Opinion ID: 534191
Heading Depth: 2
Heading Rank: 2

Heading: Indemnification Agreements Part of an Overall Contract Procured by Fraud.

Text: 24 It is clear that under New York law, a party may not compel performance of an agreement which that party has induced by fraud. See, e.g., Merry Realty Co. v. Shamokin & Hollis Real Estate Co., 230 N.Y. 316, 323, 130 N.E. 306, 308 (1921); B.V.D. Co. v. Marine Midland Bank-New York, 46 A.D.2d 51, 54, 360 N.Y.S.2d 901, 904-05 (1st Dep't 1974); Schweickert v. Schenectady Holding Co., 238 A.D. 220, 221, 265 N.Y.S. 158, 159 (3d Dep't 1933); New York Yellow Pages, Inc. v. Growth Personnel Agency, 98 Misc.2d 541, 542-43, 414 N.Y.S.2d 260, 262 (Civ.Ct.1979). 25 The Turturs contend that the Indemnification Agreements should be considered in tandem with the underlying subscription agreements by which they acquired their limited partnership interests, with the result that if the latter were induced by fraud, the Indemnification Agreements would be unenforceable. They further argue that genuine issues of material fact exist as to this issue, precluding summary judgment against them. We agree. 26 Normally, the question of the dependency of separate contracts arises in the context of an asserted breach of contract, rather than fraud in the inducement. See, e.g., Rudman v. Cowles Communications, 30 N.Y.2d 1, 13, 330 N.Y.S.2d 33, 42, 280 N.E.2d 867, 873 (1972); Lowell v. Twin Disc, Inc., 527 F.2d 767, 769-70 (2d Cir.1975). As stated in J. Calamari & J. Perillo, Contracts § 11-26 (3d ed. 1987), addressing a situation where the parties have executed two contracts at substantially the same time: 27 The question is whether the two agreements are unrelated or part of the same exchange. If the two contracts are not part of the same exchange, a breach of one will have no effect on the other. If they are part of the same exchange, the question will be the over all materiality of the breach. The cases state that this is a question of intention but normally lean to the notion that the making of two separate contracts ordinarily indicates an intent that a failure to perform one contract will have no effect on the other contract. 28 Id. (footnotes omitted). Nonetheless, since fraud in the inducement, like a material breach, excuses performance by the other party to a contract, there would appear to be no reason in principle why, if two contracts are part of the same exchange, a fraudulent inducement as to one of the contracts might not, in at least some situations, excuse performance by the defrauded party of the other contract. 29 The district court dealt with this issue as follows: 30 In this case, the language of the indemnity agreements themselves establishes that they are separate contracts. In the indemnity agreements, the Turturs warrant that they are the owners of the limited partnership interests in which they grant National Union a security interest. This would not be possible if the partnership agreements in which the Turturs acquired those interests were not separate from the indemnity agreements. 31 There being no allegation that National Union procured the indemnity agreements themselves by fraud, they are enforceable without regard to the rest of the claimed package. 32 We disagree. The issue of the dependency of separate contracts simply does not arise unless more than one contract is under consideration. Accordingly, the issue is not resolved by specifying the existence of multiple contracts. Rather, as we stated in Lowell v. Twin Disc, Inc.: 33 Two separate written agreements executed at the same time may be considered in law as one agreement, but only if the parties so intended. Whether the parties intended that the two agreements should be interdependent is a question of fact which turns upon the circumstances of each case. See Commissioner v. Le Gierse, 110 F.2d 734, 735 (2d Cir.1940), rev'd on other grounds, 312 U.S. 531, 61 S.Ct. 646, 85 L.Ed. 996 (1941); Sterling Colorado Agency, Inc. v. Sterling Insurance Co., 266 F.2d 472, 475-76 (10th Cir.1959); 6 Williston on Contracts § 863, at 279-80 (3d ed. W. Jaeger 1962). As Williston put it, the test is as follows: It can be nothing else than the answer to an inquiry whether the parties assented to all the promises as a single whole, so that there would have been no bargain whatever, if any promise or set of promises were struck out. Id. at 275. 34 527 F.2d at 769-70. 35 Similarly, the New York Court of Appeals has stated: Whether the parties intended to treat both agreements as mutually dependent contracts, the breach of one undoing the obligations under the other, is a question of fact. In determining whether contracts are separable or entire, the primary standard is the intent manifested, viewed in the surrounding circumstances. Rudman v. Cowles Communications, 30 N.Y.2d at 13, 330 N.Y.S.2d at 42, 280 N.E.2d at 873 (citations omitted); see also Dynamics Corp. of Am. v. International Harvester Co., 429 F.Supp. 341, 345-46 (S.D.N.Y.1977); Kurz v. United States, 156 F.Supp. 99, 103-04 (S.D.N.Y.1957), aff'd, 254 F.2d 811 (2d Cir.1958) (per curiam) (adopting district court opinion). 3 36 National Union does not contend that the variation of parties between the underlying subscription agreement (between Rothschild and the Turturs) and the Indemnification Agreement (between National Union and the Turturs) compels a conclusion that the contracts are not interdependent, and we see no basis in New York law for such a position. Cf. Rudman v. Cowles Communications, 30 N.Y.2d at 13, 330 N.Y.S.2d at 42, 280 N.E.2d at 873 (execution of agreements by formally different parties a factor tending against finding of interdependence). 37 The issue of the dependency of separate contracts, therefore, boils down to the intent of the parties. Questions of intent, we note, are usually inappropriate for disposition on summary judgment. See Wechsler v. Steinberg, 733 F.2d 1054, 1058-59 (2d Cir.1984). Moreover, the record indicates that the indemnity agreements and all other agreements constituting the ANA investment package were presented to investors together, and all of the documents had to be signed for the investments to be consummated. Indeed, an affidavit of Mario Turtur, Jr.--uncontradicted by National Union--asserts that he signed the partnership subscription agreement, the promissory notes and the Indemnification Agreement as part of one whole transaction, and that entering into the Indemnity Agreement was a necessary prerequisite to acquiring an interest in ANA. 38 As to fraud in the inducement, the district court concluded, in rejecting National Union's effort to attain summary judgment as a claimed subrogee of the Notes, that the Turturs barely raised a factual issue whether National Union was a party to any fraud or illegality affecting the [Notes] within the meaning of N.Y.U.C.C. § 3-201(1) (McKinney 1964). Since, as will appear, we affirm this ruling, it also suffices to establish a genuine issue of material fact as to fraud in the inducement for purposes of the instant issue. 39