Carolina Cas. Ins. Co. v. Oregon Auto. Ins. Co.

• Decision Date: 24 November 1965
• Parties: CAROLINA CASUALTY INSURANCE COMPANY, a corporation, Appellant, v. OREGON AUTOMOBILE INSURANCE COMPANY, a corporation, Respondent.
• Court: Oregon Supreme Court

Page 198

408 P.2d 198

242 Or. 407

CAROLINA CASUALTY INSURANCE COMPANY, a corporation, Appellant, v. OREGON AUTOMOBILE INSURANCE COMPANY, a corporation, Respondent.

Supreme Court of Oregon, In Banc.

Argued and Submitted Sept. 9, 1965.

Decided Nov. 24, 1965.

James H. Clarke, Portland, for appellant. With him on the brief were Koerner, Young, McColloch & Dezendorf and John Gordon Gearin, Portland.

Howard K. Beebe, Portland, for respondent. With him on the brief were Maguire, Shields, Morrison, Bailey & Kester and David C. Landis, Portland.

Before McALLISTER, C. J., and PERRY, SLOAN, GOODWIN, DENECKE, HOLMAN, and LUSK, JJ.

HOLMAN, Justice.

This is an action by one insurance company against another for contribution because of money paid to settle claims arising out of an automobile accident. Plaintiff, Carolina Casualty Insurance Company (Carolina Casualty), issued a policy of automobile liability insurance which covered as named insureds Dependable Trucking, Inc. (Dependable) and Rough and Ready Lumber Sales, Inc. (Rough and Ready). The defendant, Oregon Automobile Insurance Company (Oregon Auto), issued a policy of automobile liability insurance covering Rough and Ready.

Dependable transported lumber for Rough and Ready as a common carrier. Rough and Ready had customers in California. Dependable did not have a certificate of necessity from the Interstate Commerce Commission (ICC) and therefore could not legally transport goods as a commercial carrier in interstate commerce. 49 U.S.C. §§ 303(c), 306(a), 309(a).

To avoid the ICC Regulations on California shipments Dependable ostensibly entered into a lease agreement with Rough and Ready whereby, on an individual trip basis, Dependable leased trucks to Rough and Ready for Rough and Ready's operation to California and return. Rough and Ready could haul its own material without being classed as a common carrier and thus needed no certificate of necessity.

On one of the trips to California the lumber truck became involved in an accident of serious proportions and the claimants sued both Dependable and Rough and Ready in California. Carolina Casualty put in an appearance for Dependable and Oregon Auto for Rough and Ready. On the day of trial Carolina Casualty, having insured both defendants against loss, settled all of the claims. Oregon Auto refused to contribute to these settlements claiming its insured, Rough and Ready, was not responsible to the California claimants because, despite the written lease to the contrary, the truck was being exclusively controlled and operated by Dependable at the time of the accident.

The parties at the time of the settlement entered into an agreement that (1) the sums paid were reasonable, (2) Carolina Casualty, in making the payment, was not to be considered a volunteer and (3) the payment was made without prejudice to the rights of either Carolina Casualty or Oregon Auto to assert or resist a claim for contribution.

Prior to the trial the parties stipulated that the driver of the truck (Wilson) was responsible for the claimants' injuries and damages and that:

'The sole issues for determination in this proceeding herein arise from the following contentions of the parties:

'Plaintiff contends herein and defendant denies:

'1. Rough and Ready Lumber Sales, Inc., was liable to the California claimants.

'2. Rough and Ready Lumber Sales, Inc., could have been held so liable by trier of the facts in the California action and this alone is sufficient to entitle plaintiff to recover.

'Defendant contends and plaintiff denies:

'1. Rough and Ready Lumber Sales, Inc., was not liable to the California claimants for injuries caused by Wilson's negligence.

'2. If there is a question of fact on the evidence as to whether Rough and Ready Lumber Sales, Inc., was so liable for Wilson's negligence this Court must make its own determination upon the evidence of whether Rough and Ready Lumber Sales, Inc., was so liable.'

The trial judge admitted parol evidence to the effect that the lease was a sham and not intended to create any legal relations between the parties thereto. From this evidence he found that the contract was a sham; that Rough and Ready had no right to control Wilson's actions; that this was the sole prerogative of Dependable; that Rough and Ready was not responsible to the California claimants; and therefore that Carolina Casualty was not entitled to contribution from Oregon Auto.

Plaintiff contends the admission of the parol evidence was error. Plaintiff says that in determining the question as to who had the right to control Wilson the court should have received only evidence which would have been admissible in the California action. Plaintiff argues, and defendant concedes, that the admissibility of parol evidence is a matter of substance and that therefore the California court would have applied the law of Oregon in determining admissibility because this is where the contract was made. Finally, plaintiff argues that the parol evidence rule of Oregon would not have permitted Rough and Ready to introduce evidence to show the contract was a sham or to vary it.

