Capitol Chevrolet Co. v. Lawrence Warehouse Co.

227 F.2d 169

• Court: Court of Appeals for the Ninth Circuit
• Decided: November 1, 1955
• Docket: No. 13840
• Status: Published

Opinions

HEALY, Circuit Judge.

This appeal presents the complex aftermath of litigation in which Defense Supplies Corporation sought to recover damages from Lawrence Warehouse Company, Capitol Chevrolet Company, and two individuals, McGrew and Henry, for the negligent destruction by fire of tires stored in a warehouse. Trial to the court in that litigation resulted in a judgment in favor of Defense Supplies against all defendants save Henry. D.C., 67 F. Supp. 16. The decision was affirmed by this court. Lawrence Warehouse Co. v. Defense Supplies Corporation, 164 F.2d 773. The judgment was afterwards ordered vacated on technical grounds, 168 F.2d 199, but was ultimately reinstated by the Supreme Court, 1949, 336 U.S. 631, 69 S.Ct. 762, 93 L.Ed. 931, which held that the judgment still persisted and could be enforced on suit by the Reconstruction Finance Corporation, to which the assets and rights of Defense Supplies had been transferred by act of Congress. Thereupon Reconstruction Finance sued on the judgment, and on November 20, 1951, the district court granted summary judgment in its favor. Since the history of the earlier litigation is to be found in the reports cited, it is unnecessary at the moment to expand the story further.

In the district court the original suit bore the number 23171. In the subsequent action on the judgment, brought by RFC, the complaint was given the number 30473. It will be useful to bear these numbers in mind. Coincidentally with the filing of its answer in No. 23171 Lawrence interposed a cross-claim against Capitol Chevrolet Company and Henry, asserting its right to recover over against them in event Lawrence were held liable to Defense Supplies. Capitol Chevrolet Company answered the cross-claim, denying liability to Lawrence, and it interposed a cross-claim of its own against Henry.

The case then proceeded to trial. The contract between Defense Supplies and Lawrence for the warehousing of the former’s tires, the contract and indemnity agreement between Lawrence and its agent Capitol Chevrolet Company for the furnishing by the latter of storage space, and other documentary evidence pertaining to Defense Supplies’ claim of right to recover for the loss, were introduced in evidence. Witnesses were called by Defense Supplies to testify to the circumstances under which the warehouse and its contents were consumed. At the close of Defense Supplies’ presentation all the defendants rested their defense on a motion for judgment in their favor, which motion the court denied except as to Henry. In ordering judgment against Lawrence, Chevrolet Company and Mc-Grew the court, at the request of all counsel, specifically retained jurisdiction to determine at a later time the issues in the several cross-claims.

It may be well at this point to say that the contract between Defense Supplies and Lawrence limited the latter’s responsibility for the care and protection of the tires to the ordinary care of warehousemen required by California law. The agency agreement between Lawrence and Capitol, above referred to, provided among other things that Capitol was “to store and safeguard the storage of such tires and tubes as are received by Agent” and “to indemnify the Principal against loss or damage resulting from the failure on the part of the Agent to perform any of the duties or obligations above set forth.” (There is some argument by appellants in the appeal presently before us to the effect that the latter agreement should be deemed vitiated because of a subsequent arrangement between the parties for the removal of the tires to a building known as the Ice Palace, where the fire occurred. This building was rented by Capitol from Henry pursuant to the mutual arrangement. We find in this arrangement and in the attendant circumstances no grounds for believing that Capitol’s agreement was not intended thereafter to remain in full force and effect.)

