New York Law Review

Tag: Surety

  • People v. Peerless Insurance Company, 73 N.Y.2d 324 (1989): Enforceability of Bail Forfeiture Orders and Statutory Time Limits

    People v. Peerless Insurance Company, 73 N.Y.2d 324 (1989)

    When a bail bond is forfeited, the District Attorney must proceed against the surety within 60 days of the court adjournment where the bond was directed to be forfeited; failure to do so precludes recovery on the bond.

    Summary

    This case addresses whether the People’s failure to proceed against a surety within the 60-day period specified in CPL 540.10(2) precludes recovery on a bail bond. David Schonfeld failed to appear in court, resulting in a bail forfeiture order against Peerless Insurance Company, the surety. The District Attorney delayed filing the order to “accommodate” Peerless. The Court of Appeals held that the 60-day provision is mandatory, reversing the lower courts and finding that the People’s failure to act within the statutory period barred their recovery on the bond. This decision emphasizes the importance of strict adherence to statutory deadlines in bail forfeiture proceedings.

    Facts

    David Schonfeld was released on a $25,000 bail bond issued by Peerless Insurance Company. Schonfeld failed to appear in Albany County Court on October 18, 1985. The court issued a bench warrant and ordered forfeiture of the bail. A formal order revoking and forfeiting the bail was signed on October 22, 1985, directing entry of a $25,000 judgment against Peerless. The District Attorney delayed filing the forfeiture order until April 2, 1986, intending to give Peerless an opportunity to negotiate with the court. Peerless moved to preclude enforcement of the judgment, arguing the People failed to act within the 60-day period prescribed by CPL 540.10(2).

    Procedural History

    The County Court denied Peerless’s motion. The Appellate Division affirmed, relying on People v. Bennett and the statutory goal of punishing the defendant and surety. The New York Court of Appeals granted Peerless permission to appeal.

    Issue(s)

    Whether the District Attorney’s failure to proceed against the surety within the 60-day period specified in CPL 540.10(2) precludes the People’s recovery on the bail bond.

    Holding

    Yes, because the plain language and legislative history of CPL 540.10(2) indicate that the 60-day time limit is mandatory, and failure to comply forfeits the People’s ability to enforce the forfeiture order.

    Court’s Reasoning

    The Court of Appeals reasoned that CPL 540.10(2) uses the mandatory term “must,” requiring the District Attorney to proceed against the surety within 60 days. The court contrasted this with the permissive term “may” used for cash bail forfeitures, indicating a deliberate legislative choice. The legislative history of the statute, particularly a 1926 amendment, revealed an intent to “tighten up the law” and eliminate the District Attorney’s discretion to proceed “at any time.” The court emphasized that the legislature has the right to select methods to effectuate its goals. The court distinguished People v. Bennett, noting that while Bennett established when the surety’s debt matures, the present case concerned the “application of the remedy for its enforcement.” The court concluded that the timely entry of the forfeiture order is a prerequisite to the People’s ability to recover from the surety. The court analogized the 60-day provision to a statute of limitations, suspending the remedy if not timely pursued. The People’s delay to “accommodate” Peerless was the type of conduct the 60-day requirement was designed to prevent. The court quoted People v. Alejandro, 70 NY2d 133, 139, stating “mandatory provisions of a statute are generally treated as essential.”

  • Lake Steel Erection, Inc. v. Aetna Cas. & Sur. Co., 64 N.Y.2d 765 (1985): Recovery on a Lien Discharge Bond is Limited to the Bond Amount

    64 N.Y.2d 765 (1985)

    Recovery against a surety on a lien discharge bond is limited to the face amount of the bond, unless an amendatory order increases the bond amount or the surety defaults.

    Summary

    Lake Steel Erection filed a mechanic’s lien, which was then discharged by the filing of a surety bond by Aetna. Lake Steel subsequently sought to recover more than the bond amount, including interest. The New York Court of Appeals held that recovery against the surety on the bond could not exceed the face amount of the bond as originally fixed, unless the bond was amended or the surety defaulted. Because neither condition occurred, Lake Steel’s recovery was limited to the bond’s face value.

    Facts

    Lake Steel Erection filed a mechanic’s lien for $47,342.41.
    With Lake Steel’s consent, the lien was discharged by filing an undertaking (discharge bond) in the amount of $51,000.
    Lake Steel later attempted to recover more than $51,000, including interest, from Aetna, the surety on the bond.

