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City of New York v. Mechanics' & Traders' Bank

Supreme Court of New York, Appellate Division

March 12, 1909


[115 N.Y.S. 770] Charles Strauss (Eugene D. Boyer, on the brief), for appellant.

Terence Farley, for respondent.



The undisputed facts, so far as material to the question presented by the appeal, are as follows: In June, 1875, one Gavin entered into a contract with the city of New York to do certain work on Lexington avenue between 102d street and the Harlem river. On the 1st of November of that year, in consideration of money advanced to him by the defendant or its predecessor, to be used in the completion of the contract, he assigned and transferred to the defendant all his interest therein, including moneys due and to grow due thereon. Some time thereafter the contract was completed, and there then remained a balance due from the city of $18,480.16, to recover which sum, with interest, the bank commenced an action against the city and certain other defendants who claimed an interest therein, one of whom was Cornelius J. Winant. This action resulted, on the 15th of December, 1886, in a judgment in favor of the bank for the full amount claimed, $29,796.91. Thereafter the city and the bank compromised and settled the judgment, the defendant executing and delivering to the city a bond wherein it covenanted that it would-

" well and truly pay all sum or sums that the said the mayor, aldermen and commonalty of the city of New York may be compelled to pay by reason of the establishment and recovery of any such alleged claim or claims by any of said claimants or their legal representatives and the costs, damages and expenses thereof. ***"

Winant appealed from the judgment so far as it determined that he did not have a lien to the extent of his claim upon the amount due on the Gavin contract, and the judgment was reversed as to him and a new trial ordered. The new trial, on the 25th of May, 1894, resulted in a decree that he had a lien to the extent of his claim upon the moneys due upon the Gavin contract, and awarded him a judgment against the city to the amount thereof-$5,114.70-which was thereafter compromised and settled by the city, and then it brought this action upon the defendant's bond to recover the amount paid.

The complaint alleged that after the rendition of the judgment in favor of Winant against the city a demand was made upon the bank [115 N.Y.S. 771] to pay the amount thereof, but it failed and neglected to do so, and that on the 7th of November, 1894, the city paid to Winant the judgment, which then amounted to $5,226.65

The answer put in issue the allegation of the complaint that a demand was made upon the bank for payment, and its refusal to pay; also the payment of the amount of the judgment to Winant by the city; and, as a separate defense, alleged, in substance, that an appeal was taken from the judgment in favor of Winant by both the bank and the city, and while such appeal was pending and undecided, against the protest of the bank, the city settled and paid the judgment.

At the trial the bank sought to prove that no demand was ever made upon it to pay the Winant judgment; that after an appeal had been taken by it, in which the city joined, and a proposed case and proposed amendments thereto had been served, and before the case had been settled by the trial justice, the city, against the protest of the bank, paid or compromised the judgment; and thereafter, through the corporation counsel, gave notice to all the attorneys in the case, including the trial justice, that the city had paid or settled the judgment, and that the appeal no longer had any force; and by reason of that fact the case on appeal was never settled. It also sought to prove a conversation between the representatives of the bank and the corporation counsel, at the time the bond in question was given, regarding the right of the bank to appeal from any judgment which might be obtained against the city by any of the claimants mentioned in the bond; and that notice was given to the corporation counsel, prior to the trial which resulted in a judgment for Winant, that, if the result were adverse to the city, the bank insisted upon its right to appeal. Its efforts, however, were unavailing, inasmuch as all testimony tending to establish the facts sought to be proved was excluded on objection of counsel representing the city, and an exception in each instance duly taken. A verdict was directed in favor of the city for the full amount claimed, and, from the judgment entered thereon and an order denying a motion for a new trial, defendant appeals.

