On motion for summary judgment under Rule 3:56.
This is a defense motion for summary judgment under Rule 3:56.
Plaintiff, hereinafter referred to as "Standard," issued to Columbus Trust Company, hereinafter referred to as "Columbus," certain "Bankers' Blanket bonds," hereinafter referred to as "the bond," to protect Columbus, inter alia , against loss arising from any dishonest, fraudulent or criminal act of its employees. The bond was in effect during 1946, 1947 and to about July 1948, and during its life the defendant, Pellegrino James Pellecchia, Jr., hereinafter referred to as Pellecchia, was a vice-president and also counsel for Columbus. In such capacity he handled various mortgage loan transactions for it and, chiefly by means of 20 rather substantial transactions in the names of non-existent or fictitiously involved pretended mortgagors, looted Columbus of a considerable sum, certainly in excess of $500,000. The means pursued resulted in the issuance by the appropriate Columbus officers of checks representing the proceeds of such
mortgage loans into the custody of Pellecchia, whereupon he falsely endorsed or forged, in the names of the non-existent or unknowing pretended borrowers (often with a plausible but false explanation of such endorsement such as "In satisfaction of lien," "For credit on purchase price," or the like), such checks to his own order. He deposited these checks to his credit in a checking account which he maintained in his individual name in the defendant Federal Trust Company, hereinafter referred to as "Federal," and Federal, having guaranteed endorsements, collected the checks from Columbus and paid the proceeds into Pellecchia's account in Federal. The money was then checked out by Pellecchia for his own purposes.
In 1948, when Pellecchia's frauds came to light, their impact caused the collapse of Columbus and on July 24, 1948, its assets were turned over to the Federal Deposit Insurance Corporation, hereinafter referred to as "FDIC." Pellecchia made partial but not extensive restitution of these thefts, was prosecuted and was sentenced to a substantial term in the New Jersey State Prison, where he now remains. FDIC called upon Standard to pay under the fidelity bond and it did pay to the extent of its liability of $200,000. At some stage of its custody of the Columbus assets, FDIC asserted a claim in excess of $500,000 against Federal based upon its guaranty of the forged or false endorsements, and this claim was included in the assets of Columbus which FDIC was administering up to the time it resold the assets to the liquidating agents of Columbus (hereinafter called the "liquidators") on September 25, 1950, although no suit had been instituted to enforce such claim.
Meanwhile, Mr. Samuel Kessler, acting as attorney for the liquidators, had been negotiating with Federal for a settlement of the claim mentioned. These negotiations were brought to a head simultaneously and on the same day Columbus bought back its assets, including the claim against Federal, for $170,994.89, the full balance then due FDIC (FDIC thus accomplishing its statutory mission to depositors and leaving the scene of action), and settled and delivered
its release to Commercial Casualty Insurance Company, hereinafter referred to as "Commercial" (acting for and on behalf of its principal, Federal) for $175,000. This payment was in full settlement of the much larger claim asserted by the FDIC and the liquidators against Federal on the basis of the latter's guaranty of the check endorsements. Although Standard had instituted no suit against Federal or Pellecchia (as subrogee of Columbus on the bond salvage clause hereinafter referred to, or otherwise), it did not fail to put on the record to the parties concerned that it objected to the settlement, calling attention to its rights under the salvage clause and threatening to pursue its remedies despite any such settlement.
Federal and its surety, Commercial, knew before the settlement of the asserted interest of Standard, as did the liquidators, and the latter were concerned by it and called upon Federal and its surety for protection by way of indemnity against any such later claim by Standard. In offering settlement to the liquidators on August 17, 1950, Commercial had waived on its behalf and on behalf of Federal and another irrelevantly involved bank, any claim by way of subrogation against officers, directors and stockholders of Columbus, including Pellecchia. In response to the demand by the liquidators (as a condition of their proposed settlement with Federal), for protection against the eventuality that Standard would seek to hold them as threatened, Federal, on September 6, 1950, offered a guaranty (conditioned upon, and to survive settlement of the claim against Federal) that it would indemnify, defend and hold harmless Columbus and its stockholders from any such claim by Standard. Against the possibility of loss to itself which might arise from any such claim, it retracted part of its waiver of recourse of August 17, supra , to the extent that it reserved its rights to proceed against Pellecchia in the event, and for the amount, of any such loss to it, Federal.
As stated, these transactions closed simultaneously on September 25, 1950 and the liquidators of Columbus, having repurchased the Columbus assets, eventually sold the mortgages
contained therein to a savings and loan association for $252,092.09 and this reduced its total loss still outstanding, claimed now (the exact amount not being crucial to decision here) to stand at $202,454.12. Standard, adhering to its forewarned dissent from the settlement, made demand on Federal for some $516,000, which Federal refused to pay or recognize.
In this setting, which I think comprises the relevant and undisputed factual background, the present suit was instituted by Standard against Pellecchia and Federal. Basic to the original complaint filed by Standard was a first count against Pellecchia, not involved in this motion, an allegation in a second and third count of Standard's liability to Columbus based on the peculations of Pellecchia, demand for and payment of Standard's obligation on the bond, the liability of Pellecchia to Columbus, the subrogation of Standard to Columbus' rights against Pellecchia, the payment by Federal to Pellecchia on the forged checks, after guaranty of the endorsements thereof, Federal's consequent liability to Columbus, Federal's knowledge and notice of the interest of Standard in any recognition of such liability to Columbus, and in the proceeds thereof, the consummation of the settlement for $175,000 of a ...