    Procedural History

    Lake Steel obtained a judgment in its favor. The Appellate Division modified the judgment, reducing it to $51,000, the amount of the discharge bond. The New York Court of Appeals affirmed the Appellate Division’s order.

    Issue(s)

    Whether recovery against the surety on a mechanic’s lien discharge bond can exceed the face amount of the bond, where there was no amendatory order increasing the bond amount and no default by the surety?

    Holding

    No, because upon the filing of a discharge bond, the lien attaches to the bond, which is substituted for the liened property, and recovery against the surety is limited to the face amount of the bond unless there is an amendatory order or the surety defaults.

    Court’s Reasoning

    The court reasoned that when a discharge bond is filed, the mechanic’s lien attaches to the bond, effectively substituting the bond for the property subject to the lien. Citing precedent (Milliken Bros. v City of New York, 201 NY 65, 74; Morton v Tucker, 145 NY 244, 248), the court emphasized that recovery against the surety cannot exceed the bond’s face amount, unless the amount is increased by court order (CPLR 2508; Lien Law, § 21, subd 5) or the surety defaults (General Obligations Law, § 7-301; CPLR 2502; Carrols Equities Corp. v Villnave, 57 AD2d 1044,1045; Mendel-Mesick-Cohen-Architects v Peerless Ins. Co., 74 AD2d 712, 713). The court stated that interest in excess of the face amount of the discharge bond is not otherwise recoverable (see McClendon Blacktop Co. v Johnson Bldg. Co., 46 AD2d 724), and no default had been shown. The court further clarified that the trust fund provisions of article 3-A of the Lien Law do not allow for the enforcement of a claim for interest exceeding the discharge bond amount. Only “the cost of improvement” (Lien Law, § 71, subd 1; Northern Structures v Union Bank, 57 AD2d 360, 368-369; Gruenberg v United States, 29 AD2d 527) can be charged under article 3-A.

  • Letendre v. Hartford Accident & Indemnity Co., 21 N.Y.2d 518 (1968): Admissibility of Employee Statements in Fidelity Bond Cases

    21 N.Y.2d 518 (1968)

    In an action by an employer to recover on a fidelity bond, an extrajudicial declaration made by his employee is admissible as affirmative evidence against the surety, provided the declaration is in writing and the declarant is available for cross-examination.

    Summary

    Letendre sued Hartford to recover on a fidelity bond for losses caused by his employee, Tremblay. The key issue was the admissibility of Tremblay’s written confession to embezzling funds, made after the alleged defalcation. The New York Court of Appeals held the statements were admissible, overturning the long-standing rule in Hatch v. Elkins, which had excluded such statements as hearsay. The Court reasoned that the availability of the declarant for cross-examination and the reduced risk of collusion justified admitting the statements as affirmative evidence, thereby furthering the truth-finding function of the courts. The dissent argued for upholding Hatch and excluding the hearsay statements.

    Facts

    Victor Letendre owned a gas station and motel. He secured a fidelity bond on his employee, James Tremblay, before leaving Tremblay in charge while Letendre operated a restaurant in Florida. Upon returning, Letendre discovered discrepancies in business records and bank accounts. Tremblay initially denied any wrongdoing but later confessed to defalcations in a written statement to the insurer’s agent. Subsequently, Tremblay retracted the confession, claiming he only stole a small amount. At trial, Tremblay denied embezzling any funds.

    Procedural History

    Letendre sued Hartford to recover on the fidelity bond. The trial court admitted Tremblay’s inculpatory statements into evidence and returned a verdict for Letendre. The Appellate Division affirmed, finding the statements admissible due to Tremblay’s continued employment at the time they were made. The Court of Appeals granted leave to appeal to determine the admissibility of the statements.

    Issue(s)

    Whether an extrajudicial declaration made by an employee after the acts to which they relate is competent evidence against the surety in an action by an employer to recover on a fidelity bond.

    Holding

    Yes, because the statements were in writing, and the declarant was available for cross-examination, mitigating the dangers of hearsay and furthering the truth-finding function.

