Smith v. Clark Equipment Co.

• Decision Date: 25 September 1985
• Docket Number: No. 83-1558,83-1558
• Citation: 91 Ill.Dec. 520,136 Ill.App.3d 800,483 N.E.2d 1006
• Parties: , 91 Ill.Dec. 520 Linda M. SMITH, Plaintiff, v. CLARK EQUIPMENT COMPANY, a corporation, and Geraghty Industrial Equipment, Inc., Defendants. CLARK EQUIPMENT COMPANY, a corporation, Third Party Plaintiff-Appellant, v. PAPER SALVAGE CORPORATION, a corporation, Third Party Defendant-Appellee.
• Court: United States Appellate Court of Illinois

Page 1006

483 N.E.2d 1006

136 Ill.App.3d 800, 91 Ill.Dec. 520

Linda M. SMITH, Plaintiff, v. CLARK EQUIPMENT COMPANY, a corporation, and Geraghty

Industrial Equipment, Inc., Defendants.

CLARK EQUIPMENT COMPANY, a corporation, Third Party Plaintiff-Appellant, v. PAPER SALVAGE CORPORATION, a corporation, Third Party

Defendant-Appellee.

No. 83-1558.

Appellate Court of Illinois,

First District, Third Division.

Sept. 25, 1985.

Wildman, Harrold, Allen & Dixon, Chicago, for Clark Equipment Co.; Fred E. Schulz, James R. Morrin and George F. Fitzpatrick, Chicago, of counsel.

Sweeney and Riman, Ltd., Chicago, for Paper Salvage Corp.; Kevin F. Donohue, Chicago, of counsel.

McNAMARA, Justice:

Plaintiff, Linda Smith, as administrator of the estate of her deceased husband, William Smith, brought a personal injury action against Clark Equipment Company and Geraghty Industrial Equipment, Inc. Clark, seeking indemnity, filed a third party action against Paper Salvage Corporation, decedent's employer. The trial court granted Paper's motion to dismiss the third party complaint for failure to state a cause of action. Clark appeals.

Counts I and II of plaintiff's third amended complaint against Clark alleged that decedent sustained injuries resulting in his death while operating a forklift truck defectively designed, manufactured and distributed by Clark and leased by Geraghty to Paper. The complaint further alleged that the forklift truck was unreasonably dangerous and defective in that the driver overhead guard was capable of being removed; that Clark failed to furnish a load back rest extension; and that Clark failed to issue adequate warnings. The remaining counts related to Geraghty, Clark's authorized rental dealer. Geraghty filed a counterclaim for indemnification against Clark and a third party complaint for indemnification against Paper.

Clark filed a three count third party complaint against Paper seeking indemnification for any liability Clark might incur as a result of the Smith suit or the Geraghty counterclaim. Clark partially based its third party indemnification action on Paper's breach of the rental agreement between Geraghty, lessor, and Paper, lessee. Geraghty had leased the forklift truck to Paper, with the monthly rentals paid to Clark.

The rental agreement provided in pertinent part:

14. Care of Equipment.

A. LESSEE agrees to take good care of the equipment in the use, maintenance and storage thereof, and without limiting the foregoing, to keep equipment in a covered area when not in use, to keep equipment clean, to use and operate equipment within its rated capacity, to restrict the use and operation thereof to safe, careful and competent personnel selected, employed and controlled by LESSEE, to assure that equipment is operated with a driver overhead guard and load back rest installed except when operating conditions prevent their use, to prohibit anyone other than duly authorized personnel of LESSOR from making any repairs or adjustments to the equipment (unless otherwise previously authorized, in writing, by LESSOR); and to notify LESSOR immediately of any accident, affecting the equipment, setting forth all relevant facts, and thereafter promptly to furnish LESSOR, in writing, all information required by LESSOR in connection therewith. LESSEE shall be liable for any and all loss or damage to the equipment due to its failure to observe any of the foregoing.

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7. Liability.

LESSEE assumes all risk and liability arising from LESSEE's possession, use and operation of each unit of equipment from the moment of delivery to LESSEE to the moment of return to LESSOR and agrees to indemnify and hold LESSOR harmless from any and all of the following, whether the same be actual or alleged unless directly caused by LESSOR's negligence: all loss, damage, claims, suits, taxes, liens, penalties, fines, liability and expense (including attorney's fees) howsoever arising or incurred because of such possession, use and operation of equipment including, but not limited to, damages for injuries or death to persons or injury to or destruction of property, claims and liens for storage, labor and materials and all loss of and damage to equipment."

