American Surety Co. of New York v. Cunningham, 31259.
| Decision Date | 03 September 1937 |
| Docket Number | No. 31259.,31259. |
| Citation | 275 N.W. 1,200 Minn. 566 |
| Parties | AMERICAN SURETY CO. OF NEW YORK v. CUNNINGHAM. |
| Court | Minnesota Supreme Court |
Appeal from District Court, St. Louis County; Bert Fesler, Judge.
Action by the American Surety Company of New York against Verna Cunningham. From an order denying defendant's alternative motion for judgment notwithstanding the verdict or for new trial, the defendant appeals.
Reversed and new trial granted.
Ina D. Anderson, of Duluth, for appellant.
Lewis, Grannis & Underhill, of Duluth, for respondent.
Appeal from an order of the district court denying defendant's alternative motion for judgment notwithstanding the verdict or for a new trial.
In 1930 defendant purchased through the First & American National Bank of Duluth 100 shares in Standard Oil Shares, Inc., an investment trust. The Empire Trust Company of New York City, the trustee and transfer agent of that corporation, issued to her certificate C2061 for that amount of stock. The certificate nowhere stated that it was issued to her, but provided that it was the property of the bearer; that it represented a proportionate interest in the property of the corporation; that title to the certificate was transferable by delivery merely in the same manner as a negotiable instrument payable to bearer; that any holder, regardless of the manner in which he acquired possession, might transfer absolute title to any bona fide purchaser for value; that the title of such purchaser would be recognized by all prior holders; and that the trustee might treat the bearer as absolute owner. Defendant never indorsed the certificate.
About December 28, 1931, while carrying the certificate in an envelope bearing her name and address, defendant lost it on a public street in Duluth. After a search failed to locate it, she reported its loss to the bank through which she purchased it and the officers of that institution notified the Empire Trust Company and stock dealers generally in this state.
Soon afterward defendant made application to plaintiff for a bond covering lost securities. The application was accepted and the bond issued to the Empire Trust Company as obligee in March, 1932. The latter then issued a new certificate, C3040, to defendant and placed a stop transfer order against the lost certificate.
The lost certificate next appeared in the hands of one Holton who sold it March 30, 1933, through the agency of Wells-Dickey Company of Minneapolis to Burr & Co. of Chicago. There were subsequent transfers of the certificate before it was presented April 18, 1934, to the Empire Trust Company by H. P. Hayden & Co. of Chicago for transfer. It was not honored and the Empire Trust Company gave preliminary notice of the reappearance of the lost certificate to plaintiff.
Since the certificate could not be transferred on the books of the transfer agent, under stock exchange rules it did not constitute good delivery and it was returned from transferor to transferor in accordance with mercantile custom (see Gruntal v. United States F. & G. Co., 254 N. Y. 468, 173 N.E. 682, 73 A.L.R. 1337; Meyer, Stock Brokers and Stock Exchanges, § 130) until it was returned to Wells-Dickey Company with a sight draft for the then market value of the stock attached. This was honored by Wells-Dickey Company as it was bound by stock exchange rules to do. Wells-Dickey Company was reimbursed for this payment by the St. Paul Mercury Indemnity Company, its insurer against loss from handling lost or stolen certificates, which then acquired all the insured's rights.
July 5, 1934, the certificate was again presented, this time by Wells-Dickey Company. The transfer agent inquired of plaintiff as to the action to be taken. Plaintiff instructed the Empire Trust Company to decline to honor the certificate on the ground it could not do so until the stop transfer order was removed. The Empire Trust Company had previously informed defendant that so long as the bond was on file her certificate and not the lost certificate would be honored. July 6, 1934, the transfer agent gave plaintiff formal notice of the presentation of the lost certificate and demanded indemnity.
The St. Paul Mercury Indemnity Company threatened to bring suit to compel transfer of the lost certificate on the ground that Wells-Dickey Company had good title to the certificate as a bona fide purchaser. Plaintiff gave notice of this to defendant, further stating that the claim was valid, that because of that fact it would not undertake the expense of defending a suit to which there was no defense, and demanded that defendant surrender her duplicate certificate or put plaintiff in funds to purchase the lost certificate so that one or other of the certificates might be surrendered to the transfer agent and plaintiff discharged of its liability as surety.
