MacArthur Brothers Co. v. . Kerr

The appellant entered into a contract for railroad construction in the state of Pennsylvania. It made a sub-contract with the firm of Lamorte McCabe to do part of the work and received from the Fidelity and Deposit Company of Maryland a bond guaranteeing to the extent of $2,000 the faithful performance by said sub-contractors of their contract. As a condition of executing this bond said Fidelity and Deposit Company required and received a bond executed by said sub-contractors and the respondent's testatrix for its indemnity and protection and which amongst other things contained the following material provision:

"Second. That said Mary Crage (the testatrix) shall and will at all times indemnify, and keep indemnified, and save harmless the said company from and against all loss, damages, costs, charges, counsel fees and expenses whatsoever which said company shall or may for any cause, at any time, sustain or incur by reason or in consequence of said company having executed or agreed to execute said instrument (its bond to appellant as surety for said sub-contractors); and do further covenant and agree to pay to said company or its representatives all damages for which said company or its representatives shall become responsible upon the said bond or undertaking before said company or its representatives shall be compelled to pay the same, any sum so paid, however, to be applied to the payment of such damages."

Said sub-contractors failed to fulfill their obligations and complete said contract as provided and guaranteed by the Fidelity and Deposit Company, and subsequently an action was brought by the appellant against said company on said bond to recover the full amount thereof, because of such default. The respondent's testatrix with proper references to her obligations on her undertaking before mentioned was duly notified of the commencement and prosecution of this action and requested to defend the same, which, however, she failed to do. The plaintiff in that action recovered a judgment against the Fidelity and Deposit Company for the full amount of its undertaking and later without payment of any money the latter transferred to the former the bond executed to it by respondent's testatrix and all rights of action thereon and thereunder and in consideration of such transfer the judgment recovered against it as aforesaid was satisfied. On said assignment and transfer appellant brought this action and the question, thus far decided adversely to it, is whether any cause of action had accrued in favor of the Maryland company against the respondent's testatrix on her undertaking which it could transfer to the appellant. It seems perfectly plain to us that there had.

By the recovery of the judgment against it, after notice to the testatrix of the action and request to defend, the liability of the Fidelity and Deposit Company as surety on its bond was conclusively established as against her, even though the judgment was recovered in a foreign state. (Konitzky v. Meyer, 49 N.Y. 571 -576.)

The question which testatrix or her representatives thereafter could litigate was whether the liability thus established against the Maryland company was one against which she had indemnified it under her undertaking.

It is admitted that the undertaking executed by the testatrix would have bound her to indemnify the Maryland company if the judgment against it had been paid and thereby actual damage incurred. It is, however, insisted that this was the limit of her obligation; that the bond was one of ordinary indemnity and became effective only when the indemnified had suffered actual damages by payment of money or in some equivalent manner.

It may be conceded that this would be the interpretation and effect of a bond of indemnity in the usual form, but of course the parties to the undertaking in question had a perfect right to provide otherwise if they saw fit and this was what they did. In the first sentence of the provision which has been quoted from the bond, the indemnitor obligated herself in the usual manner to "indemnify, and keep indemnified, and save harmless the said company from and against all loss, damage, costs, charges, counsel fees and expenses," and if this were all this appeal would be easily and surely decided in accordance with the contentions of the respondent. But after this obligation was thus expressed said indemnitor did "further covenant and agree to pay to said company or its representatives all damages for which said company or its representatives shall become responsible upon said bond or undertaking before said company or its representatives shall be compelled to pay the same, any sum so paid, however, to be applied to the payment of such damages." The parties certainly must have intended something by this additional clause. If they did not design to change the measure of liability stated by the first clause and incident to ordinary bonds of indemnity, it was utterly senseless to add the second clause. Assuming, therefore, as we should, that they meant something by the employment of this additional provision and that it is not to be entirely disregarded, we are simply called on to give to it a reasonable interpretation. This seems to be perfectly plain. It binds the indemnitor to pay to the indemnified "all damages for which said company * * * shall become responsible * * * before said company or its representatives shall be compelled to pay the same." What could be clearer than this language? It is only by some technical interpretation that we can find anything else than a simple agreement by the surety to discharge any liability for which the indemnified might become "responsible," "before," that is, without waiting for enforcement of this liability by payment and the infliction of damages in the ordinary manner.

