38 N.Y.2d 445 (1976)
A commercial bailee whose negligence leads to the theft of bailed goods can be held liable for the reasonable expenses incurred by the bailor in recovering the goods, including ransom payments, provided the bailor’s actions were reasonable under the circumstances.
Summary
A collector stored valuable enamels with a commercial bailee. The bailee negligently released the collection to an unauthorized person, resulting in theft. The collector paid a ransom to recover most of the items and sued the bailee for the ransom amount and the value of unrecovered items. The New York Court of Appeals held that the bailee was liable for the reasonable ransom payment. The court reasoned that the bailee’s negligence caused the loss, and the ransom payment was a reasonable expense incurred to mitigate damages, similar to hiring a detective to recover stolen property.
Facts
Harry Kraut, a collector, stored his rare Russian enamels, valued at $731,000, with Morgan & Brother Manhattan Storage Co. before traveling to Europe. An unauthorized individual claiming to be Kraut arranged to have the collection released and stole it. Kraut advertised a reward for the return of the enamels. An intermediary contacted Kraut, demanding a ransom. Kraut paid $71,000 and recovered most of the collection. He refused to reveal the intermediary’s identity, citing threats to his and his family’s safety.
Procedural History
Kraut sued Morgan & Brother for the ransom payment and the value of the unrecovered items. The jury awarded Kraut $45,000 for the reasonable ransom payment and $27,000 for the unrecovered items. The Appellate Division affirmed the award. Morgan & Brother appealed to the New York Court of Appeals, challenging only the ransom payment award.
Issue(s)
Whether a commercial bailee, liable for the loss of bailed goods due to negligence, is responsible for indemnifying the bailor for ransom payments made to recover the stolen goods.
Holding
Yes, because a commercial bailee is liable for the whole loss, and actions taken to recover the property are for the bailee’s benefit, entitling them to credit for the recovered property less the expense of recovering it.
Court’s Reasoning
The court relied on the precedent set in Jones v. Morgan, stating that a bailee who fails to redeliver property is liable for the entire loss. What the bailor does to recover the property successfully is for the bailee’s benefit, entitling the bailee to a credit for the recovered property, less the expense of recovering it. The court found the case at bar to be the same as if Kraut had hired a detective to do what he himself did — bargain with the thief to reacquire his own property. The Court reasoned that the defendant has no right to complain that it is only being charged with the expense of recovering the goods, rather than the whole loss.
The court rejected the argument that Kraut’s refusal to identify the intermediary was fatal to his case. It reasoned that the identity of the intermediary was not related to the defendant’s liability, founded on the non-return of bailed goods. “[W]e simply hold that, under the exceptional circumstances which obtained here, the trial court, in its discretion, could properly have admitted the testimony and submitted the issue of its credibility to the jury.” The dissent argued that a cause of action for ransom indemnification violates public policy and encourages crime. The dissent also argued that the plaintiff should not be excused from disclosing the name of the intermediary as such an exemption would, in effect, privilege evidence from disclosure.