Benguiat v. Gotham National Bank

Martin, P. J. The plaintiff Benguiat controlled the plaintiff Intercontinental Company which owned certain waterfront property at Edgewater, N. J. The defendant Gotham National Bank became the owner of the property in 1922 as the result of foreclosure of its junior mortgage and also a prior first mortgage. The bank sold the property in 1923 to Hudson River Dock and Warehouse Company, part of the consideration being a purchase-money mortgage for $155,000 which was foreclosed when the purchaser subsequently defaulted. At the sale on the foreclosure of this purchase-money mortgage in 1924 the plaintiff Benguiat bid in the property for $173,650, and made a down payment thereon. When he failed to complete the purchase the bank moved in the New Jersey court to set aside the sale and for an order directing a resale. At this point the present action was commenced by the plaintiffs Benguiat and Intercontinental Company charging the bank with fraud and demanding an accounting, and on January 14, 1925, plaintiffs obtained an injunction restraining the bank pendente lite from proceeding with the New Jersey foreclosure action and enjoining it from disposing of the Edgewater property. The injunction was conditioned on the furnishing of a bond for $25,000 which was issued by the appellant, The Massachusetts Bonding and Insurance Company. The trial resulted in a judgment, entered December 14, 1929, dismissing the complaint without prejudice, and on an appeal from that judgment the injunction was continued on condition that an additional undertaking be filed in the sum of $25,000, which additional bond was also issued by the appellant. The judgment was affirmed (231 App. Div. 828) and leave to appeal to the Court of Appeals was denied (233 App. — 201 — Div. 840), whereupon the injunction pendente lite became finally-dissolved. The present aspect of the litigation involves the liability of the appellant on its two surety bonds. The record discloses that while the injunction pendente lite was outstanding against it, the Gotham National Bank, in May, 1925, transferred substantially all of its assets, including its rights in the Edgewater property, to the respondent Manufacturers Trust Company in exchange for 7,500 shares of the stock of the trust company. The Edgewater property was shown on the examiner’s report, which was the basis for the transfer, as follows: “ Statutory Bad Debts and Other Overdue Paper * * * Amount Slow Hudson River Dock & W. H. Co............ 155,000 137,000 Real estate mortgage due 26 — Foreclosure proceedings account unpaid interest. Sale held and sold for 171M. Purchaser putting up 22M and failed to complete payment. To be sold again if injunction brought by Benguiat is released. After charges, balance held by sheriff may apply.” No mention was made of the injunction bonds as assets. The attention of the trust company was called to the suit of the plaintiffs and it was agreed that the bank should defend the litigation, that its attorneys should be compensated by the bank, and that it should not otherwise be liable for the outcome of the suit. Thus it appears that the trust company purchased the property with knowledge of the restrictive effect of the injunction which at that time had been outstanding for more than five months, realizing, of course, that disposition thereof must await the outcome of the law suit and that if the plaintiffs were successful the title of the trust company would be doubtful. The damages sustained by the bank have been paid and the sole questions on this appeal relate to the appellant’s liability for damages assessed in favor of the Manufacturers Trust Company and the rule of damages applied. The undertakings in this case were given in compliance with the requirements of section 893 of the Civil Practice Act, and the surety company undertook to pay to the party enjoined “ * * * such damages, not exceeding a sum, specified in the undertaking, as he may sustain by reason of the injunction * * The trust company was not the party enjoined and it has no rights whatever under the specific language of section 893. It has been determined, however, that the trust company is pro — 202 — tected under- the provisions of section 895 of the Civil Practice Act. That section reads as follows: “ § 895. Damages sustained by a third person. Where the defendant enjoined was an officer of a corporation, or joint-stock association, or a bailee, agent, trustee or other representative of another, and the damages sustained by him are less than the sum specified in the undertaking, the court or the referee may also separately ascertain and determine the damages sustained by reason of the injunction, by the corporation, association, or person, whom the defendant represents, to an amount not exceeding the surplus of the sum specified in the undertaking; and those damages may be recovered in a separate action brought as prescribed in the next section.” When the injunction was originally issued none of the representative relationships enumerated in section 895 existed between the bank and the trust company with respect to the property covered thereby, and at that time the trust company was not in any way affected by the injunction. The interest of the bank and that of the trust company were successive, neither interest existing at the same time. ■ In Andrews v. Glenville Woolen Co. (50 N. Y. 282) it was said by Judge Rapallo (at p. 285): “ It seems to me more reasonable to hold that when proceedings, conducted by one party for his own benefit in the name of another, are restrained by an injunction not directed to the party in interest by his name, the damages and expenses incurred by him in procuring the discharge of the injunction should be presumed in law to have been incurred by the defendant on the record, and should be recoverable in his name for the benefit of the real party in interest.” In.that case it appears that the order of injunction restrained the Glenville Woolen Company, its attorneys, etc., and all persons acting or pretending to act in its name or on its behalf, from taking any steps or proceedings to compel the payment of certain judgments which had been recovered in the name of that company against Ripley & Cameron, from which judgments appeals were pending. These judgments had been recovered in the name of the company by persons who claimed to be attaching creditors of the company (a foreign corporation), and who also claimed the right to conduct the actions through their own attorney and to use the name of the company therein, pursuant to the provisions of sections 232 and 238 of the Code. On its facts it is readily distinguishable from the situation before us where the trust company, a stranger to the litigation at