I am of the opinion the exceptions to the rulings excluding the testimony tending to prove the facts hereinbefore referred to were well taken. The bond in question must be read in the light of the circumstances surrounding its execution and the purpose which it was designed to accomplish. It was a substitute for the money due under the contract to protect the city in case it had to pay any portion of it to other claimants, but, notwithstanding the purpose, the city could not arbitrarily deprive the bank of its right to review a judgment obtained by a claimant without taking the chances of loss should such review and a subsequent trial result favorably to the bank. Had the testimony sought to be introduced by the bank been received, then a question of fact would have been presented as to whether the payment to Winant were made in good faith, and, if so, whether it operated to the injury of the bank. That such testimony was admissible is clearly established by the case of the City of New York v. Baird, 176 N.Y. 269, 68 N.E. 364.There, the action was upon a bond, the condition of which was that the obligor would " pay and fully satisfy [115 N.Y.S. 772] any judgment which may be obtained by the said Thomas Kelly against the city of New York, together with all costs and disbursements." Kelly obtained a judgment against the city, from which an appeal was taken by both the city and Baird, and, after steps had been taken towards making a case on appeal, the city, against the protest of Baird compromised and settled the judgment, and then brought an action on the bond to recover from Baird the amount paid. At the conclusion of the trial in that action a verdict was directed in favor of the city, which was set aside and a new trial ordered, and on appeal to this court the order setting aside the verdict was reversed and the motion for a new trial denied. City of New York v. Baird, 74 A.D. 238, 77 N.Y.Supp. 446.The determination of this court, however, was reversed by the Court of Appeals and a new trial granted. City of New York v. Baird, supra. In directing a new trial, Chief Judge Parker, who delivered the opinion, said:

" We have then a situation where after consultation between the counsel for Baird and the representative of the corporation counsel, an appeal was taken to the Appellate Division by the city and Baird, and steps taken towards making a case, but before it was possible for it to be argued, the municipal authorities changed their position and settled the judgment.*** Our conclusion is that, reading this bond as we should, in the light of the circumstances surrounding its execution, and the contract under which the money was being held by the comptroller, for which the bond was to become a substitute for the protection of the city, the city could not deprive the principal and his sureties of his right of review without taking the chances of loss, should such review and a subsequent trial had by reason of it result favorably to the principal; that midway between the two extremes claimed by plaintiff and defendants lies the true position, and the test of it is, Was the action of the municipal authorities complained of taken in bad faith? If so, did it operate to the substantial injury of Baird and the surety? If the first question be answered in the affirmative, then the party indemnified cannot recover unless it shows that its action, found by the jury to have been taken in bad faith, with the intention of injuring the principal or surety, did not operate to the disadvantage of either, or, if it did to some extent, that, after deducting the amount of damage done to them, there still remained something due on the bond."

The condition of the bond here under consideration certainly imposes no greater obligation on the principal than did the bond in the Baird Case. There, Baird obligated himself " to pay and fully satisfy any judgment" which might be obtained by Kelly against the city, while here the bank obligated itself to pay any sum which the city might be " compelled to pay by reason of the establishment and recovery of any such claim or claims." It might be urged with much force that a payment made by way of compromise was voluntary, or, at least, that the city was not compelled to make the payment within the meaning of the bond. It certainly could not, as against the protest of the bank, make the payment, if such payment resulted to its injury.

The respondent's counsel attempts to distinguish this case from the Baird Case by reason of the fact that in the latter there was a request to submit to the jury the good faith of the city in compromising the judgment, while here no such request was made. The answer to the suggestion is that under the rulings of the trial court there was nothing to submit to the jury, inasmuch as he had refused to admit any [115 N.Y.S. 773] testimony which in any way tended to show that the city had acted in bad faith in compromising the judgment; that it did so without the consent and against the objection of the bank; and in doing so the bank was injured. A request to go to a jury is based upon the proposition that there is a question of fact for its determination; that evidence has been introduced from which it may find the facts one way or the other. Where there is no evidence to justify a finding, then it is unnecessary to make such request, because, if the finding were made, it would be against evidence and would have to be set aside.

It is also suggested-not by counsel-that the court did not err in excluding the testimony referred to, for the reason that the bank had not prosecuted its appeal; that the bank, having taken an appeal from the Winant judgment, should have gone ahead with it, notwithstanding the city paid the judgment; and, not having done so, it cannot now be heard to say that the action of the city worked to its injury. The same suggestion, doubtless, was or could have been made in the Baird Case. He appealed from that judgment as well as the city, but after the city had paid the judgment it does not appear that he took any further steps towards perfecting the appeal. Here, after the payment of the judgment by the city, it is not at all clear that the bank could, against the city's protest, have prosecuted the appeal. The bank had been paid the full amount of its claim. It had no further interest in the action, except in so far as the establishment of claims affected its liability upon its bond. If the city saw fit to voluntarily pay the only other recovery in the action, against the protest of the bank, I am unable to see that its interest was such that it could urge that the judgment which had been paid should be reversed. If the city did not act in good faith and the bank was thereby injured, it could be fully protected when the city sought to ...

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