National Transit Co. v. Davis

• Decision Date: 02 July 1925
• Docket Number: No. 3259.,3259.
• Citation: 6 F.2d 729
• Parties: NATIONAL TRANSIT CO. v. DAVIS, Director General of Railroads.
• Court: U.S. Court of Appeals — Third Circuit

6 F.2d 729 (1925)

NATIONAL TRANSIT CO. v. DAVIS, Director General of Railroads.

No. 3259.

Circuit Court of Appeals, Third Circuit.

July 2, 1925.

Breene & Jobson, Trax & Parker, and Wm. M. Parker, all of Oil City, Pa., for plaintiff in error.

Albert L. Thomas, of Meadville, Pa., and John E. Walker, of New York, N. Y., for defendant in error.

Before BUFFINGTON, WOOLLEY, and DAVIS, Circuit Judges.

BUFFINGTON, Circuit Judge.

By contract dated April 22, 1898, the Erie Railroad, a corporation of New York, permitted the National Transit Company, a corporation of New York, engaged in transporting oil by pipe line, to lay its pipe on the railroad's right of way. By such contract the latter company agreed "to indemnify and save harmless the party of the first part from and against all claims, suits, costs, losses and expenses, in any manner resulting from, or arising out of, the laying, maintenance, renewal, repair, use or existence of said pipe (whether heretofore or hereafter laid) including the breaking of the same or the leaking of oil from the same." During the war period the road was taken over and operated by the government, and the transit company continued its contractual permissive use of the railroad's property. On December 28, 1918, which was during that period and while the transit company was pumping oil through its three-inch pressure line laid under the railroad's tracks in Oil City, Pa., such line broke and flooded the tracks of the railroad with oil. In some manner this oil was set on fire by a switching engine of the railroad, and a large engine factory belonging to a third party, which abutted the railroad tracks, was burned. Thereafter the owners of this factory brought suit in a state court of Pennsylvania against the Director General of Railroads for the damages suffered by them. Thereupon the Director General of Railroads, conceiving the transit company had by such contract agreed "to indemnify and save harmless" the railroad "from and against all claims and suits * * * in any manner resulting from or arising out of * * * the use of said pipe, * * * including the breaking of the same, or the leaking of oil from the same," and that this claim or suit had resulted from the breaking or leaking of the pipe, notified the transit company to intervene and defend the suit. In response to this notice and request, the transit company did nothing. Thereupon the Director took up the burden of defense, but was unsuccessful, and the factory owners recovered verdict and judgment for the damages resulting from the oil fire. This verdict the transit company failed to pay, whereupon it was paid by the Director General and the present suit brought by him against the transit company for breach of the contract to indemnify. On trial he recovered a verdict for the full amount of damages sustained by him by the suit of the factory company. On entry of judgment on such verdict the transit company sued out this writ of error.

The questions involved therein are so fully considered and satisfactorily disposed of in the opinion of the trial judge printed in part, in the margin,¹ in disposing of the motion for a new trial, that we might well rest our decision on such opinion. But the amount of the verdict and the importance of the questions involved warrant a brief expression of our concurring views.

Turning to the contract, which is the underlying feature of all questions involved, we note that such contract in no way concerned or affected the duty of the railroad as a common carrier. It was simply an agreement by which the transit company obtained permission to use the property of the railroad in carrying on its own business of transporting oil. Such being the case, it follows that no questions of public policy are involved in, or affected by, the contract, and therefore the parties were unhampered in their general right to contract with each other as they saw fit and, as pertinent to the present contract, could contract freely as to the effect or noneffect of their own negligence and stipulate for exemption from the consequences of such negligence if they so desired. Manifestly in making the contract the parties contemplated the possible breaking of pipes, the leakage of oil, its inflammable character, the continued usual operation of the railroad, the fire dangers incident to sparks and live coal from passing engines, and the to be expected negligence of railroad employees and the fire injury to abutting property. Moreover, it is clear that the parties were contracting not so much against damages to the railroad's own property, but as to the damages of third parties, including, of course, abutting property owners, since third parties only could make the claims or bring the suits against which the contract was to indemnify the railroad. And as such third parties so suffering damage from the escape of the transit company's oil could only make claims or bring suits against the railroad when the latter was in some way in concurring fault in relation to such oil, it would seem clear that if the indemnifying clause of the contract were limited to claims and suits where the railroad was blameless, there would in point of fact be nothing to which such indemnifying clause would apply. On the contrary, if the contract be construed and enforced in the light of the situation actually in view of the contracting parties, to wit, the normal continued operation of the road with the human and usual incident of occasional negligence of railroad employees and the consequent dangers resulting from flooding its tracks with oil, then we effect the purpose of the parties when we hold the indemnifying clause of the contract covered a situation where the transit company's escaped oil was the real cause of damage to third parties although incident thereto was the concurring element of that negligence of its employees incident to the usual operation of railroads. In that respect, and indeed in tersely summing up the whole situation, the court below well said:

"The contract in suit did not take away or lessen any right possessed by any member of the public. If a third person was injured, then, by the negligence of the servants of the railroad company growing out of the situation occasioned by the grant to the transit company, such person so injured was entitled to recover full compensation for his loss, irrespective of the contract in question. The railroad company did not strive to exonerate itself from any liability to third persons, but did seek to hold the transit company ultimately liable for the loss, if arising out of the permission to lay its pipe lines and operate the same under its right of way. Both parties to the contract recognized the increased hazard which the grant created. The railroad company had the right to protect itself against such increased hazard, and in doing so it did not injuriously affect the rights of the public, and the transit company voluntarily assumed the liability of such increased hazard. Such a contract is not against public policy, and is therefore valid and binding in law."

Seeing then the transit company could lawfully indemnify the railroad against damage even though the latter's negligence was involved, and that, in point of fact, it did, by its contract, so indemnify, we next inquire whether the Director General has a right of action upon such contract. It is true the contract of the transit company, as written, was with the railroad alone, but, being with a public agency whose property could in time of war necessity be taken over and operated by the government, the contract must be considered and enforced as made with the possibility of such contingency arising. And if it arose could the government, on the one hand, although not a party to the contract, tear up, without liability for damage, the transit company's lines; or, on the other hand, could the transit company, continuing to avail itself of the benefits of the contract, continuing to pipe its oil on the right of way and continuing to subject the operation of the road in the government's hand to such added perils, could either one be heard to say no privity of estate existed between them? The logical and equitable answer is that the transit company, by its continuing to avail itself of the benefit of the contract, is estopped from denying its liability to the contract's obligations.

In so holding w...