When Reconstruction Finance brought its suit (No. 30473) to recover on Defense Supplies’ judgment against Capitol, Lawrence and McGrew, it named as defendants also certain successor interests of Capitol, including appellant James A. Kenyon, Capitol having been dissolved in the course of the litigation. Lawrence filed a cross-claim against Capitol and its successors. As already indicated, RFC moved for summary judgment, and a separate judgment was entered by the court in its favor against Lawrence, McGrew and Capitol Chevrolet Company. Some ten days later Lawrence paid this judgment in full. In entering the judgment the court stated that the entry “shall be without prejudice to the further prosecution by cross-claimant Lawrence Warehouse Company, of its cross-claim against cross-defendants Capitol Chevrolet Company, James A. Kenyon, and Capitol Chevrolet Co., or any of them.”

Subsequently Lawrence was permitted to amend its cross-claim to join additional successor interests of Capitol; and the court entered its order consolidating for trial the cross-claims of Lawrence both in No. 23171 and No. 30473. The additional parties impleaded by Lawrence were Adams Service Co., F. Norman Phelps and Alice Phelps, all of whom are appellants here.

At this juncture it is essential to state who these successor parties are and how they came into the picture. The original Capitol Chevrolet Company, which, though defunct, is a party appellant here, was incorporated in 1936. At the time it entered into the agency agreement with .Lawrence in October 1942, and until its dissolution, its sole stockholders were appellants James A. Kenyon and Adams Service Co., the stock being equally divided between the two. Adams Service was a Nevada corporation wholly owned by appellants Norman and Alice Phelps. The Phelps appear at all times to have dealt with the property of Adams as though it were their own individually. In the summer of 1943 (shortly after the fire), Capitol’s process of dissolution was commenced. As a first step Kenyon and Adams assumed and agreed to pay all the debts, liabilities and obligations of Capitol. In Juné of 1943 its signed certificate of election to dissolve was filed with the Secretary of State. In December its certificate of winding up and dissolution was executed, and in June of 1944 was filed with the Secretary of State. All the assets of Capitol were distributed to its stockholders Kenyon and Adams. Thereafter Capitol’s business was carried on as a partnership under the same name, the partners being Kenyon and Adams, who contributed to the partnership the assets they had received from the corporation. In 1946 a new corporation under the name of Capitol Chevrolet Co. was formed, which continued the business of the partnership. The stock in the new corporation was originally issued to Kenyon and to the Phelps. It appears that the new corporation, Capitol Chevrolet Co., did not assume the debts- or obligations of its predecessors, and no judgment in the present proceeding was granted against it.

Subsequent to entry of the judgment for the RFC and to its payment by Lawrence the consolidated trial of Lawrence’s cross-claims was held. Oral and documentary evidence was introduced, and the court had before it for consideration the evidence and proceedings in the main case) including the findings and judgment therein. The trial eventuated in an order for judgment in favor of Lawrence as against Capitol Chevrolet Company in No. 23171, and as against Kenyon, Adams Service Co. and the two Phelps in No. 30473. Consolidated findings of fact were accordingly made and a consolidated judgment entered for Lawrence as against all the appellants in the approximate sum of $76,000. In substance, the findings were that Capitol Chevrolet Company was negligent and that its negligence resulted in the destruction by fire of the tires stored with it. Lawrence was found not to have had knowledge of or to have participated in or contributed to Capitol’s negligence.

Appellants indirectly attack the last mentioned finding. They contend that one Kissell, a guard on duty at the Ice Palace at the time the fire occurred, was an agent of Lawrence; that Kissell was negligent in failing to prevent the occurrence of the incident out of which the fire grew; and that Kissell’s negligence in the premises is imputable to Lawrence. Accordingly it is said that Lawrence must be held a joint tort-feasor with Capitol and is thus barred from recovery as against the latter.

