
    Arthur Burns Thomson, Resp’t, v. Joshua C. Sanders, App’lt.
    
    
      (Court of Appeals, Second Division,
    
    
      Filed January 14, 1890.)
    
    1. Indemnity—Bond—Construction of.
    Defendant v as the owner of a judgment for $4,000 obtained in South Carolina against plaintiff and others, upon which an action was begun in the supreme court of this state, which was settled by plaintiff paying $500 and defendant herein gave him a bond that he would “indemnify and save harmless said Arthur Burns Thomson against all claims set forth in the complaint and supplementary complaint,” in the New York action, “ and, also, against all costs and damages which said Thomson may be compelled to pay by reason of said action or claims on which the same is based.” Afterwards the South Carolina judgment was assigned to Sanders, who sued Thomson on it, alleging that he was induced by fraud to make the compromise. His complaint was dismissed. In this action 'on the bond, Held, that it covered the costs and expenses of the latter as well as the former case. . ,
    
      S. COUNTEBOLAni—COMPBOMISE.
    Defendant in this action alleged that he made the compromise through fraud on the part of Thomson and counterclaimed damages. H Id, that it was not necessary for defendant to return the $500 paid in order to sustain the counterclaim, hut he might retain the amount and have it taken into consideration upon the question of damages.
    Appeal from judgment of the general term of the supreme court in the first judicial department, affirming a judgment entered upon a verdict in favor of the plaintiff.
    The facts out of which this action arose, are, that in 1872 Levi P. Wagner recovered in the court of common pleas of Charleston county, state of South Carolina, a judgment against the plaintiff and two other persons for upwards of $4,000, of which judgment the defendant herein was the beneficial owner, although he had not the legal title. In August following, an action was brought in the name of Wagner, upon such judgment, in the supreme court of the state of New York, against the judgment debtors. And the plaintiff by his answer in that action alleged that no process was served upon him in the South Carolina action, and that he neither appeared or authorized an appearance in his behalf therein.
    Wagner having died, Julia E. Wagner was substituted as plaintiff in the action in the supreme court. And afterwards, during its pendency, the plaintiff and the defendant herein made a compromise and settlement of the matter, by which the plaintiff paid to the defendant $500, and the latter made and delivered to Thomson an instrument of which the following is a copy:
    “ Know all men by these presents that I, Joshua C. Sanders, of the city of New York, am held and firmly bound unto Arthur Burns Thomson, of the same place, in the sum of one thousand ” dollars ($1,000), lawful money of the United States of America, to be paid to the said Arthur Burns Thomson, his executors, administrators or assigns; for which payment, well and truly to be made, I bind myself and my heirs, executors and administrators firmly be these presents. Sealed with my seal. Dated the thirteenth day of April, one thousand eight hundred and seventy-six. The condition of this obligation is such that if the above bounden Joshua C. Sanders shall indemnify and save harmless said Arthur Burns Thomson against all claims set forth in the complaint and supplemental complaint in an action in the supreme court against said Thomson and others, defendants, by Julia E. Wagner as administratrix of Lévi P. Wagner, deceased, plaintiff; and also against all costs and damages which said Thomson may be compelled to pay by reason of said action or claims upon which the same is based, then the same to be void, otherwise to remain in. full force and effect.
    “Joshua 0. Sanders. [l. s.]
    “ Witness: E. B. Convees.”
    Afterwards, the legal title to the South Carolina judgment was assigned by one Beecher (who had taken an assignment of it from the administratrix) to Sanders, who brought an action upon it against Thomson, alleging by way of relief from the effect of fhe compromise, before mentioned, that he was induced by fraud, to make it. Thomson answered, and the issues came on to trial and the complaint was dismissed. This action was brought upon the defendant’s bond to recover the costs and expenses incurred by the plaintiff in excess of those recovered in the last mentioned action. The defendant, amongst other matters of defense, alleges-in his answer that he made the compromise in reliance upon the-truth of the allegations made by Thomson, in his answer in the Wagner action in the supreme court, and otherwise made by kim,that he was not served with process in the South Carolina action, and that he neither appeared or authorized any appearance for him-in that action, and that such allegations and representations were-false and fraudulent, and that as the consequence the defendant sustained damages in an amount stated, for which he asks a recovery by way of counterclaim against the plaintiff. Some further facts appear in the opinion.
    
      D. Cady Herrick, for app’lt; H B. Convers, for resp’t.
    
      
       Reversing 7 N. Y. State Rep., 453.
    
   Bradley, J.

It is contended on the part of the defendant that the purpose of the bond made by him to the plaintiff was-merely to indemnify the latter against any claim which might be made by Wagner, and the costs and damages resulting to him from the assertion or prosecution of any claim made by Wagner upon the South Carolina judgment, and that it is entitled to such construction, and therefore the bond cannot support an action to recover the costs or expenses incurred by the plaintiff in defense of the action brought against him by the defendant.

