Court Opinion

ID: 5838560
Source: CourtListenerOpinion
Date Created: 2022-01-12 22:46:07.898347+00
Date Added: 2024-06-11T08:43:41.651588
License: Public Domain

Murphy, P. J.,
dissents in part in a memorandum, as follows: The rights and obligations of the parties to this proceeding must be measured by three instruments, viz., (i) the decedent’s "affidavit of loss and indemnity agreement” (decedent’s indemnity agreement), (ii) defendant Walker’s "agreement of indemnity”, and (iii) plaintiff Federal’s "blanket bond”. These three instruments must be analyzed to resolve the issues raised on this appeal. To the extent here relevant, the decedent’s indemnity agreement provides: "(5) Deponent hereby requests, and this affidavit and agreement of indemnity is made for the purpose of inducing the Corporation, its transfer agents, registrars and trustees, depositaries, redemption, fiscal and paying agent, (1) to refuse to recognize any person other than deponent as the owner of the original and to refuse to make any payment, transfer, registration, delivery or exhange called for by the original to any person other than deponent or to refuse to take any other action pursuant to the request or demand of any person other than deponent, and (2) to issue a new or duplicate or definitive security or other instrument in substitution for the original, or to make the payment, transfer, registration, delivery or exchange called for by the original without the surrender thereof for cancellation. Deponent furthermore requests Federal Insurance Company to assume liability in respect of the replacement or payment of the original herein referred to under its Lost Security Blanket Bond No. 8002-38-69 to the Corporation and others. * * * (8) Dependent agrees in consideration of compliance with the foregoing request to indemnify and protect the Corporation, any person, firm or corporation now or hereafter acting as its Transfer Agent, Registrar, Trustee, Depositary, Redemption, Fiscal or Paying Agent, or in any other capacity, and also any successors in any such capacities and the Surety, their respective successors and assigns, hereinafter collectively called the 'Obligees’, from any and all liabilities, loss, damage or expense in connection with, or arising out of their compliance with the request of deponent herein set forth, and further agrees to furnish to the above named obligees, without any expense to them, a new bond of indemnity, in such form and amount as said obligees may require, with satisfactory surety or sureties, in case the above-described Lost Security Blanket Bond and this Agreement of Indemnity should not at any time for any reason in the opinion of said obligees or any of them afford sufficient protection.” It should be stressed that the decedent requested Federal to assume liability under its blanket bond upon the reissuance of the subject stock. There is no evidence in this record that the decedent was unaware of the terms of the blanket bond when she executed that indemnification. In any event, she should not have signed the indemnification agreement if she was unaware of the terms of the blanket bond agreement. Furthermore, the indemnification agreement provides that the three obligees, including third-party defendants Union and Morgan, *776could require her to replace Federal’s blanket bond with a more satisfactory one. In this background, the defendant, as decedent’s administrator, cannot validly object to the fact that Morgan made claim under the blanket bond against Federal. It should be further emphasized that Morgan, as an obligee, had a choice, in the first instance, of proceeding against Federal on its blanket bond or the decedent on her indemnification agreement (57 NY Jur, Suretyship and Guaranty, § 265, p 649). Morgan chose, as was its right, to make claim against Federal on September 4, 1975. Paragraph 8 of decedent’s indemnification agreement provides indemnity for liability to be incurred as well as for damages actually paid (MacArthur Bros. Co. v Kerr, 213 NY 360, 366; Belloni v Freeborn, 63 NY 383, 388; 57 NY Jur, Surety-ship and Guaranty, §§ 358, 360). Therefore, when Federal made demand upon the decedent on September 12, 1975, the decedent was liable to Federal for any losses or damages that Federal might be required to pay to Morgan under the blanket bond. The decedent had a reasonable time after Federal’s demand to fulfill her responsibilities under the indemnification agreement. After the passage of a reasonable period of time, the decedent would necessarily have to be considered in default under the indemnification agreement. Notwithstanding any default on the decedent’s part, Federal would normally be required to fulfill its obligation to Morgan under the blanket bond within a reasonable time frame. Morgan, in turn, would be obliged to retire the overissued stock within a reasonable period of time. As will be more fully developed below, ordinary rules for calculating damages cannot be followed in this proceeding because the attorney for the defendant, in his individual