defendant in which defendant agreed to indemnify plaintiff, the tenant of Delos, for any damage to plaintiff's property resulting from the construction. Defendant concedes that under the terms of the contract, plaintiff would be entitled to indemnity for any sums it might be required to pay third parties as a result of defendant's performance of the contract. He denies, however, that the contract obligated it to reimburse plaintiff for the losses caused by the fire. Decision requires construction of the contractual provisions quoted in the preliminary statement.

Article 11, "Protection of Work and Property," of the 1961 contract between plaintiff and defendant, incorporated by reference in the 1964 contract between defendant and Delos, obligated defendant to indemnify Delos for any damage to its property "arising in connection with this contract" unless the damage was due to errors in the contract documents or acts of the owner's employees. Under the facts alleged, it seems clear that defendant would be liable to Delos for its damages caused by the fire. The stipulation incorporating Article 11, however, expressly limited its application to "the parties to this agreement." Although a third-party beneficiary, plaintiff was not a party to the contract. It made no promise, assumed no obligation, undertook to do nothing. "In the United States there are various persons who are recognized as having enforceable rights created in them by a contract to which they are not parties and for which they give no consideration. They are called herein ``third party beneficiaries.'" 4 Corbin, Contracts § 774 (1951).

Defendant concedes that if it has any contractual obligation to indemnify plaintiff for the fire loss in suit, the liability arises out of the PRESENT TENANCY clause in which it agreed to "save harmless the Delos Realty Corporation and Dixie Container Corporation of N.C. and their principals against all loss, cost, including reasonable attorney's fees, or damage on account of injury to persons or property occurring in the performance of this contract and agreement." Plaintiff contends that this provision imposed absolute liability upon defendant to indemnify it for any damage to its property resulting from the performance of defendant's contract with Delos. Defendant contends that this clause obligated it to reimburse Delos and plaintiff only for the monetary damages either might be compelled to pay to third parties for personal injury or property damage resulting from the performance of defendant's construction contract.

As in the construction of any contract, the court's primary purpose in construing a contract of indemnity is to ascertain and give effect to the intention of the parties, and the ordinary rules of construction apply. 42 C.J.S. Indemnity § 8 (1944). It will be construed to cover all losses, damages, and liabilities which reasonably appear to have been within the contemplation of the parties, but it cannot be extended to cover any losses "which are neither expressly within its terms nor of such character that it can reasonably be inferred that they were intended to be within the contract." Id. § 12.

Defendant's contract with Delos must be construed as a whole and the "indemnify and save harmless" clause of the PRESENT TENANCY provision must be appraised in relation to all other provisions. Atlantic Coast Line Railroad Company v. Norfolk Southern Railway Company, 236 N.C. 247, 72 S.E.2d 604; Town of Lumberton v. Hood, 204 N.C. 171, 167 S.E. 641; 1 Strong, N.C. Index, Contracts § 12 (1957). In Article 11 of the contract, defendant specifically and unequivocally agreed to indemnify Delos for any damages which defendant caused to its property during the course of construction. As heretofore pointed out, this section referred only to owner Delos and defendant contractor. Plaintiff, the tenant, was thus excluded from the specific protection therein afforded Delos. Had the parties intended to impose absolute liability upon defendant for any damage to plaintiff's property, it is reasonable to suppose that they would have done so by making this section likewise applicable to plaintiff. Instead they resorted to the different and unrelated terminology of the "indemnify and save harmless" clause, which included both plaintiff and Delos within its coverture. Having elsewhere clearly defined its liability to indemnify Delos for any damage to its property, there was no need to reiterate the same obligation in totally different language in another clause of the contract, and we do not assume that the parties intended to do so. Another commitment is manifested.

We think it is reasonably clear that in the "indemnify and save harmless" clause, defendant only bound itself to reimburse plaintiff for any damages it became obligated to pay third persons as a result of defendant's activity on the leased premises. Ordinarily, indemnity connotes liability for derivative fault. Edwards v. Hamill, 262 N.C. 528, 138 S.E.2d 151. "In indemnity contracts the engagement is to make good and save another harmless from loss on some obligation which he has incurred or is about to incur to a third party * * *." New Amsterdam Casualty Co. v. Waller, 233 N.C. 536, 537, 64 S.E.2d 826, 827. Indemnification for "damage on account of injury to persons or property" could not refer to plaintiff insofar as personal injuries are concerned. A corporation's property can be damaged, but a corporation cannot sustain personal injuries. Furthermore, the inclusion of attorney's fees and cost in the indemnification agreement seems to refer to the defense of third-party actions against plaintiff.

While more explicit exposition would no doubt have avoided this litigation, we think the meaning of the contract is sufficiently clear. We hold that the court below ruled correctly in sustaining the demurrer.

Affirmed.

HUSKINS, J., took no part in the decision or consideration of this case.