Clark initially contends that it can enforce the contract between Geraghty and Paper based on its alleged status as either a party to, beneficiary or assignee of the rental agreement. A party's status with respect to a contract depends on the intention of the parties as expressed by the language of the document and the circumstances surrounding the parties at the time of its execution. (Carson Pirie Scott & Co. v. Parrett (1931), 346 Ill. 252, 178 N.E. 498.) The written agreement between Geraghty and Paper was formalized in a document provided by Clark with the heading, Clark Rental System. Paragraph 3 specified that all monthly rentals be paid to Clark and paragraph 22 stated that Clark had the right to prior approval of the lease. The shipment of the leased vehicle originated at Clark's warehouse, and the lessee was obligated to return the vehicle there at the lease termination. Although the named parties to the lease agreement were Geraghty and Paper, there were provisions for signatures of those parties as well as approval by Clark.

The pleadings do not show, nor was it alleged that Clark was a signatory to the lease agreement. Clark does not appear to have obligations under the contract, although it does have the right to receive the monthly rentals and the right to review and approve the lease. If Clark were a party to the agreement, Clark's acceptance would be a prerequisite to the formation of a valid contract and should be evidenced by its signature. (See Lynge v. Kunstmann (1981), 94 Ill.App.3d 689, 50 Ill.Dec. 146, 418 N.E.2d 1140.) Since Clark is not a named party and not a signatory to the agreement, it is not a party to the contract.

Clark, however, is a direct and intended beneficiary of the lease agreement and can bring suit as a third party beneficiary of the contract. In order for a third party to maintain a suit for breach of contract, the contract must be entered into for the direct benefit of the third party and the liability of the promisor must affirmatively appear from the language of the instrument. (People ex rel. Resnik v. Curtis & Davis, Architects & Planners, Inc. (1980), 78 Ill.2d 381, 36 Ill.Dec. 338, 400 N.E.2d 918.) The lease agreement between Geraghty and Paper specifically states that Paper agrees to pay the monthly rentals to Clark. The clear intention of the parties is that the monetary benefits of the agreement accrue directly to Clark through the performance of the contract. (See, e.g., Redarowicz v. Ohlendorf (1982), 92 Ill.2d 171, 65 Ill.Dec. 411, 441 N.E.2d 324.) Therefore, Clark is permitted to maintain an action against Paper as a third party beneficiary of the lease agreement.

Clark's third party action against Paper attempts to state a cause of action for contractual and implied indemnity. Indemnity is a common law doctrine which shifts the entire responsibility from one tortfeasor, who has been compelled to pay the loss, to another tortfeasor who is truly culpable. (Van Jacobs v. Parikh (1981), 97 Ill.App.3d 610, 52 Ill.Dec. 770, 422 N.E.2d 979; Prosser, Torts sec. 51, at 310 (4th ed. 1971).) Indemnity can be express, arising out of the agreement of the parties, implied by operation of law, or implied by the courts based upon the theory of active-passive negligence. (Morizzo v. Laverdure (1984), 127 Ill.App.3d 767, 83 Ill.Dec. 46, 469 N.E.2d 653.) Clark contends that it is merely attempting to enforce Paper's contractual obligations and is not seeking contractual indemnity in counts I and II. Clark, however, is not seeking contract damages. Clark is seeking to be reimbursed by Paper for Clark's liability which might arise from plaintiff's action for damages for decedent's injuries and death. We view counts I and II as claims for contractual indemnity. Count I seeks indemnity based upon the language of paragraph 14 and count II seeks indemnity through an interpretation of paragraphs 7 and 14.

In count I, Clark alleged that Paper breached its specific contractual obligation stated in paragraph 14 to maintain the forklift and that pursuant to the liability language in that paragraph, it was entitled to indemnification. In paragraph 14, Paper assured that the forklift would be "operated with a driver overhead guard and load back rest" and assumed liability for "any and all loss or damage to the equipment." Clark further alleged that Paper removed the overhead guard and load back rest and allowed decedent to operate the forklift without those protective devices. Thus, Clark argues that this breach of Paper's contractual obligation establishes its liability for all injuries to decedent which allegedly resulted from the use of the forklift without a driver overhead guard and load back rest.

We first emphasize that the underlying claims against Clark for which it seeks indemnification are grounded upon Clark's strict liability. Clark is charged with having designed, manufactured and distributed an unreasonably dangerous and defective forklift. It is well settled that an agreement will not be construed as indemnifying a party against its own strict liability unless the language of that agreement clearly and specifically shows that this was the intent of the parties. (Patton v. T.O.F.C., Inc. (1979), 79 Ill.App.3d 94, 34 Ill.Dec. 638, 398 N.E.2d 313; Sorrentino v. Waco Scaffolding & Shoring Co. (1976), 44 Ill.App.3d 1055, 3 Ill.Dec. 559, 358 N.E.2d 1244.) An agreement for indemnification of a party's own strict liability must be construed strictly against the indemnitee. (Patton v. T.O.F.C., Inc.) Further, in construing an agreement to indemnify, all the language and provisions must be considered as a whole. Bates v. Select Lake City Theater Operating Co. (1979), 78 Ill.App.3d 153, 33 Ill.Dec. 742, 397 N.E.2d...