Spouse's Sworn Statement Regarding Alleged Forgery on Indemnity Agreement and Copies of Official Documents Bearing Her Signature Insufficient to Defeat Surety's Summary Judgment Motion
On December 9, 2008, Wolff & Samson obtained an extremely favorable decision from New York’s Supreme Court, Appellate Division, Second Department, holding that, among other things, an indemnitor must clear a significant proof hurdle to contest the authenticity of her purported signature on a notarized indemnity agreement.
In John Deere Insurance Company v. GBE/Alasia Corp. (No. 2007-11084, A.D. 2d Dep’t Dec. 9, 2008), the lower court had denied the surety’s motion for summary judgment on its indemnity claim on numerous grounds. Wolff & Samson obtained a reversal on all grounds, several of which may be important to sureties.
The surety’s indemnification claim was asserted against a husband and wife, both of whom appeared as signators on a notarized indemnity agreement. In opposition to the surety’s motion for summary judgment, the wife argued that her signature on the indemnity agreement was a forgery. As proof, she submitted her own affidavit, alleging that she did not sign the agreement, and copies of her driver’s license and passport’s signature page. She did not submit an affidavit from a handwriting expert, nor did she submit an affidavit from a third party involved in the agreement’s execution.
The Appellate Division reversed the trial court’s holding that the wife’s own affidavit and copies of her license and passport were sufficient to raise a material issue of fact as to the authenticity of her notarized signature. The appellate court held that the proof required to rebut the presumption of authenticity arising from the notarization must be “clear and convincing so as to amount to a moral certainty”. The wife’s affidavit (which the court described as that of “an interested witness”), the official documents she submitted bearing her signature, and her contention that the signature on the indemnity agreement was different from her signature on these documents were not sufficient. The court noted the absence of proof from either a handwriting expert or a disinterested third party, indicating that an indemnitor contesting the legitimacy of a notarized signature fails to raise a material factual issue without such proof.
This holding should be of significant benefit to sureties seeking indemnification when faced with allegations from a spouse that his or her signature was forged. Many claims regarding allegedly forged indemnity agreements are asserted by the wife of the principal’s owner. If the wife is going to contend that her signature is a forgery, she will have to identify in discovery the disinterested third party who will testify to this effect and/or produce an expert report. She cannot simply rely upon documentation and information in her exclusive control. Since such proof likely would implicate the husband in the forgery, the probability of the wife attempting to satisfy her burden seems slim, and the forgery defense may be subject to summary dismissal. In the event the wife does produce the required proof in discovery (for example, in the case where the husband and wife have since been divorced), then the surety can take early steps to ascertain the identities of those involved in the fraud and to assert claims against them (as well as the notary) in that litigation. Assuming it is established that the husband signed the wife’s name, the surety also will want to explore whether the husband was authorized to do so or otherwise could be considered to be the wife’s agent.
In addition, the appellate court reaffirmed that consideration of the surety’s actual liability for the claims it paid under its bonds is not an appropriate area of inquiry. In support of its motion, the surety submitted testimony and documentation establishing the payments it made and that such payments were made only after each claim was investigated. The appellate court reversed the lower court’s holding that the husband’s affidavit, which contended that the surety paid claims that were not legitimately due and owing, raised a material factual issue precluding summary judgment. The only relevant issues were whether the surety made the payments in bad faith and whether the payments were unreasonable in amount. Since the husband did not argue either bad faith or unreasonableness, he failed to raise a material factual issue.
The court stated that a surety pays in good faith when it pays “in the honest belief that it was liable for such claims”. This is another hurdle that will be difficult for indemnitors to clear. A surety’s representative likely will testify that the surety made payments under its bonds only after an investigation determined either (a) that the surety was liable for the claim or (b) that there were questions about the claim and that making a payment to the claimant was believed to be cost effective (thereby mitigating the indemnitors’ exposure). In the first instance, absent specific proof that the surety’s investigation was purposefully illegitimate, the surety should be found to have paid in the “honest belief” that it was liable. The second instance would be governed by the indemnity agreement’s provision allowing the surety to settle claims in its own discretion, and good faith similarly should be found where the surety “honestly believed” that setting the claim was cost effective or otherwise appropriate.
A final issue of note is that the appellate court rejected the indemnitors’ novel argument that the prima facie evidence clause is a condition precedent to the surety’s right to recover under the indemnity agreement. In this case, the prima facie evidence clause said that an itemized statement of the payments made by the surety, sworn to by an officer of the surety, or vouchers for such payments, would be prima facie evidence of the fact and amount of the liability of the indemnitors. In support of its motion, the surety submitted an affidavit from the outside claims adjuster who handled the claims (who was not employed by the surety) and the surety’s computer ledger listing the payments made.
The indemnitors argued that the language allowing the surety to make its prima facie case by submitting a statement of payments attested to by an officer or by vouchers was a condition precedent to the surety’s recovery. In other words, they argued that the only way the surety could prove a claim under the indemnity agreement was through submission of an officer’s sworn statement or vouchers. The appellate court rejected this argument (which, surprisingly, had been accepted by the trial court) and, again, reversed the trial court.
The appeal was handled by Wolff & Samson member Adam P. Friedman and associate Lauren DeMauro. If you would like a copy of the decision, have any questions, or otherwise would like to discuss the issues addressed in the decision, please feel free to contact: Adam P. Friedman at (973) 530-2029 or via email at email@example.com; or Lauren DeMauro at (973) 530-2089 or via email at firstname.lastname@example.org.
This Fidelity and Surety Update should not be construed as legal advice or a legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer concerning your specific situation or any legal questions you may have.