At no time did plaintiff offer to contest the title of Wells-Dickey Company or its insurer to the original certificate or to give defendant any opportunity to assert her title to said certificate under the indemnity provisions contained in the application and in the bond, but instead purchased the lost certificate and surrendered it to the Empire Trust Company by which it was canceled and cremated. Neither does it appear that defendant ever requested plaintiff to litigate ownership to the original certificate or offer to supply the surety with funds for that purpose.
Defendant denied that Wells-Dickey Company was a holder in due course of the original certificate and refused to purchase it from that company for delivery to the Empire Trust Company. Plaintiff, after purchasing the certificate from the St. Paul Mercury Indemnity Company, surrendered it to the Empire Trust Company, where it was canceled and cremated and the surety released on its bond. Thereafter plaintiff brought suit for the amount paid for it. The trial court directed a verdict for plaintiff for that sum.
Two issues are presented for decision on this appeal: (1) Under the terms of the application for bond and of the bond, was defendant obliged to acquire and surrender the lost certificate to the obligee upon its reappearance regardless of the title of the holder; and (2) if the principal under the bond was obligated to acquire and surrender the lost certificate only upon its reappearance in the hands of a person having good title to it, did Wells-Dickey Company have such title?
1. In the application for bond covering lost securities, defendant agreed to pay a premium for the life of the bond unless the lost certificate should reappear and claim be made on the surety, in that event defendant contracted to pay an annual premium in the same amount from the date of such claim. Defendant agreed to save the surety harmless from and indemnify the surety against all claims; to place the surety in funds to meet all claims and judgments before it should be required to pay; to defray all expenses in the prosecution or defense of any legal proceedings in which defendant should request the surety to take part; and to turn over to the surety the lost certificate if it should ever come into her possession. Plaintiff reserved to itself all the rights, remedies, and defenses of a surety without compensation, "including the right to secure its discharge from its suretyship, in the absence or default of the principal," and the power to exercise all the rights of the principal.
The bond is stated to be given in consideration of the issuance by the obligee to defendant of a duplicate certificate in place of the lost or stolen certificate. In case of default under the bond, principal and surety agree to make indemnity. The conditions of the bond are that if the principal shall deliver the lost certificate, upon its reappearance, to the obligee for cancellation, and if the principal shall "defend, indemnify and save harmless" obligee against all claims and suits, and from all losses or expenses arising out of the issuance of the duplicate certificate or the transfer of the original or of the duplicate certificate, the bond shall be void; otherwise it shall continue in full force and effect.
The surety reserved the right to secure its discharge as surety "in the absence or default of the principal." The surety cannot take up a lost certificate and discharge itself of its liability and recover of the principal the amount it paid to secure its discharge when the principal is not in default. A surety may recover of his principal the amount he has paid under compulsion in discharging a valid obligation of his principal; but a surety may not discharge a claim for which his principal is not liable, and to which the surety may assert the same defense, and then recover of his principal what he has paid. Stearns, Law of Suretyship (4th Ed.) § 284; 50 C.J. 252, § 411. The principal here is not in default if the obligee is under no liability to the holder of the lost certificate.
A corporation is obliged to issue a duplicate certificate to one who proves his ownership to a certificate which has been lost or stolen when an indemnity bond is furnished. The presumption that the holder of a lost certificate is the owner thereof is rebutted by the filing of such bond and proof with the issuing corporation. If the lost certificate is later presented, the corporation should withhold recognition of it; and if suit is brought to compel transfer, the corporation should refer the defense of the suit to the obligors on the bond. If the corporation honors the lost certificate without the consent of the surety and principal, or without a judicial determination of title to the certificate, then it cannot deny the right of the holder of the duplicate certificate to a share in the corporation, nor seek indemnity against the obligors unless it can prove that the holder of the lost certificate had good title to it and that the corporation was bound to honor it. La Belle Iron Works v. Quarter Savings Bank, 74...
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