Plaintiff homeowners association alleged that defendant property management company had a duty, because of its control of the association’s checkbook, to thwart self-dealing by a member of the association’s board of directors. The Superior Court of Orange County, California, granted summary judgment for the management company. The association appealed.

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Overview

The trial court granted summary judgment based on the association’s contractual agreement to indemnify the management company. In reversing, the court explained that indemnification agreements ordinarily related to third party claims rather than two-party situations where one party asserted that a contract released it of all liability to the other. The court declined to construe the agreement at issue in an exculpatory manner. In contrast to case law cited by the management company, there were no indicia in terms of the commercial reality or the benefit of the bargain received by the management company that required an interpretation of the words “indemnify” or “hold harmless” beyond the usual context of third party indemnification. To the contrary, the contract fixed specific duties regarding the management of the checking account on the management company for a consideration. The tasks were not being done as a favor. There were no references to the specific risk associated with the checkbook management services. The court found that the terms “indemnify” and “hold harmless” could both apply to third-party situations without violating the canon against surplusage.

Outcome

The court reversed the judgment.