and representative capacities, requested that Federal and Morgan delay in taking any action with regard to the overissued stock. Both Federal and Morgan are thus excused for any part of a delay occasioned by their acquiescence in that request. Walker’s indemnification agreement, to the extent here pertinent, provides: "1. To indemnify and save harmless said Company from and against any and all loss, damage, expense and attorneys’ fees which it shall at any time incur by reason of its execution of said Assumption Certificate assuming liability for the issuance of new or replacement certificates under the- said Blanket Lost Original Instrument Bond, or its payment of any claim or liability thereunder; and will place said Company in funds, to meet all its liability under said Blanket Lost Original Instrument Bond, promptly on request and before it may be required to make any payment thereunder, and that the voucher or other evidence of payment by said Company of any loss, damage, expense, attorneys’ fees, claim or liability, shall be prima facie evidence of the fact and amount of the Indemnitor’s liability under this agreement.” This agreement only ran from Walker to Federal. Again, this agreement takes cognizance of the fact that an assumption certificate was being issued by Federal under its blanket bond. In his afiidavit, Walker does not deny the fact that he was aware of the terms of the blanket bond and that Morgan could, in proper circumstances, make claim under it. Moreover, Walker should not have signed the agreement if he had not seen or if he disagreed with the terms of the blanket bond. Therefore, he has no valid reason to complain that Morgan chose, in the first instance, to seek indemnification from Federal. Because Walker agreed to make payment to Federal even before Federal was required to pay Morgan, Walker was obligated to indemnify Federal for its potential liability on the blanket bond. As was discussed above in relation to the decedent’s indemnification agreement, Walker too was requested to make payment within a reasonable time after demand was made upon him by Federal on or about September 15, 1975. A discussion of the *777damages recoverable against Walker will also be found below. The blanket bond, running from Federal to Morgan, provides in relevant part: "now, THEREFORE, THE CONDITIONS OF THIS OBLIGATION ARE that if the Obligor, its successors or assigns, shall, in case the Original Instrument be found or come into the hands, custody or power of any person, deliver or cause the same to be delivered unto Assured in order to be canceled, and shall also at all times defend, indemnify and save harmless Assured from and against any and all claims, actions and suits, whether groundless or otherwise, and from and against any and all liabilities, losses, damages, costs, charges, counsel fees and other expenses of every nature and character by reason of the Original Instrument and/or the issuance of a duplicate or duplicates in lieu thereof or in lieu of any instrument or instruments of purported like issue and amount which because of alteration, change or counterfeit may not be identified as or as not the said mutilated, mislaid, lost, stolen or destroyed Original Instrument, or the making of any payment, credit, transfer, registration, conversion, exchange or delivery in respect of the Original Instrument without surrender thereof and/or in respect of the duplicate or duplicates, whether or not caused by, based upon or arising out of the honoring or refusing to honor the Original Instrument when presented by anyone, and/or whether or not caused by, based upon, or arising out of inadvertence, accident, oversight or neglect on the part of Assured, or any of them, or their respective officers, agents, clerks or employees, and/or omission or failure to inquire into, contest or litigate the right of any applicant to receive any payment, credit, transfer, registration, conversion, exchange, issue or delivery in respect of the Original Instrument and/or the duplicate or duplicates issued in lieu thereof, and/or caused by, based upon or arising out of the release of any security or the satisfaction of any instrument or instruments under which the Original Instrument and/or duplicate or duplicates are issued or secured, and/or caused by, based upon or arising ofit of any one such event or any combination of such events or out of any other matter or thing whatsoever, then this obligation shall be void; otherwise shall remain in full force and effect.” Federal was required to indemnify and hold Morgan harmless from, inter alia, all damages and liabilities even if those damages or liabilities arose from Morgan’s own neglect. The above-quoted excerpt from the bond does not make any distinction in the type of negligence for which Morgan would be indemnified. Consequently, there is no basis for drawing any artificial division between Morgan’s original negligence in failing to record the decedent’s 1970 sale and its subsequent negligence in failing to discover the error in its