United Boatbuilders, Inc. v. Tempo Products Co., 22--40134--1

• Decision Date: 27 October 1969
• Docket Number: No. 22--40134--1,22--40134--1
• Court: Washington Court of Appeals
• Parties: UNITED BOATBUILDERS, INC., a Washington corporation, Appellant, v. TEMPO PRODUCTS COMPANY, Respondent.

Page 177

1 Wn.App. 177

459 P.2d 958

UNITED BOATBUILDERS, INC., a Washington corporation, Appellant, v. TEMPO PRODUCTS COMPANY, Respondent.

No. 22--40134--1.

Court of Appeals of Washington, Division 1, Panel One.

Oct. 27, 1969.

Merrick, Johnson, Burgess & Hofstedt, H. Roland Hofstedt, Seattle, for appellant.

Lycette, Diamond & Sylvester, William J. Millard, Jr., Seattle, for respondent.

SWANSON, Judge.

A boat manufacturer, United Boatbuilders, Inc., suing in warranty and negligence sought indemnity from the supplier of fuel tanks, Tempo Products Company, for amounts paid in settlement of a boat purchaser's claim.

The stipulated and pertinent facts are that one James Frazier, in a suit brought in federal court against United Boatbuilders, Inc., claimed that he was thrown up into the air and landed with his back against a seat, thus sustaining an injury, when his boat stalled while cruising on the Pacific Ocean. He blamed the engine failure on defective fuel tanks which contained accumulated dirt, debris, sediment and rust. The boat was manufactured by appellant in Bellingham, Washington.

The defense of this action was tendered by the appellant, United Boatbuilders, Inc., to Tempo Products Company. The tender was declined. The appellant denied liability but before trial settled Frazier's lawsuit for $5,000 and brought this action for indemnity to recover the amount of the settlement plus attorneys' fees and costs.

The fuel tanks installed on Frazier's boat were manufactured by another company but supplied to the appellant by Tempo Products Company with its trade name on the tanks. Neither party inspected the tanks, and its was agreed that such would not be practical since the only access to the tanks was through a 1 1/4 inch opening.

The agreed facts were adopted by the trial court as its findings of fact, and inasmuch as neither party has assigned error to them, these facts are verities. Baugh v. Dunstan & Dunstan, Inc., 67 Wash.2d 710, 409 P.2d 658 (1966). Upon these findings the trial court concluded that the appellant, United Boatbuilders, Inc., is not entitled to indemnity, that no warranty existed, and dismissed the action.

Appellant's assignments of error will be considered together, since they raise only one issue--Was the trial court's conclusion correct that no right of indemnity could be found from the stipulated facts?

Appellant's argument may be summarized as follows. United ordered the tanks from Tempo, and an implied warranty of quality and merchantability arose pursuant to RCW 63.04.160(1)(2). ¹ Tempo's knowledge of United's purpose was shown from the sale itself. ² A 'potential liability' arose, United asserts, when the defense of Frazier's federal court action was tendered to Tempo, refused, and reasonable settlement made before trial. This 'potential liability,' appellant urges, caused the burden of going forward with evidence to shift to United. Since no other facts were presented, liability was proven based on the defective tanks. This being so, the warranty was breached, and United is entitled to be indemnified for its loss occasioned by Tempo's fault.

The law has long recognized an implied right of indemnity when a party is subjected to liability for the wrongful conduct of another. 3 L. Frumer & M. Friedman, Products Liability § 44.02, at 15 (1968). Our Supreme Court, in Rufener v. Scott, 46 Wash.2d 240, 243, 280 P.2d 253 (1955), recognized the rule relating to the right of indemnity as stated in 27 Am.Jur. Indemnity § 18:

'But the operation of this rule against recourse is greatly circumscribed, with the result that one constructively liable for a tort is generally held entitled to indemnity from the actual wrongdoer, regardless of whether liability is imposed on the person seeking indemnity by statute or by rule of the common law, and irrespective of the existence of an express contract to indemnify.'

The principle of indemnity is not without limitations. As discussed in Rufener v. Scott, Supra at 242:

It is the general rule that there is no right of indemnity between joint tort-feasors. Duncan v. Judge, 43 Wash.2d 836, 264 P.2d 865. However, if the tort-feasors are not In pari delicto and the negligence of one is primary or active, and the negligence of the other is passive, resulting in injury to a third person, and the one guilty of passive negligence is required to answer in damages to the third person, he is entitled to indemnity from the wrongdoer guilty of primary negligence.

To establish a right of indemnity the appellant must prove three basic elements: (1) that it was liable to Frazier (whether actual or only potential liability need be shown will be discussed below), (2) that the settlement was reasonable (this was agreed to by stipulation), and (3) that the facts are such as to give rise to a duty on the part of the respondent to indemnify appellant. As to the first requirement, the fact that United's payment was voluntary and Frazier's claim was not reduced to judgment does not defeat the right to indemnification. Aberdeen Const. Co. v. City of Aberdeen, 84 Wash. 429, 147 P. 2 (1915); Safeway Stores, Inc. v. Massachusetts Bonding & Ins. Co., 202 Cal.App.2d 99, 20 Cal.Rptr. 820 (Dist.Ct.App.1962); Pipe Welding Supply Co., Inc. v. Gas Atmospheres, Inc., 201 F.Supp. 191 (N.D.Ohio 1961). See generally 3 Frumer & Friedman, Supra § 44.10(2).

A person confronted with an obligation that he cannot legally resist is not obliged to wait to be sued and lose an opportunity to compromise. Globe Indem. Co. v. Schmitt, 142 Ohio St. 595, 53 N.E.2d 790 (1944); United States Fid. & Guar. Co. v. Hooper, 219 Wis. 373, 263 N.W. 184 (1953).

Given an indemnitee who has been notified of the suit and tendered the opportunity to defend, must the indemnitee prove potential liability (as well as the reasonableness of the settlement and the facts giving rise to the duty to indemnify), or must be prove actual liability to the third party claimant? The authorities are divided on this question. Blockston v. United States, 278 F.Supp. 576 (D.Md.1968).

Appellant, in support of his theory, contends the indemnitor bears the burden of proving no liability and cites two cases: Damanti v. A/S Inger, 153 F.Supp. 600 (E.D.N.Y.1957); Hartford Acc. & Indem. Co. v. Payne, 242 F.Supp. 888 (D.Or.1965). The court, in the first case, recognized the doctrine of 'potential liability' and stated on p. 601 of 153 F.Supp.:

It seems unlikely that the same degree of liability in fact on the part of the indemnitee must be established as would have been established by the plaintiff against the said indemnitee, for the law favors settlements, and if such original liability had to be so clear cut, settlements could rarely, if ever, be made.

In the second...