The facts pertaining to Kissell’s place in the general picture are related in our opinion on the original appeal, but for convenience we summarize them here. Upon removal of the tires to the Ice Palace, Defense Supplies requested Lawrence to arrange for a 24-hour watch service. In compliance with the request Lawrence made arrangements with the Burns Detective Agency to furnish the service. Defense Supplies was informed of the arrangement and approved the selection of Burns. Lawrence paid Burns for the service and was reimbursed in full by Defense Supplies. The guard Kissell was an employee of Burns. He was controlled by Burns and took his orders from that concern. One of his orders was not to permit anything to be taken from the premises except upon order or direction from Capitol. A written order from Capitol was presented directing him to permit McGrew to enter the engine room to remove pipe and equipment therefrom. An acetylene torch used by McGrew in cutting up a steel tank forming part of the equipment was the instrumentality which caused the fire. In the original case Capitol was held negligent in failing to ascertain of McGrew the means he was to employ in removing the equipment and also because of its failure to furnish adequate fire-fighting apparatus at the premises.

The status of Burns was that of an independent contractor. At common law it is universally recognized that the employer of an independent contractor is ordinarily not liable to third persons for losses attributable to negligence of the independent contractor. The employer’s only duty is to exercise due care in selecting the contractor. There are, of course, exceptions to the rule. The argument of appellants that the negligence of Burns or its employee, Kissell, is imputable to Lawrence must rest on the proposition that the facts of this case bring it within one or the other of the two widely recognized classes of exceptions. The first of these relates to fact situations where the status of the hirer of the independent contractor, or the nature of the work to be performed, is held to impose a non-delegable duty upon the hirer. Thus property owners who engage an independent contractor to do work requiring the excavation or obstruction of streets or sidewalks are liable to persons injured thereon as a consequence of the contractor’s negligence. This duty of the property owner not to create hazards on adjacent streets and sidewalks is non-delegable. Colgove v. Smith, 102 Cal. 220, 36 P. 411, 27 L.R.A. 590; Robbins v. Hercules Gasoline Co., 80 Cal.App. 271, 251 P. 697; Sawaya v. De Cou, 60 Cal.App.2d 146, 140 P.2d 98. Persons who engage independent contractors to perform inherently dangerous undertakings are answerable in damages to third persons injured as a result of negligent performance. Miles v. A. Arena & Co., 23 Cal.App.2d 680, 73 P.2d 1260. Landlords and innkeepers are liable for injuries suffered by tenants or visitors because of unsafe conditions on the premises present as a result of the negligence of independent contractors employed by them, their duty to maintain the premises in a safe condition being held non-delegable. Brown v. George Pepperdine Foundation, 23 Cal.2d 256, 143 P.2d 929. Liability in the above types of cases is imposed regardless of contractual relationships. Obviously the ■case before us does not fall within the exceptions discussed, either directly or by analogy. An exhaustive examination of California statutes and American cases generally discloses that warehousemen ■do not have non-delegable duties apart from their contractual obligations.

The second type of exceptions to the general rule stated is based upon contractual relationships. One who contracts to perform an undertaking is liable to his promisee for the negligence of an independent contractor to whom he delegates actual performance. John H. Radel Co. v. Borches, 147 Ky. 506, 145 S.W. 155, 39 L.R.A.,N.S., 227; Sack v. A. R. Nunn & Son, 129 Ohio St. 128, 194 N.E. 1; Dippel v. Juliano, 152 Md. 694, 137 A. 514; Mahany v. Kansas City Railways Co., Mo., 254 S.W. 16, 29 A.L.R. 817; Continental Ins. Co. v. I. Bahcall, Inc., D.C., 39 F.Supp. 315. If Lawrence without further qualifications had contracted with Defense’ Supplies to provide a 24-hour watch, it would appear that the case would fall within this exception, and that Lawrence would have been responsible to Defense Supplies for the negligence of Burns or its employee. But the contract between Lawrence and Defense Supplies did not require Lawrence to provide guards. The arrangement with the Burns Agency was made at the express request of Defense Supplies, for the latter’s benefit and at its expense. It is essential to bear in mind that Defense Supplies not only had full knowledge of the hiring of Burns to perform the desired guard service, but requested, acquiesced in, and approved of the arrangement. The exception is not applied in such circumstances. John H. Radel Co. v. Borches, supra; Sack v. A. R. Nunn & Son, supra; Dippel v. Juliano, supra; Continental Ins. Co. v. I. Bahcall, Inc., supra. Thus the facts absolve Lawrence of responsibility for negligence on the part of Burns or its agents, inasmuch as Lawrence did not delegate to Burns a duty it had itself contracted to perform. Defense Supplies was obliged to look to Burns, not to Lawrence, for the recovery of losses caused by the negligence of Burns or its employees. It follows as a necessary corollary that Lawrence is not foreclosed from recovering indemnity from its agent, Capitol, for a judgment rendered against and paid by it because of the negligence of Capitol.

