Court Opinion

ID: 5366073
Source: CourtListenerOpinion
Date Created: 2022-01-08 07:48:03.544767+00
Date Added: 2024-06-11T08:29:56.927014
License: Public Domain

Dore, J.
(dissenting). I agree with the construction the majority places on the language of section 895 of the Civil Practice Act, that it was not intended to include a vendee or transferee of the subject-matter of the injunction after the injunction was issued. . I think, however, that it does not follow that Manufacturers Trust Company may not hold the surety for damage sustained after it acquired the property affected by the injunction. The obligations of the surety company are defined by the terms and the legal effect of its engagement in the light of the nature of the contract, the purposes to be accomplished by it, and the character of the proceedings of which it forms a part, including all applicable statutory provisions. The condition of the injunction undertaking in question, as provided in section 893 of the Civil Practice Act, Was “ * * * that the plaintiff will pay to the party enjoined, such damages, not exceeding a sum, specified in the undertaking, as he may sustain by reason of the injunction, if the court finally decides that the plaintiff was not entitled thereto.” (Italics mine.)
While section 895 is not controlling, that section is not a limitation but an enlargement of the coverage of the undertaking referred to in section 893. While section 895 does not include, it has never been construed to exclude vendees or transferees pendente lite of the subject-matter of the injunction.
The original party to an action has the legal right to transfer his interest pendente lite. Such right is expressly recognized by section *20683 of the Civil Practice Act which provides that in case of a transfer of interest the action may be continued by or against the original party “ unless the court directs ” that the transferee be substituted. Article 17 of the Civil Practice Act relates to the provisions for security. Section 148 of that article refers to the effect of change of parties and expressly provides: “ A bond or undertaking given in an action or special proceeding continues in force after a change of parties; and has thereafter the same force and effect as if then given anew in conformity to the change of parties.”
The basic contention of the surety company, if sustained, would prevent a defendant, restrained from the use of his property by an injunction improperly granted, from making any transfer of it pendente lite without the risk of relieving the surety of all liability, no matter how great the damages might be directly resulting from the continuance of the injunction. No recovery, it is said, can be had of the surety company for such conceded loss. If that be the construction to be put upon such injunction bonds, a premium is placed upon procrastination. Defendants with limited financial resources would doubtless in many cases be forced to relinquish their rights. Unless constrained by statute or controlling authority, such result should not be reached. I think neither statute nor controlling authority compels that result.
The injunction undertakings herein indemnified “ the party enjoined ” under section 893 of the Civil Practice Act. The law permitted the Gotham Bank, the original defendant, to transfer the subject-matter of the injunction pendente lite and to continue the action without substitution of the transferee as a party to the action (Civ. Prac. Act, § 83) or with such substitution (Civ. Prac. Act, § 148). The statutory language of section 893 that the plaintiff will pay “ to the party enjoined,” properly construed, embraces valid vendees and transferees pendente lite of the subject-matter of the injunction. It must be too clear for argument that, when they have knowledge of the injunction, they too are bound by the terms of the order to hold the property in statu quo so far as plaintiff’s rights are concerned. The statute does not limit the undertaking to the named party nor exclude its successor in interest who becomes such by proper form of conveyance, transfer or sale. Had it done so it would have put a new and unreasonable restraint on alienation of property rights and interests.
Section 896 of the Civil Practice Act, providing for the action that may be taken on the undertaking after damages have been ascertained, expressly permits such action to be brought by “ any person entitled to the benefit of an undertaking given to obtain an injunction order.”
*207Sections 2 and 3 of the Civil Practice Act provide that the act shall be liberally construed, and the common-law rule that a statute in derogation of the common law is strictly construed does not apply to that act.
Injunction insurance is not like fidelity, fire, theft or any other similar type of personal insurance. In an undertaking with regard to an injunction such as the one in issue on this appeal, the person or character of the obligee in no way substantially affects the surety’s risk. Such undertaking is the price plaintiff must pay for enforced passivity, if the court finally decides that he never was entitled to compel such inaction. Defendant and all persons claiming under defendant who have knowledge of the injunction are bound by it. Manufacturers Trust Company had knowledge of the injunction, was bound by it, and observed it to its damage for six years, and should have the benefit of the undertaking.
Andrews v. Glenville Woolen Co. (50 N. Y. 282) did not construe section 895 of the Civil Practice Act, and authorized a liberal construction as to liability on an injunction undertaking. I think, too, that First Commercial Bank v. Valentine (209 N. Y. 145) is not controlling. That was a replevin action. The statutory provisions for replevin bonds are radically different from the statutory provisions relating to injunction bonds. In that case the court had no occasion to consider or construe section 895 of the Civil Practice Act nor to decide that subsequent transferees pendente lite of a “ party enjoined ” could not recover on an injunction undertaking for conceded resulting damages sustained by such transferee from continuance of an injunction. In a replevin action the undertaking, as prescribed by statute, runs solely to the named defendant as obligee, since it is only the possession of that named defendant that is invaded by the writ. In the First Commercial Bank case the court merely held that on an undertaking in an action of replevin the surety is only liable to the defendant before the court when the undertaking was given, since the obligation of such undertaking in replevin is to a named defendant alone unless there is privity of title or possession.
