How will a North Dakota court read our indemnity clause if the contract does not spell out every detail?
Through a set of Field Code default rules that fill gaps unless the contract itself says otherwise. N.D.C.C. § 22-02-01 defines the concept broadly: "Indemnity is a contract by which one engages to save another from a legal consequence of the conduct of one of the parties or of some other person." N.D.C.C. § 22-02-07 then supplies interpretive defaults "unless a contrary intention appears," including that "[u]pon an indemnity against liability, expressly or in other equivalent terms, the person indemnified is entitled to recover upon becoming liable" (rather than having to wait until an actual payment is made), and that "[t]he person indemnifying is bound, on the request of the person indemnified, to defend actions or proceedings brought against the latter in respect to the matters embraced by the indemnity, but the person indemnified has the right to conduct such defense if that person chooses to do so." Northstar Center, LLC v. Lukenbill Family Partnership, LLLP confirms courts apply § 22-02-07 directly to a contract's indemnity language: "Section 22-02-07, N.D.C.C., governs interpretation of an indemnity contract, unless a contrary intention appears."
The trap
Every one of § 22-02-07's defaults is exactly that: a DEFAULT the parties can override by drafting a contrary term, so a clause silent on when the duty to recover or defend arises gets the statutory answer, while a clause that says something different controls instead; Northstar Center itself held the parties' own clause "clear and unambiguous" and found its terms "comply with N.D.C.C. § 22-02-07 and do not reveal any contrary intentions", and still reversed the summary judgment awarding indemnity, because whether the indemnitor could raise equitable estoppel turned on a disputed fact, its good-faith-purchaser status. A clean clause settles what the promise means; it does not settle every defence to enforcing it. A separate pair of sections outside § 22-02-07 turns on TIMING rather than drafting: § 22-02-02 voids an agreement to indemnify a person against an act "thereafter to be done" if the act was "known by such person at the time of doing it to be unlawful," while § 22-02-03 validates an indemnity against an act ALREADY DONE, "even though the act was known to be wrongful, unless it was a felony": the same wrongful conduct can be indemnifiable or not depending on whether the indemnity was promised before or after the act, a distinction easy to miss when drafting a forward-looking indemnity clause meant to cover conduct not yet known to be unlawful. No industry-specific anti-indemnity rule was found in North Dakota's published statutes: reading all of them turns up § 22-02-02 as the only section that voids an indemnity at all, and it turns on knowledge that the act is unlawful, not on construction or oilfield work. What does cut across every clause is that "indemnity is an equitable doctrine, which is not amenable to hard and fast rules," which is how Northstar Center could call the clause clear and still send the case back on a defence to enforcing it.
11 authorities
- statuteN.D.C.C. § 22-02-01enactment date not established
The words that state the rule
Indemnity is a contract by which one engages to save another from a legal consequence of the conduct of one of the parties or of some other person.
- statuteN.D.C.C. § 22-02-07enactment date not established
The words that state the rule
In the interpretation of a contract of indemnity, unless a contrary intention appears, the following rules are to be applied: - Upon an indemnity against liability, expressly or in other equivalent terms, the person indemnified is entitled to recover upon becoming liable. - Upon an indemnity against claims, demands, damages, or costs, expressly or in other equivalent terms, the person indemnified is not entitled to recover without payment thereof. - An indemnity against claims, demands, or liability, expressly or in other equivalent terms, embraces the costs of defense against such claims, demands, or liability incurred in good faith and in the exercise of reasonable discretion.
- statuteN.D.C.C. § 22-02-07enactment date not established
The words that state the rule
The person indemnifying is bound, on the request of the person indemnified, to defend actions or proceedings brought against the latter in respect to the matters embraced by the indemnity, but the person indemnified has the right to conduct such defense if that person chooses to do so. - If, after request, the person indemnifying neglects to defend the person indemnified, a recovery against the latter, suffered by the latter in good faith, is conclusive in the latter's favor against the former. - If the person indemnifying, whether that person is a principal or a surety in the agreement, has not had reasonable notice of action or proceedings against the person indemnified or is not allowed to control its defense, judgment against the latter is only presumptive evidence against the former. - A stipulation that a judgment against the person indemnified shall be conclusive upon the person indemnifying is inapplicable if the person indemnifying had a good defense upon the merits which, by want of ordinary care, the person indemnifying failed to establish in the action.
- case2024 ND 212Northstar Center, LLC v. Lukenbill Family Partnership, LLLPN.D.decided 2024read it at the source ↗
The words that state the rule
Section 22-02-07, N.D.C.C., governs interpretation of an indemnity contract, unless a contrary intention appears.
- case2024 ND 212Northstar Center, LLC v. Lukenbill Family Partnership, LLLPN.D.decided 2024read it at the source ↗
The words that state the rule
The terms of the indemnity clause are clear and unambiguous. The terms comply with N.D.C.C. § 22-02-07 and do not reveal any contrary intentions.
- case2024 ND 212Northstar Center, LLC v. Lukenbill Family Partnership, LLLPN.D.decided 2024read it at the source ↗
The words that state the rule
For the reasons discussed above, we conclude genuine issues of material fact exist regarding whether Tundra was a good-faith purchaser, making the district court’s grant of summary judgment denying Tundra’s equitable estoppel defense improper.
- statuteN.D.C.C. § 22-02-02enactment date not established
The words that state the rule
An agreement to indemnify a person against an act thereafter to be done is void if the act is known by such person at the time of doing it to be unlawful.
- statuteN.D.C.C. § 22-02-03enactment date not established
The words that state the rule
An agreement to indemnify a person against an act already done is valid, even though the act was known to be wrongful, unless it was a felony.
- case2024 ND 212Northstar Center, LLC v. Lukenbill Family Partnership, LLLPN.D.decided 2024read it at the source ↗
The words that state the rule
Indemnification is a remedy which allows a party to recover reimbursement from another for the discharge of a liability which, as between them, should have been discharged by the other. We have recognized that indemnity is an equitable doctrine, which is not amenable to hard and fast rules.
- case2024 ND 212Northstar Center, LLC v. Lukenbill Family Partnership, LLLPN.D.decided 2024read it at the source ↗
The words that state the rule
Buyer agrees to indemnify Seller with regard to all aspects of any previous potential liability for entering and executing this contract with Buyer. Buyer is aware that a third party is claiming to have an option to purchase this same property. Buyer hereby agrees to fully defend Seller from any and all claims regarding this dispute should it ever arise. Seller will never face any liability from executing this agreement with Buyer in regard to any previous agreements.
- case2024 ND 212Northstar Center, LLC v. Lukenbill Family Partnership, LLLPN.D.decided 2024read it at the source ↗
The words that state the rule
We conclude the district court erred by granting Northstar summary judgment on its breach of contract claim against Lukenbill; erred by granting Northstar summary judgment on its intentional interference with contract claim against Tundra; and erred by granting Lukenbill summary judgment on its indemnification claim against Tundra.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.