Apart from this point the only issues on the appeal which appear to us debatable are whether Lawrence had been held liable to Defense Supplies on account of its own negligence, or on account of its agent Capitol’s negligence; and, secondarily, whether Capitol’s successors in interest are responsible for Capitol’s liability. These issues have been obscured by the protracted course the litigation has taken, and by the many changes in the business form of Capitol and its owners. The requirement laid down by the Supreme Court of a formal suit on the judgment by Reconstruction Finance Corporatipn has likewise tended to obscure the realities of what is basically a fairly simple case. Numerous procedural points have been raised by appellants, both below and here, growing out of the bifurcation of the litigation following upon the entry of Reconstruction Finance into the picture. These points are highly technical, and we regard them as lacking in merit. The important thing to note is that throughout the litigation the interests of all appellants have been and are identical — not conflicting or distinct, as they would have us believe. In actuality there is but one case, a single litigation arising out of the same occurrences and involving the same parties. The original suit and the consolidated cross-claims were heard and tried throughout by the same judge as component parts of an integrated law suit. This treatment of the matter is attacked, but we are satisfied that the procedure followed was in conformity with the spirit and purpose of the Federal Rules governing the disposition of litigation involving multiple claims.

We turn now to the remaining issues deemed to have substance. On conclusion of the trial of the main case the court had made findings to the effect that Lawrence and Capitol Chevrolet failed to exercise reasonable care for the protection and preservation of the tires stored with them by Defense Supplies, and that their negligence and that of Me-Grew “concurred and joined together” to destroy Defense Supplies’ property. Appellants contend that these findings and the judgment entered thereon were conclusive upon the court in the disposition of the cross-claims of Lawrence. Accordingly, it is said, the court was foreclosed from resorting to the evidence taken on the main trial and from it determining, as it did, that the negligence of Capitol was primary and that of Lawrence merely imputed.

There are several answers to the argument. One of them is that the court at that time reserved for future determination the issues presented by the Lawrence cross-claim. A reserved issue relating to that claim was that Capitol’s negligence was alone responsible for the destruction of the property, in event actionable negligence were found to exist. That the trial court regarded the liability of Lawrence as resting upon the negligence of its agent is made apparent in its opinion handed down at the time. And on the appeal this court observed that while the findings were not specific in this respect “the trial court’s opinion shows that the decision as against Lawrence was grounded on imputed negligence." 164 F.2d 773, at page 776. The findings on Defense Supplies’ trial, doubtless prepared by its counsel, were appropriate and responsive to the issues then being determined, but they were not responsive to those framed in the cross-claims reserved for consideration thereafter; and it is not to be assumed that the court intended to or did in fact decide the merits of the collateral dispute between Lawrence and Capitol. Compare Booth-Kelly Lumber Co. v. Southern Pacific Co., 9 Cir., 183 F.2d 902¹, 20 A.L.R.2d 695.

