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City of Philadelphia v. Lieberman

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT


on reargument: May 22, 1940.

CITY OF PHILADELPHIA
v.
LIEBERMAN ET AL.

On Reargument.

After full reargument, in which the ancillary receivers of International Reinsurance Corporation joined as amici curiae, we adhere to our former conclusion that the trust created by the agreements of November 30, 1929 and June 14, 1934, has not terminated. The contracts in connection with which Consolidated became surety, of which that between Golder and the city is typical, contain the following significant clause: " * * * and the party of the second part agrees to fully indemnify, protect and save harmless the party of the first part from all loss, damage or expense from claims and liability resulting from accident, negligence or other cause during the prosecution of the work covered by this contract."

We cannot rewrite the agreement of the parties but must take it as they have written it. Clearly the language just quoted imposes upon the contractor an unlimited obligation to indemnify the city against loss, damage or expense from claims and liability if the latter result from accident, negligence or other cause which occurred during the prosecution of the work and in respect to it. In the next sentence, which imposes upon the contractor direct liability to pay loss or damage in any manner arising by reason of the prosecution of the work, liability is expressly restricted to loss or damage arising during the progress of the work.The absence of such an express restriction in the prior clause indicates a contrary intent.

The plaintiffs argue that under some of the Pennsylvania authorities there is a possibility that the city might be held liable for damage caused during construction by the contractor's negligence, even though he is stipulated to be an independent contractor. Therefore, they say, there is point to requiring from him an agreement of indemnity against claims for damage arising during the work. But since after completion and acceptance by the city the contractor ceases to be liable to third parties for damage thereafter occuring, the plaintiffs argue that the parties could not have intended to impose a continuing obligation of indemnity upon him.

The difficulty with this argument is that it does not tell the whole story. It the city should be held liable for the contractor's negligence despite his agreed independent status, that liability would of course continue after the completion of the work and the city would be entitled to require indemnity thereafter. If on the other hand the contractor is held to be a truly independent one for whose negligence the city is ordinarily not responsible, it must still be remembered that there are exceptions to the rule of non-liability in such cases.*fn1 Thus, to give but one illustraction, the city might be held liable because it accepted the contractor's work, knowing or having reason to know that it was defective.*fn2 Under such circumstances it has been held in Pennsylvania that an injured third party may recover against the employer of the independent contractor.*fn3 Thus it will be seen that the city cannot escape all possibility of liability after completion for negligence occurring during construction by dealing with an independent contractor. It can, however, require the contractor to indemnify it against such subsequent liability, and this we think it did in the present case.

It is strongly urged that our construction of the contract imposes the possibility of perpetual liability upon the contractor and his surety. This can only be so in the sense that if, and only if, the contractor was actually negligent during the work he and his surety might be compelled to indemnify the city for any loss caused by that negligence, even though suffered long afterwards. However, we may point out that the plaintiffs state, and the city appears to acquiesce in the statement, that it has been the uniform usage of the city in dealing with its contractors and their sureties to terminate the indemnity agreements and return the securities deposited by the sureties at the expiration of six years after the completion of the work and its acceptance by the city if no suits or claims are then pending. It it well settled that evidence of usage is admissible to show the intent of the parties as to an incident of the contract upon which the writing is silent.*fn4 Here, as we have seen, the contract is silent as to the term during which the indemnity agreement is to remain effective.

In the present case the last contract involved was completed in April, 1937. The period of six years will, therefore, not end until April, 1943. It follows from what has been said that the decree of the district court was properly reversed.


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