Carpenter v. Remtech, Inc.
This case involves the signing of an indemnity agreement between two parties. An indemnity agreement is a contract wherein the parties agree to be responsible for some possible future liability. Here the Carpenters entered into an indemnity agreement on May 20, 1999 so that they could secure the bonding of a project in Oregon called the McCormick & Baxter Project. The agreement called for the Carpenters to pay to Hartford Insurance Company any monies that Hartford paid out on the bond. The second party to this action, the Johnsons, had nothing to do with the M&B Project and they were not a party to the agreement.
The Carpenters and the Johnsons did enter into an indemnity agreement on June 8, 1999 in regards to a mutual venture called the Manchester Project. However, the Manchester Project was cancelled and there were never any claims made against the bond nor the indemnity agreement.
There were two claims made against the bond in the M&B Project and Hartford paid those claims. Hartford then sued the Carpenters for reimbursement under the indemnity agreement. The complaint specifically referred to the May 20, 1999 indemnity agreement and when the case was settled the settlement agreement specifically referred to the M&B Project. The Johnsons were not a party to this lawsuit.
However, the Carpenters decided to pursue the Johnsons for a portion of the settlement monies paid to Hartford in the M&B Project. The Carpenters argued that since the language for the indemnity agreement for the Manchester Project was unqualified (it said “will indemnify…from all loss…because of having furnished any Bond”) that the Johnsons were obligated to contribute to the settlement with Hartford on the M&B project. The trial court agreed and the Johnsons appealed.
The Court of Appeals agreed with the Carpenters that an indemnity agreement does provide a right of contribution and makes the parties equally liable for a debt that is subject to the agreement. However, they did not agree with the Carpenters that the Johnsons were equally liable on the debt to the Hartford. The Court pointed out that contribution is either a right of equity or a right of law. Since the contract did not specifically call for contribution, any suit for contribution must be made in equity. And thus a trier of fact must imply an obligation to contribute, but along with this assumption is a second assumption that “the instrument out of which the right to contribution should arise was paid or satisfied by one guarantor for the benefit of both guarantors. So underlying this equitable right is the condition that the party against whom contribution is sought was obligated to pay the principle debt in the first place.”
In addition, the Court held that the Berg context rule also applied:
That rule provides an analytical framework to interpret the language of these general indemnity agreements to determine the intent of these parties when they signed the agreement. To do so, we view the contract as a whole. We include “the subject matter and objective of the contract, all circumstances surrounding its formation, the subsequent acts and conduct of the parties, statements made by the parties in preliminary negotiations, and usage of trade and course of dealings.” Tjart v. Smith Barney, Inc., 107 Wash.App. 885, 895, 28 P.3d 823 (2001). This approach permits us to then “discover the intent of the parties based on their real meeting of the minds, as opposed to insufficient written expression of their intent.”
The Court held that since the Johnsons were not part of the May 20, 1999 agreement that Hartford sued under, that the intent of the parties was that the agreements were project specific, i.e., that they could only be held liable as to claims under each project and not be generally liable for all claims. Since Hartford never sued the Johnsons on the June 8, 1999 indemnity agreement, the Johnsons never incurred any obligation to Hartford. Both the pleadings and the settlement agreement supported this.
Judge Kulik filed a dissent to this opinion stating that the agreements were not project specific and thus the Johnsons were liable for contribution.