the time the injunction was issued, bought into the law suit thereafter. Furthermore, the Andrews — 203 — case was decided in 1872, prior to the enactment of section 624 of the Code of Civil Procedure which later became section 895 of the Civil Practice Act. Somewhat analogous provisions of a bond in replevin were considered in First Commercial Bank v. Valentine (155 App. Div. 91; affd., 209 N. Y. 145). There, in an action by Welch Motor Car Company against P. Brady & Sons Company, the sheriff replevied two automobiles and a bond was given for the return of the automobiles to defendant in the event it was successful in the litigation. First Commercial Bank was allowed to intervene as a party defendant in the action of the motor car company against Brady and judgment was rendered in favor of the bank, adjudging that it was entitled to the possession of the automobiles and awarding damages for the conversion. The bank sued on the replevin bond, but demurrer was upheld on the ground that, «although possession of the chattels was awarded to the bank, the bond did not inure to the benefit of the bank. In disposing of the argument that the undertaking takes the place of the property and that, therefore, it should inure to the benefit of whoever may be adjudged to be entitled to the property, the Court of Appeals, by Chief Judge Cullen, said, in part: “ This argument would be very forcible if the writ justified the officer in taking the specific chattels named in it wherever he might find them regardless of the person in whose possession they might be. Such was supposed to be the effect of the mandate in a replevin suit at common law, but the Code of Procedure and Code of Civil Procedure eliminated the doubt previously existing on the subject by restricting the authority of the officer to taking the chattels mentioned in the writ only from the possession of the defendant in the action. (Manning, Bowman & Co. v. Keenan, 73 N. Y. 45.) As it is only the possession of the defendant in the action that is invaded by the writ, the obligation of the undertaking is to him alone, subject to the qualification hereafter stated.” After a discussion of some of the rights of third parties to property taken in replevin, it was said: “ If there were privity of title or possession between the original defendant in the replevin action and the present plaintiff, a very different question would arise. Either a bailor or bailee of property may maintain an action against a trespasser for its conversion, though but one action can be maintained, and a recovery by one party is a bar to an action by the other. (Black on Judgments, sec. 581; Story on Bailments, sec. 94; Smith v. James, 7 Cow. 328; Green v. Clarke, 12 N. Y. 343.) If that relation existed between the Brady Company and the plaintiff, and the Brady Company had succeeded in the replevin action by virtue of the present plaintiff’s title, the Brady Company would — 204 — have been entitled to recover on the replevin bond the full value of the property and the damages, and such recovery, less any charges thereon, would be the property of its bailor. I cannot see that the bailor’s rights would be any less because it was made a co-defendant in a replevin suit with his bailee. But, as before said, the complaint is barren of any allegation of such relation between the co-defendants in that suit.” Acting on the suggestion of the Court of Appeals, the bank then amended its complaint to allege that at the time the automobiles were replevied the bank and Brady occupied the relationship of bailor and bailee. In sustaining the complaint as amended, this court (163 App. Div. 709, at p. 713) said, in part: “ As stated in the opinion of the Court of Appeals on the former appeal, if the plaintiff in the replevin action, instead of replevying the chattels, had taken possession thereof and removed them, it would have been liable in conversion either at the suit of the bailor or of the bailee. It is quite evident, I think, that Chief Judge Cullen in his discussion regarded the liability on the undertaking as a substitute for the cause of action that would exist for the conversion of the property if it had been removed without lawful process. It is manifest from his discussion of the questions that any recovery at the instance of the bailee would have been for the benefit of the bailor, and it seems to me that it follows that, since the bailor is the real party in interest, it is entitled to maintain the action on the undertaking.” We read the opinions in the First Commercial Bank case (supra) as recognition of the necessity for the existence of the relationship enumerated in section 895 at the time the undertaking is given, as distinguished from rights acquired by subsequent transfer. There are, of course, some bonds or undertakings which constitute a security fund for the property itself and pass with it as an appurtenance of any transfer. Appeal bonds or bonds which guarantee payment of a judgment (customarily given as a condition for opening a default) are of that character. The obligation under an injunction bond, however, is for the benefit of the party enjoined, and the limited represented class enumerated in section 895 of the Civil Practice Act. A distinction is made with reference to the second undertaking given at the time the appeal, was taken. It is urged that at that time the trust company was the owner of the property and the real party in interest and, therefore, the bond must have been given for its protection. Both these parties could not be the real party in interest at the same time. After the transfer of the property to the trust company, the bank did not cease to exist; it retained — 205 — some assets and also retained control over this action as well as other litigation. The bank claimed and has been awarded damages occurring subsequent to the time the second undertaking was given, which eliminates the contention that the trust company was the real party in interest. Nothing in the language of section 895 of the Civil Practice Act justifies a construction that it was intended to include a vendee who purchased the subject-matter of the injunction after the injunction was issued. The respondent Manufacturers Trust Company, therefore, may not hold the surety for any damage it may have sustained after it acquired the Edgewater property. It is unnecessary for the court to consider the question of the proper rule of damages applicable. The order so far as appealed from should be reversed, with twenty dollars costs and disbursements, and the motion to confirm the report of the referee, in so far as it relates to damage sustained by the Manufacturers Trust Company, denied. >■ Townley and Cohn, JJ., concur; O’Malley and Dore, JJ., dissent and vote to affirm.