The terms of that instrument do not seem to so limit its operation and effect. In the condition of the bond is first described the claim against which the plaintiff is indemnified; it then proceeds to indemnify him against all costs and damages which he should be compelled to pay by reason of the Wagner action or claims upon which it was based. The claim in view and mentioned was the South Carolina judgment. The indemnity seems to have embraced such costs and damages as the plaintiff should be subjected to not only iri that action, but by reason of any claim made against him, founded upon such judgment. The relation of the defendant assumed to it was such as to enable him to control the judgment, and he undertook to relieve the plaintiff from its effect' as a cause or claim against him for prosecution and its consequences. This' would seem to include within its purpose, as represented by its terms, the protection of the plaintiff against the costs and damages resulting to him from - the prosecution by any person having the apparent- title to it of any claim founded upon the judgment. Such has been the effect given to it by adjudica-, tian which is controlling here upon that question. It appears that' after the discontinuance of the Wagner action against the plaintiff in the supreme court of this state, the then plaintiff in that action assigned the judgment to one Beecher, who brought,,an action upon it against the defendant which.the jotter defended. The discontinuance of that action was .procu/ed by. j]pe <^efend~ ant, and thereupon the plaintiff brought against him an action on this bond of indemnity in the city court of New York, to recover the costs or expenses of defending the Beecher action and recovered. That judgment remains effectual, and must here be deemed to have conclusively established as between these parties that the liability of the defendant upon the bond was not limited to such costs and damages as the plaintiff should incur in the prosecution of the claim of Wagner, but included such as should arise from the prosecution of it by any other party having the apparent title to it. Doty v. Brown, 4 N. Y., 71; Castle v. Noyes, 14 id., 329; Pray v. Hegeman, 98 id., 351. The conclusion would seem to follow that the operation of the bond extended to the action prosecuted upon the judgment by the defendant against .the plaintiff so as to afford to the latter the indemnity for such costs and damages, if any, which he reasonably incurred in excess of the costs recovered in such action.

It is alleged in the answer that the action so brought by the defendant against the plaintiff came on to trial and that the complaint was dismissed on the ground that the $500 paid to and taken by the defendant upon the compromise pursuant to which the bond was made had not been paid or tendered back to the plaintiff. That was the necessary result of an action brought-upon the judgment, because its support by the defendant was dependent upon the rescission of the agreement constituting the corm promise, which could be done for the purpose of an action at law only by tender of restoration by the defendant of that which he had received from the plaintiff. The record of that action is not here, but by the pleadings and evidence in the present case it appears to have been an action upon the judgment, and that tile-allegations of fraud on the part of the plaintiff in obtaining the settlement and bond were intended to furnish a reason for its support. The alleged cause of action there was different from that set forth in the defendant’s answer in this action by way of counter-claim. And for that reason the recovery there would have been no bar to the latter if the dismissal had been on the merits, Stowell v. Chamberlain, 60 N. Y., 272; but it does not so appear. Code, § 1209. The evidence offered by the defendant with a view to prove the alleged fraud was excluded, and exception taken. The question, therefore, arises whether the matter alleged constituted a counter-claim within the statute, which provides that it must be a cause of action against the plaintiff tending to diminish or defeat his recovery, arising out of the contract or transaction set forth in the complaint as the foundation of the plaintiff’s claim, or connected with the subject of the action. Id., § 501.

It is alleged in the answer that the defendant was induced torn ake the compromise and give the bond of indemnity by the false and fraudulent representations of the plaintiff, made, in the manner stated, with the intent to deceive him, and that as the consequence of such fraud on the part of the plaintiff the defendant sustained damages for which he demanded judgment. This alleged cause of action of the defendant arose out of the transaction or contract of which the bond set forth in the complaint as the foundation of the plaintiff’s claim Was the product, and the making of it constituted a part, and such canse of action alleged by the defendant comes within the meaning of a counterclaim as defined by the statute. Litchult v. Treadwell, 7 W. Dig., 83; affirmed 74 N. Y., 603; Carpenter v. Manhattan Life Ins. Co., 93 id., 552. The view of the general term was that as the situation remained the same as it was when the complaint in the action of the defendant against the plaintiff was dismissed, the alleged counterclaim was not available for the reason then existing for the disposition made of that action. It seems to -have been assumed that the restoration of the amount paid by the plaintiff to the defendant was essential to the right of the latter to assert such counterclaim. That would have been so if it had been an alleged cause of action upon the South Carolina judgment, as its support would have been dependent upon rescission of the agreement which produced the bond, but the asserted counterclaim is a cause of action founded solely upon alleged fraud, for which the defendant seeks to have allowed to him the damages he sustained by it.

In making this claim the defendant does not proceed in disaffirmance of the agreement of compromise. That, and. the bond of indemnity remain effectual, subject only to his claim for such damages as he may legitimately have sustained by reason of the fraud with which he charges the plaintiff. For the purpose of such relief no restoration was essential. What the defendant received as the result of the agreement may be retainted by him, and taken into consideration upon the question of damages in the event the claim for them is supported at the trial. Gould v. Cayaga County Nat. Bank, 99 N. Y., 333.

These views lead to the conclusion that the judgment should be reversed and a new trial granted, costs to abide the event.

All concur.  