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OMAHA INDEM. CO. v. JOHNSON & TOWERS

December 7, 1984

OMAHA INDEMNITY COMPANY as subrogee of San Mar Associates, Inc. and Marvin Singer, Plaintiff, and San Mar Associates, Inc. and Marvin Singer, Intervenors-Plaintiffs,
v.
JOHNSON & TOWERS, INC. and General Motors Corporation, Defendants.



The opinion of the court was delivered by: WEXLER

MEMORANDUM AND ORDER

WEXLER, District Judge.

 Plaintiff Omaha Indemnity Company (Omaha Indemnity) brings this suit as subrogee of San Mar Associates, Inc. (San Mar) and its president Marvin Singer after paying $27,580.86 for engine damages and breakdown under an all risk policy for marine insurance on the San Mar's yacht the Sandie Lee III. Omaha Indemnity sues Johnson & Towers, Inc. (Johnson & Towers), the preparer and installer of the damaged yacht engines, and General Motors Corporation (GM), the builder of the engines. San Mar and Mr. Singer intervened after commencement of the action.

 I.

 In 1975 San Mar purchased the Sandie Lee III from its first owner. The vessel is a forty-seven foot 1972 Concorde pleasure motor yacht used to entertain San Mar clients. The yacht was powered by standard twin 6-71 diesel engines. Mr. Singer soon found the speed and power too low and complained to Johnson & Towers. On February 8, 1977 Johnson & Towers agreed to rebuild the yacht's engines, converting them to 6-71TI units. Nevertheless, Mr. Singer and defendants agreed not to replace the six-inch exhaust system. The work included a 500 hour warranty on the rebuilt engines. A post-conversion start-up inspection was performed in June 1977 and it was immediately apparent that the existing exhaust system was inadequate for the higher powered engines and was causing backpressure. Johnson & Towers refused to modify the exhaust system and in February 1978 Mr. Singer instituted suit against Johnson & Towers in New York Supreme Court. On May 19, 1978 Mr. Singer and Johnson & Towers entered into a Stipulation of Settlement and a General Release wherein defendant agreed to install an eight-inch exhaust system and pay Mr. Singer $2,367.00. In addition, the suit was discontinued with prejudice and all warranties on the engine ended on June 28, 1978. The discontinuance was contained the Release, which also precluded any future legal action against Johnson & Towers.

 By January 1979 the new exhaust system was installed. In the summer of 1980 the starboard engine failed and both engines were extensively repaired. In 1981 Omaha Indemnity paid $27,580.56 to San Mar for the engine damage. In February 1983 Omaha Indemnity commenced this action.

 Plaintiff, as subrogee of San Mar, alleges that the engines were damaged and destroyed because Johnson & Towers used substandard internal parts in the engine modification that could not withstand the higher pressure and temperature. Omaha Indemnity sues for negligence, breach of implied warranty, breach of express warranty, products liability, and fraud. In October 1983 Magistrate Caden granted San Mar's and Mr. Singer's motion to intervene and they seek damages for breach of contract, breach of warranty, and fraud, all based on the engine conversion agreement of February 1977. Johnson & Towers now moves for dismissal of both complaints under Rule 12(b)(6), or summary judgment under Rule 56(b), Fed.R.Civ.P. Alternaively defendant asks that the intervenors be made third-party defendants.

 Johnson & Towers offers two bases for dismissal or summary judgment. First, the defendant asserts that the Stipulation of Settlement and its accompanying General Release of May 19, 1978 extinguish all claims Mr. Singer and San Mar and its subrogees have against Johnson & Towers arising out of the rebuilt engines. Second, defendant argues that the suit is time-barred by the statute of limitations or laches. Plaintiff and intervenors contend that the May 19th Stipulation did not release Johnson & Towers from any warranties or claims and at the least gives rise to questions of fact that make it an inappropriate subject for summary judgment. They also argue that the action is not time-barred.

 II.

 It is clear that Omaha Indemnity as subrogee of Mr. Singer and San Mar is bound by the May 19th Stipulation of Settlement and General Release. A subrogee generally must take the subrogor's rights and remedies "as they are, along with their burdens, and subject to any defenses which may be available either against" the subrogee or subrogor. 23 N.Y.Jur.2d, Contribution, Indemnity, and Subrogation § 40 at 63. Here, defendant has interposed the sound defense of the Stipulation and Release and so long as the original parties are bound by it, so is the subrogee, Omaha Indemnity.

 The clause of the May 19th Stipulation concerning Johnson & Towers warranties reads as follows:

 6. The parties mutually agree that the written warranty made or delivered to defendant to plaintiff in respect of the engines, transmissions and/or their component parts, whether mechanical or electrical, will expire and be of no further force or effect on June 28, 1978 and that aside from the same, there are no other warranties or contractual committments on the part of the defendant to plaintiff, whether oral or written, express or implied, except for defendant's obligations contained in this stipulation.

 Plaintiff and intervenors contend that Paragraph 6 does not vitiate the 500 hour warranty first given for the rebuilt engine. They assert that the language is not explicit and requires the Court to look behind the letter of the Stipulation for the purpose and intent of the parties in entering into it. The meaning and effect of the Stipulation, they argue, requires testimony and findings of fact and is not an appropriate subject for summary judgment.

 It is axiomatic that where the language of an agreement is explicit and unambiguous the courts must give it its plain meaning. Paragraph 6 of the May 19th Stipulation is explicit and this Court declines to read in ambiguities or otherwise alter its plain meaning. The Stipulation was the product of negotiation and bargaining and was entered into with the advice of ...


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