Plaintiff concedes in its brief that 'the single issue in this case is whether the California plaintiffs would have recovered in that action against Rough and Ready.' This, of course, is a retreat from the position it adopted in the above set forth stipulation where it claimed that it was sufficient for their recovery if Rough and Ready could have been held liable. This retreat seems to be in conformance with the law permitting contribution by one co-insurer against another. Where the claims are settled prior to judgment the settling insurer in its case against the co-insurer must prove all the facts necessary to the claimant's recovery against the insured. 8 Appleman, Insurance Law and Practice § 4913 (1962), at page 399, states as follows:

'Where one seeks indemnity, or contribution under a coinsurance clause, for an amount voluntarily paid without waiting for judgment, he must prove the actionable facts upon which the original liability depends as well as the reasonableness of the amount paid. * * *'

Also see Royal Indem. Co. v. American Cas. Co., 5 Misc.2d 533, 159 N.Y.S.2d 45 (1957); Hawkeye-Sec. Ins. Co. v. Lowe Constr. Co., 251 Iowa 27, 99 N.W.2d 421 (1959); New Amsterdam Cas. Co. v. Popovich, 31 N.J.Super. 514, 107 A.2d 345 (1954).

Plaintiffs' contention that the Oregon court can consider only that evidence which would have been admissible in California is sound. The Oregon court must determine if the claimants would have recovered against Rough and Ready in the California litigation. It can do this only if it considers just the evidence which was admissible there.

The parol evidence rule, ORS 41.740, prevents the parties to an integrated written contract from varying or contradicting the terms of the contract when litigating between themselves concerning their rights thereunder. However, parol evidence can be used to vary or contradict a contract when the litigation is between a party to the contract and a stranger thereto. Morey v. Redifer, 204 Or. 194, 264 P.2d 418, 282 P.2d 1062 (1955) (dictum); Wilkens v. Western States Groc. Co., 167 Or. 103, 114 P.2d 542 (1941); Easley v. Bottemiller, 162 Or. 90, 90 P.2d 481 (1939); Lane v. National Ins. Agency, 148 Or. 589, 37 P.2d 365 (1934); Harris v. Schnitzer, 146 Or. 391, 27 P.2d 1010 (1934); Pacific Biscuit Co. v. Dugger, 42 Or. 513, 70 P. 523 (1902); 4 Williston, Contracts § 647 (3rd ed. 1961). This is true even where the evidence is offered by the party to the contract. Pacific Biscuit Co. v. Dugger, supra; Robison v. Oregon-Wash. R & N Co., 90 Or. 490, 176 P. 597 (1919); Bagley Co. v. Int. Harvester Co., 99 Or. 519, 195 P. 348 (1921); Commercial Sec. Inc. v. Mast, 145 Or. 394, 28 P.2d 635, 92 A.L.R. 194 (1934).

Actually, the evidence admitted by the trial court did not tend to vary or contradict the contract in question. It sought to prove that the writing was no contract at all. The weight of authority elsewhere is that parol evidence is admissible to prove this even as between the parties to the contract. See cases cited in 71 A.L.R.2d 384-388. It is admissible, acording to the weight of authority, even though the contract is entered into for the purpose of deceiving a third party for the accomplishment of a morally objectionable purpose. See cases cited in 71 A.L.R.2d 389-392.

We have been unable to find any Oregon decisions discussing the law where there is no morally reprehensible purpose to be accomplished by a writing not intended to have legal effect. ¹ However, Oregon does not follow the weight of authority where the purpose sought to be accomplished by such a writing is morally objectionable. We follow the minority rule which says that where a written contract was entered into to accomplish a morally objectionable purpose, parol evidence that the writing was a sham will not be received. Otherwise, a court is used to aid those who would mislead or defraud third parties. Kergil v. Central Oregon Fir Supply, 213 Or. 186, 323 P.2d 947, 71 A.L.R.2d 378 (1958); Mock v. Bell Motors, Inc., 234 Or. 224, 380 P.2d 922 (1963).

Plaintiff contends Kergil is controlling here. There plaintiff sued for rental due under a written lease of trucks used to transport defendant's lumber. Defendant introduced evidence that the lease was executed solely as a sham for the purpose of evading taxes and that the real contract was an oral one whereby plaintiff was hired to haul the lumber at a price less than the one provided in the written instrument. In reversing the case, the court denied the defendant the right to introduce parol evidence that the writing was not intended to affect their legal rights and, 213 Or. at pp. 189-190, 323 P.2d pp. 948, 949, said as follows:

'The courts are not of a single mind upon this issue. We confess, the majority of jurisdictions at the present time, based upon pure...