General Insurance Company of America v. Lowry

General Insurance Company of America (General) (plaintiff) issued surety bonds on which Edward Lowry (defendant), C.M. Dingledine, and George Hyland (collectively, the indemnitors) were indemnitors. General paid out money to satisfy obligations related to the bonds and then sought indemnification from the indemnitors. On January 14, 1972, October 12, 1972, and July 3, 1973, the indemnitors executed promissory notes payable to General. The notes were secured by collateral, including shares of common stock owned by Lowry in Pico Development Company (Pico). The indemnitors signed an agreement stating that they would not take any action that would reduce or impair the security and would cooperate to prepare and execute any instruments necessary to perfect the security. Despite Lowry’s pledge of the stock, Lowry never delivered the shares of stock to General or executed any written agreements regarding the stock so that General’s security interest could be perfected. On January 8, 1974, Lowry executed a promissory note to Kusworm & Myers Company, LPA (KMC) (defendant) to pay legal fees for services rendered to Lowry by attorney Jacob Myers (defendant). As security for the note, Lowry pledged 19 shares of stock in Pico. The stock was subsequently transferred to KMC on Pico’s books, thus perfecting KMC’s security interest. Myers had represented Lowry throughout Lowry’s dealings with General, and Myers knew that Lowry had pledged the stock as security for the promissory notes to General but had never transferred the stock to General. General sued Lowry, KMC, and Myers in federal district court, seeking to compel specific performance of Lowry’s agreement to provide the stock as security for the note. In considering General’s request, the court considered whether, under the circumstances, General had obtained an equitable lien on the Pico stock that was superior to KMC’s interest.