By the instrument on which this action is brought the defendant agreed “ to save harmless and indemnify ” the surety company, of which plaintiff is the receiver, from “any and all * * * liabilities, losses * * * of whatsoever kind, name, nature or description” which the surety company “shall or may, for any cause, at any time sustain or incur, by reason of ” any bond or undertaking given by the surety company in defendant’s behalf; also, that the defendant would at its own expense defend the surety company from any action brought bn any such bond or undertaking and would pay “ upon demand, any and all damages, charges and expenses ” for which the surety company “ shall become responsible.”
Under a claim that the defendant had failed to perform its contract with the United States government in the manner agreed, to the damage of the government in the sum of $1,600, being the amount for which the surety company had executed its bond to the government for the faithful performance by defendant of the contract in question, the government authorities refused to pay and deducted said sum from moneys due by it to the surety company on account of other transactions. This act of the government in thus appropriating the money of the surety company under a claim of right constituted a liability if not a loss within the meaning of the agreement. Hot only was it a liability but it was one which had been actually enforced. Whether such appropriation was or was not justifiable is of no importance. If the government had paid over the money without prejudice and had then brought an action against the surety company on its bond, that company would certainly have been compelled to defend the action at its own cost and to pay the amount of any recovery. The situation cannot be different where the government has assumed to be its own paymaster and without bringing suit has exercised the right possessed by any creditor to determine for himself and at his own risk whether or not one is indebted to him *290and whether in payment of such indebtedness he shall appropriate moneys of the debtor in his hands and leave the debtor to sue.
The order appealed from should be reversed, with ten dollars costs and disbursements, and the motion granted, with «ten dollars costs, with leave to defendant to withdraw the demurrer and to answer on payment of said costs.
Ingraham, P. J., and Scott, J., concurred; Laughlin and Clarke, JJ., dissented.