It seems to be beside the question to say in opposition to this that this was a bond of indemnity, that the Maryland company did not pay any money to satisfy the judgment against it and that, therefore, no damages have been suffered against which indemnity can be asked. Of course the bond was one of indemnity, and it might have been fitted to this latter theory, but it was not. The thing it indemnified against was not damages actually suffered, but liability for damages.

That situation arose. By a judgment which was conclusive against the surety the indemnified was adjudged to be liable in the sum of two thousand dollars on account of matters contemplated by her bond and which judgment so far as appears was enforceable at any time. Before and, therefore, without discharging this responsibility by payment, the indemnified was entitled to demand of the surety that she pay the judgment in accordance with the terms of her undertaking. This was a perfected right of action which could be assigned and transferred and which may be enforced by the appellant as such assignee.

If authorities are needed to sustain the proposition that parties if they so desire may enlarge the ordinary scope of a bond of indemnity and create an obligation thereunder to discharge a liability which has accrued without waiting for actual satisfaction thereof by, and damage to, the indemnified in this manner they may be easily found. (Chace v. Hinman, 8 Wend. 452; Rector, etc., of Trinity Church v. Higgins,48 N.Y. 532; Hume v. Hendrickson, 79 N.Y. 117, 127; Maloney v.Nelson, 144 N.Y. 182; Showers v. Wadsworth, 81 Cal. 270.)

It is true that the Maloney case is cited by the respondent as sustaining the opposite doctrine to that being adopted, but a proper consideration of that case shows that it recognized fully the rule that a bond may be given indemnifying against mere liability, but that in construing any bond the intention of the parties is to be considered and effectuated, and it was thought that all the facts in that particular case made it improbable that the surety intended to assume any liability beyond that assumed in an ordinary bond of indemnity against damages actually suffered.

It seems to have been thought by the learned trial judge that although the indemnity was against liability, the satisfaction of the judgment without payment of any money terminated the liability and destroyed any cause of action which might otherwise have existed. This view also was erroneous as applied to the facts of this case. If the judgment against the Maryland company had been voluntarily and gratuitously discharged there would have been left no cause of action under the bond. But this is not what happened. On the recovery of the judgment against it, if we are right, a cause of action for the amount of the judgment accrued in favor of said company against testatrix which presumably was collectible and good. It transferred and parted with this claim, which was a thing of value, as a consideration for the satisfaction of the judgment. If it had consummated and satisfied the liability indemnified against under the bond by paying in money the judgment which had been recovered, I do not suppose that it would be claimed that it had lost its rights because the judgment had been satisfied, and I am not able to see that the transaction actually occurring presents any different aspect. Instead of collecting in its own name the damages to which it was entitled and paying them to appellant in satisfaction of the judgment, the company transferred to its creditor the right directly to collect those damages and received a discharge of the judgment, which was thereby satisfied. By the same transaction which effected the satisfaction of the judgment it was meant to transfer to appellant and preserve the cause of action against testatrix which had already accrued and become perfect, and it would be an unfortunate destruction of the substance of the arrangement and a defeat of the intention of the parties if it were held for a technical reason that this purpose had miscarried. (McBeth Compton v. McIntyre, 57 Cal. 49.)

The judgment appealed from should be reversed and a new trial granted, with costs to abide event.

WILLARD BARTLETT, Ch. J., WERNER, COLLIN, CUDDEBACK, HOGAN and CARDOZO, JJ., concur.

Judgment reversed, etc.