
    George Borgfeldt & Co., Plaintiff, v. Caroline O’Neill et al., as Executors, etc., of Hugh O’Neill, Deceased, Defendants.
    (Supreme Court, New York Trial Term,
    July, 1902.)
    Indemnity — Rights of indemnitors.
    Where persons indemnified against the charges of a third party, after agreeing with their indemnitors that they shall have full liberty of action to object to all of the charges which are illegal and defend any action brought upon the charges, settle them so that the third party subsequently recovers on them, as upon an account stated, against the indemnitees, the latter cannot recover over of their indemnitors as the indemnitors have not been given adequate ' opportunity to object to and contest the charges, within the meaning of the agreement.
    Action on contract of indemnity, tried without a jury by consent.
    James Dunne, for plaintiff.
    Isaac Fromme and Edward W. S. Johnston, for defendants.
   Bischoff, J.

Certain disputes between the parties resulted in the plaintiff’s employment of a firm of auctioneers to sell goods at auction for the defendants’ account, but the disputes being settled the sale was withdrawn and the matter of auctioneers’ charges was provided for by agreement in the following words: - With' respéct to the auctioneers’ charges, H. O’Heill & Co. guarantee that George Borgfeldt & Co. shall be saved harmless therefrom, the intention being to shift the liability for such charges from George Borgfeldt & Go. to H. O’Heill & Co., and allowing the latter full liberty of action to object to all illegal charges made by the auctioneers. H. O’Heill & Co. to be permitted to defend any action brought by the auctioneers against George Borgfeldt & Co. on account of such charges.”

The auctioneers’ bill was rendered to the plaintiff, containing items of disbursements in a substantial sum together with a charge for commissions upon the invoice value of the goods, and this bill having been forwarded to the defendants, the latter disputed it. Payment being withheld, the auctioneers sued the plaintiff as upon a stated account, and, upon the trial of the action thus brought, it developed that this plaintiff (the then defendant) had admitted the correctness of the bill, with the result that the auctioneers recovered judgment for the full amount, and in the present action the defendants are sought to be held liable upon the guaranty for the amount which the plaintiff was thus called upon to pay and did pay.

There can be no doubt that the contract of indemnity was affected by the plaintiff’s act in permitting the original liability to become fixed as upon an account stated, with the consequent eliminating of all inquiry into the items of the bill, when the auctioneers’ suit was brought. True, O’Neill & Co. were allowed to defend the suit, and might have interposed the defense of fraud or mistake as against the stated account, but this was by no means the “ full liberty of action to object to all illegal charges,” suchas the contract contemplated. Whether there existed any support for an attack upon the settlement of the account, on equitable grounds, is not made to appear, but the contract did not intend that O’Neill & Co. should assume the burden of any such attack. ¡Normally, the burden of proof as to each item of the bill was upon the auctioneers, and the agreement between'the parties to this action looked to tire defendants’ right to dispute the items upon the original proof, in the ordinary course of litigation.

The plaintiff, by its act in settling the account, created a condition which restricted the defendants’ opportunities to present the dispute for determination, and thus violated the agreement upon its part, in the letter and in the spirit.

Whether or not the plaintiff might recover if it now undertook to prove the correctness of each item of the account, need not be determined, for no proof to support the account, as upon an original issue, has been given. The defendants are sought to be made liable upon the ground that the plaintiff has paid the amount found due the auctioneers in the action brought upon the stated account, and it is apparent that this affords no basis for a recovery upon the contract of indemnity as framed. Wheeler v. Sweet, 137 N. Y. 435 : Foo Long v. American Surety Co., 146 id. 251.

There should be judgment for the dismissal of the complaint, with costs.

Gomplaint dismissed, with costs.  