The Gotham National Bank had a perfect legal right to transfer its assets to Manufacturers Trust Company on May 29, 1925, provided it did so without intent to breach the injunction and without disturbing the status quo as to plaintiff’s rights. On April 14, 1925, an agreement was made between Gotham Bank and Manufacturers Trust Company which provided for the liquidation of the bank, the transfer of all its assets to the trust company, and the assumption by the trust company of all liabilities and obligations of the bank. Pursuant thereto on May 29, 1925, a bill of sale was *208executed and delivered by the bank to the trust company conveying all assets of every kind and description, including its good will and all the choses in action, contracts of insurance of all kinds, contracts of suretyship and other contracts, and any and all rights of action accrued or to accrue thereunder. (Italics mine.) The only exception from the generality of this transfer was the consideration paid therefor by the trust company, namely, 7,500 shares of the trust company’s stock.
The majority opinion states that the Edgewater property was shown on the bank examiner’s report, “ which was the basis for the transfer,” and then says, “ No mention was made of the injunction bonds as assets.” But the bank examiner’s report thus referred to is dated January 2,1925. Accordingly it could not have included any reference to the first injunction undertaking here involved, since that is dated January 26, 1925, and was not in existence on January 2, 1925. Reference to an outstanding injunction in the examiner’s report necessarily, therefore, related solely to the preliminary injunction undertaking of $1,000 dated December 6, 1924, given by the National Surety Company, not by the appellant, Massachusetts Bonding and Insurance Company. That preliminary stay is not here involved at all.
The first injunction undertaking given by the appellant and involved in this appeal is dated January 26, 1925, and necessarily was transferred in the transfer of assets from the Gotham Bank to Manufacturers Trust Company on May 29,1925, because it was not specifically excluded from the sweeping description of the assets that were transferred, including “ contracts of suretyship.”
By force of the liquidation of the Gotham Bank and the bill of sale transferring all its assets, dated May 29, 1925, the trust company became the owner of the Hudson River Dock and Warehouse mortgage on the Edgewater property and of any and all rights under the injunction undertaking of January 26, 1925, given as an indemnity to compensate for damage suffered by the continuing restraint upon the enforcement of the mortgage in the pending foreclosure proceedings. By a modification letter dated the same date as was the bill of sale, namely, May 29,1925, and accompanying the bill of sale, it was agreed between the bank and the trust company that, as to this pending Edgewater property mortgage litigation, the bank would assume defense of the suit through its own attorneys, but that all other obligations thereunder would be borne by the trust company.
On May 29, 1925, the trust company took the assets “ as is; ” that is, with knowledge of the injunction and subject to the existing state of facts, and necessarily became equally bound with the bank *209to observe and obey the provisions of the outstanding injunction order; and if such injunction order was finally upheld, the trust company would itself have to bear and suffer any resulting loss or damage. Correspondingly the trust company became entitled to the unexcepted benefits and indemnities that were to accrue in the event of final dissolution of the injunction. By the mandate of the court, the trust company after its acquisition of the assets of the Gotham Bank was obliged to and did suspend all pending litigation with respect to the foreclosure of the Edgewater property from May 29, 1925, until June, 1931, during which period the injunction remained in force — a period of over six years — with resulting damage to its beneficial use thereof for which claim is now made.
The record establishes that the second injunction undertaking here involved, dated December 26, 1929, was concededly given with full knowledge of the fact that the trust company was the owner of the property and the real party affected. Therefore, if that bond was not given for its protection, it was substantially a nullity. Clearly the surety company should not be permitted to escape liability; on that bond the trust company was covered under section 895 of the Civil Practice Act.
The defense of the suit pursuant to the special agreement between the bank and the trust company was properly continued in the name of the bank under section 83 of the Civil Practice Act. The only award to the bank for damages subsequent to December 26, 1929, was not for property damage but solely for expenses and counsel fees in connection with the subsequent litigation. It is said that both parties could not be the real party in interest at the same time. But a reading of the agreement of transfer shows that the trust company was the real party in interest, the one to suffer the real and substantial property damages if the injunction was finally sustained. The bank merely had the obligation of paying counsel fees while it continued the litigation as nominal party. The surety company is in no way aggrieved or prejudiced because damages for deprivation of the beneficial use of property were awarded directly to the trust company. Such damages could have been awarded to the bank as the nominal party to the action for the benefit of the real party in interest (Andrews v. Glenville Woolen Co., 50 N. Y. 282), and thereafter paid over by the bank to the trust company. Doubtless if that procedure had been followed, the surety company would now be insisting that the bank was not the real party in interest and thereby would attempt to escape from liability by another route.
*210The record shows that both experts testified that in 1925 the property was worth $350 a front foot, or a total of $164,500. The surety company’s expert testified that same value continued to December 10, 1929, December 11, 1930, and down to June 25, 1931, so that on his testimony there was no decrease in the value of the land between January 26,. 1925, and June 25, 1931, when the injunction was finally dissolved. The injunction prevented the trust company from enforcing its rights under the judgment of foreclosure and sale. That judgment carried with it the right to receive interest on the sum of $163,215 from April 29, 1924. Such interest would not have accrued had there been no injunction preventing the immediate disposal of the property. Accordingly the injunction caused the loss of interest and taxes. It was conceded that $63,389.55 constituted interest on the mortgage indebtedness. That item alone is in excess of the remaining available balance under the undertaking without considering any other items of claimed damages.
That the referee and the Special Term proceeded on an erroneous construction of section 895 of the Civil Practice Act is immaterial on this appeal. A correct disposition will be affirmed even though based on wrong reasons. (Kelley v. Osborn, 172 App. Div. 6.)
The order appealed from should be affirmed.
O’Malley, J., concurs.
Order, so far as appealed from, reversed, with twenty dollars costs and disbursements, the motion to confirm the report of the referee, in so far as it relates to damage sustained by the Manufacturers Trust Company, denied. Settle order on notice.