records. Parenthetically, it should be noted that both indemnification agreements are silent on the effect of the third-party defendants’ negligence on their right to recover under those agreements. Therefore, it cannot be said that one type of negligence was contemplated under those indemnification agreements and another type of negligence was not so contemplated. However, both those indemnification agreements do permit Federal, as surety, to recover from the decedent and the defendants for any losses or damages it has incurred. A fair reading of those indemnification instruments indicate that the decedent and the defendant contemplated that they might be required to indemnify Federal for losses and damages it suffered under the blanket bond. At this point, an important distinction should be drawn. Federal is entitled to recover damages for moneys expended in lawfully fulfilling its obligations under the blanket bond. Federal is not entitled to any indemnification from the decedent and the defendant for any extraordinary damages caused by (i) its own inordinate delay in honoring its commit-*778merits under the blanket bond or (ii) Morgan’s inordinate delay in retiring the overissued stock. (See, generally, 57 NY Jur, Suretyship and Guaranty, §§ 383, 384.) For example, it will be assumed that Morgan waited too long before it retired the stock and that it thus paid $50,000 more than it would have paid had the stock been retired in a timely fashion in September of 1975. Under its blanket bond, Federal was only required to pay those damages that Morgan would have normally sustained if it retired the stock within a reasonable time period. Federal, in this hypothetical situation, would only be required to pay that portion of Morgan’s claim as reasonably flowed from the overissuance of the stock. Hence, it should reject that portion of the claim attributable to Morgan’s inordinate delay in returning the stock. If Federal, whether deliberately or inadvertently, paid more than should have been paid, then the defendant, in his dual capacity, should raise that matter as a defense in any suit brought by Federal for indemnification. If the defendant prevailed on that defense, then so much of Federal’s claim for indemnification as constituted an overpayment to Morgan would be disallowed. It would be improper to pay Federal the full amount sought for indemnification and then allow the defendant to seek recovery on a third-party complaint. To do so would result in a possible inconsistency in any determination resolving the dispute. An award to Federal for the full amount paid to Morgan infers the fact that Morgan had a right to recover that full amount in the first place. Any subsequent award on the third-party complaint would negate that fact for it would require Morgan and/or Union to pay the defendant moneys it had previously recovered from Federal. Clearly, in this case, Federal, Morgan and Union had both the obligation and the financial resources to mitigate damages by retiring the stock even if the defendant and the decedent breached their indemnification agreements in September of 1975. (See, generally, 13 NY Jur, Damages, § 24, p 453.) Defendants’ attorney, however, asked on October 6, 1975, that no action be taken by Federal or Morgan. The record indicates that settlement negotiations continued among the three parties until the end of February, 1976. At that point in time, defense counsel made an offer of settlement and that offer was apparently rejected. The record does not disclose whether settlement negotiations continued until Morgan purchased the stock on August 18, 1976. If negotiations terminated on or about March 1, 1976, then it was incumbent upon Morgan to mitigate damages by purchasing the stock within a reasonable time period. On the other hand, Morgan might have been justified in waiting until August 18, 1976 if the negotiations requested by defense counsel were continuing. This is a factual matter that must be determined on the assessment. In sum, summary judgment was correctly granted to Federal on its claim under the indemnification agreements. The record reveals that the value of the subject stock was ascending in the period after the loss was discovered. Therefore, until more exact damages can be fixed, the interim award of $52,800 should be permitted to stand. It should also be emphasized that plaintiff does not object to the amount of that interim award on this appeal. At the assessment, the court should set the additional amount of damages in accordance with this opinion. If Federal is not entitled to recover the full amount it paid Morgan, then the amount requested in the complaint should be reduced accordingly. Since the overpayment issue should be resolved under the action in chief, the third-party complaint should be dismissed. For the foregoing reasons, the order of the Supreme Court entered June 19, 1978, and the judgment entered *779thereon on August 18, 1978, should be affirmed. The order of this court entered on January 17, 1980 [73 AD2d 870] is vacated. Settle order.