Appellants Kenyon, Adams Service and the Phelps argue that the trial court ignored fundamental principles of due process in holding them bound “by evidence which was not offered and could not have been offered against them.” The evidence referred to is, of course, the evidence introduced at the trial of Defense Supplies’ case. If we are right in holding, as we have, that the litigation throughout constituted a single integrated proceeding, then there would seem to have been no need of reduplicating that evidence or of offering or introducing it at a later stage. It was before the court for consideration at any phase.² The court was entitled to assume, and obviously did understand, that the evidence then taken was going in for all purposes. But these appellants claim that they did not participate in or have the right to control the defense of the action in which the judgment for Defense Supplies was rendered, hence they are in nowise bound by the evidence introduced thereat. To our way of thinking, the assertion that these appellants did not direct or control the defense of the main suit is little short of preposterous. The surrounding circumstances, earlier related in this opinion, all point the contrary. If these parties did not control the defense of the action, who, one may justly inquire, did control it ? As for Kenyon, he was present at the trial, testified in the course of it, and in response to an interrogation declared, “I am the owner of the Capitol Chevrolet Company.” And so, along with his co-appellants, he was for all practical purposes Capitol Chevrolet Company. Moreover, it was obviously of vital consequence to these parties that the suit of Defense Supplies be. vigorously contested, inasmuch as they had bound themselves to discharge any judgment that might be granted against Capitol. To that extent at least, they were in privity with Capitol.

But even if these appellants were not in privity with Capitol and did not control its original defense, they had assumed its liabilities and undertaken to pay them. The judgment ultimately rendered against Capitol on the Lawrence cross-claim was conclusive upon them. They argue, however, that this judgment against Capitol did not exist when the cross-claims were being tried, and that it was not and could not be formally put in evidence on that trial. But they do not dispute the fact that they were in control of Capitol’s defense on that occasion and had full knowledge of the result. Indeed, the record shows that at a pretrial conference it was conceded that if Capitol were held liable to Lawrence they themselves would be liable.

Of course on the trial of the cross-claims the appellants were not precluded from introducing further evidence, or from recalling for cross-examination or other purposes the witnesses who had testified on the original trial, or from objecting to the applicability or materiality of specific items of evidence then taken. Ample opportunity to do that was afforded appellants. But what they sought, and complain of not getting, was the exclusion of all the evidence on what appears to us to be the specious ground that they were in no way affected by it.

Finally, one more argument will briefly be noticed. It is contended that the action on the cross-claims is barred by limitation. In the answers six separate statutes of limitation were pleaded by way of special defense. On the appeal all were abandoned save a claim that the Lawrence cause of action was accelerated because of an “anticipatory breach by repudiation” on the part of Capitol. It is conceded, however, as it must be, that a cause of action for an indemnitee is accelerated only at the option of the indem-nitee, in this case, Lawrence.

Affirmed.

1 . The Booth-Kelly decision, 183 F.2d at page 912, dealt with a cognate situation.

We there said:

“It is next argued that it was not permitted to the court to find that Booth-Kelly’s negligence was ‘the active, direct, proximate and primary cause of the injury’, for the reason that the judgment in the Powers case, which, because of the notice and opportunity to defend, was admittedly binding on both of the instant parties, had determined that the negligence of the Southern Pacific constituted the immediate proximate cause of the accident, and had determined that Booth-Kelly’s negligence, if any, was a mere remote cause, and that such is now res ju-dicata.

“The trial court rejected this contention and in this we think it was right. As the Oregon court said in the Astoria case, supra [City of Astoria v. Astoria & Columbia River R. Co., 67 Or. 538, 136 P. 645, 49 L.R.A.,N.S., 404], ‘The scope of the estoppel created by the judgment in the primary case embraces all of the issues determined by it.’ But that determination here was simply that Powers received injuries to the extent of his judgment, and that a contributing proximate cause of these injuries was the negligent failure of Southern Pacific to furnish him a safe place to work by failing to warn him of the presence of the wood cart. But which act of negligence was primary, or which active or direct, was not an issue in the Powers case.”

2 . See Jones v. Waterman S. S. Corp., 3 Cir., 155 F.2d 992, 997; Metzger v. Breeze Corp., D.C., 37 F.Supp. 693. And consult Rules 13(g) and 14, Fed.Rules Civ.Proe. 28 U.S.C.A.