    Court’s Reasoning

    The Court of Appeals rejected the rule in Hatch v. Elkins, which had held that extrajudicial statements of a principal made after the fact are inadmissible against the surety. The Court reasoned that the primary justification for the Hatch rule—the fear of collusion between the employer and employee against the surety—did not outweigh the probative value of the evidence, especially where the employee is available for cross-examination. The Court stated, “In an action by an employer to recover on a fidelity bond, an extrajudicial declaration made by his employee should be admissible as affirmative evidence against the surety, where the declaration is in writing and the declarant is available for purposes of cross-examination.” The Court also highlighted that the risk of admitting such statements is no greater than in other types of cases where collusion is possible, and that an employee risks criminal charges by admitting embezzlement, making collusion unlikely. The Court emphasized the injustice of depriving employers of potentially crucial evidence. Judge Breitel’s dissent argued for upholding the Hatch rule, citing its long-standing precedent and alignment with general hearsay principles, as well as the increased risk of collusion when the employee remains employed. He further noted the importance of cautionary instructions to the jury regarding the weight of extrajudicial statements.

  • Judson v. Nash, 12 How. Pr. 441 (N.Y. Sup. Ct. 1856): Enforceability of Bonds Taken Colore Officii

    12 How. Pr. 441 (N.Y. Sup. Ct. 1856)

    A bond taken by a sheriff is not void as taken colore officii (under color of office) simply because it isn’t explicitly authorized by statute; it’s only void if unlawful under statute or common law and provides indemnity for breach of duty or necessarily injures a party.

    Summary

    This case addresses the validity of a replevin bond executed by a surety after the sheriff was discharged from liability. The court held the bond was valid and enforceable. The key issues revolved around whether the bond was taken unlawfully by the sheriff (colore officii), whether it was supported by consideration, and the effect of a court order requiring the plaintiffs in the replevin suit to renew their sureties. The court found the bond was not taken under color of office, was supported by adequate consideration (the postponement of the trial), and the surety was bound by the bond.

    Facts

    Nash and Gardner initiated a replevin suit where Decker was the defendant. A replevin bond was initially provided. Decker did not except to the sureties on the bond within the required timeframe, which discharged the sheriff from liability regarding the sureties’ sufficiency. The Circuit Court ordered Nash and Gardner to renew the sureties on their bond or have the existing sureties justify as a condition for postponing the trial. Judson executed the bond as a surety after this order.

    Procedural History

    The case originated in the Circuit Court. Following a judgment, the case reached the Supreme Court of New York, which is the court issuing this opinion. The Supreme Court affirmed the lower court’s judgment.

    Issue(s)

    1. Whether the replevin bond taken by the sheriff was void because it was taken colore officii in a case not provided by law.
    2. Whether the Circuit Court had the authority to require the plaintiffs to renew their sureties as a condition for postponing the trial.
    3. Whether Judson, as a surety, was bound by the bond, considering he executed it after the sheriff was discharged from liability.

    Holding

    1. No, because the bond was not unlawful under any statute or common law, nor did it provide indemnity for a breach of duty by the officer or necessarily cause injury to either party.
    2. Yes, because courts have the equitable power to require a party to provide security for the protection of their adversary’s rights as a condition for granting a favor to which the party is not entitled as a matter of right.
    3. Yes, because Judson executed the bond voluntarily in compliance with the court order, and the defendant (Decker) accepted it as a compliance, Judson is estopped from questioning its validity.

    Court’s Reasoning

    The court reasoned that a bond is only considered taken colore officii unlawfully if it’s unauthorized and provides indemnity for the officer’s breach of duty, or necessarily injures a party. Here, the bond did not fall under this definition. The sheriff was acting as a trustee for the defendant’s benefit, and the bond secured the defendant’s interest in the replevied property.

    The court relied on established practice allowing courts to impose conditions on parties when granting favors, like postponing a trial. Citing Ames v. Webber, the court emphasized that a party accepting a favor under imposed conditions is bound by those conditions. By accepting the postponement and procuring Judson’s surety, Nash and Gardner waived any objection to the court’s authority to impose the conditions.

    Regarding Judson’s liability, the court emphasized that his voluntary execution of the bond, coupled with Decker’s acceptance of it, created an estoppel. Judson couldn’t later claim the bond was invalid. The court also noted that consideration existed in the form of Decker’s consent to postpone the trial in exchange for Judson’s surety. Moreover, the court cited authority that a bond is valid even if the surety’s name is not mentioned in the body of the bond, as Judson’s intent to be bound was clear from his act of signing.

    The court further reasoned that even if the addition of Judson discharged the original sureties, it was not a defense against Decker. By accepting the new surety, Decker waived any issues relating to the original sureties.