Wallace v. Straus — 22 N.Y. St. Rep. 984

Majority

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Margaret C. Wallace, Executrix, etc., Resp’t, v. Moses Straus, App’lt.^[1]

(Court of Appeals,

Filed April 16, 1889.)

Headnote

1. Contract—Op guaranty—Construction op.

In an action on a guaranty given by the defendant to plaintiff’s testator, as follows: “Whereas, Ferdinand Straus is indebted to F. B. Wallace in the sum of $11,514.39 with interest from August 16, 1881, for which said Wallace holds as collateral security, 100 shares of the stock of the C. P. R. Co., and 100 shares of the O. C. R. Co., and, whereas the margin on said stock is inadequate; now, therefore, in consideration of one dollar in hand paid by said Wallace, I hereby agree to guarantee said Wallace or the new firm of F. B. Wallace & Co., if said account is transferred to the books of said new firm, from any loss they may sustain by reason of holding and carrying of said stock,” Held, that it was not a guaranty of the collection of the debt so as to require that the remedy against the principal debtor should be exhausted before coming upon the surety, but was against a depreciation of the stock which would render it insufficient to pay the debt. It was a loss as ascertained by a sale of the stock which was contemplated by the parties as the subject of the guaranty.

3. Evidence—Competency op witness—Code Civ. Pro., § 839.

The defendant called Ferdinand Straus as a witness, and he was asked, “ Did you give any instructions (to Wallace) in November, 1881, with reference to a sale of these two blocks of stock.” The question was excluded as being within the prohibition of section 839 of the Code Civil Procedure. Held, error, as the witness was not interested, within the rule.

3. Same—Code Crv. Pro., § 839—Disqualifying interest.

The test of interest of a witness is that he will either gain or lose by the direct legal operation and effect of the judgment, or that the record will be legal evidence for or against him in some other action, and the interest must be certain and vested and not remote and contingent.

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4. Same—When witness bound by result of litigation.

The bare fact that he was called as a witness did not bind him by the result of the litigation; he must have been placed by the act of the surety in a situation calling upon him to assume control of the action or aid in its defense, or have been given notice by the surety to defend.

Appeal from judgment of general term, supreme court, first department, affirming, with costs, judgment at circuit in favor of plaintiff for $8,875.32.

This action is brought upon a written guaranty, given by the defendant to plaintiff’s testator, and was tried at circuit before the court, a jury being waived by both parties.

The pleadings raise a distinct issue as to the construction to be given to the guaranty, and the answer further sets up, by way of defense, that the guaranty was given, by way of security, for a wagering contract.

The guaranty is as follows:

“ Whereas, Ferdinand Straus is indebted to F. B. Wallace in the sum of $11,514.39, with interest from August 16, 1881, for which the said Wallace holds as collateral security 100 shares of the stock of the Central,Pacific Railway Company and 100 shares of Ohio Central Railroad Company, and whereas the margin on said stock is inadequate :

“Now, therefore, in consideration of one dollar in hand paid by said Wallace, I hereby agree to guarantee said Wallace, or the new firm of F. B. Wallace & Co., if. said account is transferred to the books of said new firm, from any loss they may sustain by reason of the holding and carrying of said stock.

‘ ‘ Witness my hand and seal this 25th day of October, A. D., 1881.

“MOSES STRAUS.” [seal.]

Wallace, to whom the guaranty was given having died, his executrix served a notice on the defendant on January 7th, 1886, that she would sell, on the 20th of January, 1886; at 12.30 p. M., by A. H. Muller & Son, at 29 Liberty street, 100 shares of Central Pacific and 125 shares of Ohio Central Railroad Company, and on said sale the stock referred to in the notice was sold for $4,109.63 net, and said amount was then credited on the alleged indebtedness, and this suit is for the balance.

The main questions in this case turn upon the construction to be given to the terms of the guaranty.

Stephen C. Baldwin, for app’lt; W. F. Dunning, for resp’t.

—The primary purpose of the guaranty was vto secure the debt owing by Ferdinand Straus to Wallace,

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if -its collection should be deferred. At the date of the guaranty the stock was worth in the market more than the amount of the debt. Wallace could sell it at any time, on notice, and satisfy the debt out of the proceeds. The purpose of Ferdinand Straus in furnishing a guaranty was to avoid a sale, and to have the stock carried in expectation of a better market. But the fluctuations incident to such property might hazard Wallace’s position, unless he had indemnity that while carrying the stock his security would not be impaired. The stock was the security upon which Wallace relied. The contract indicates this, and also that both Wallace and the guarantor Moses Straus, regarded the stock as the certain and immediate recourse for the payment of the debt. When, therefore, the defendant, instead of guaranteeing the debt, or the payment or collection of the debt, guaranteed Wallace against any loss by reason of holding or carrying the stock, the guaranty was against a depreciation of the stock which would render it insufficient to pay the debt.

It was a loss as ascertained by a sale of the stock which was contemplated by the parties as the subject of the guaranty. This, we think, is the plain construction of the instrument. It was not a guaranty of the collection of the debt, so as to require that the remedy against the principal debtor should be exhausted before coming upon the surety. This would lead to an affirmance of the judgment, except for a ruling by the trial judge on a question of evidence.

The defendant called his brother, Ferdinand Straus, as a witness, and he was asked, “ did you give any instructions to Wallace in November, 1881, with reference to a sale of these two blocks of stock,” and the question was objected to by the plaintiff’s counsel on the ground that the witness being the principal debtor, and the action being against his surety, he was interested in the event of the action, and was therefore, incompetent to testify to a personal transaction with the plaintiffs testator, under section 829 of the Code. The court permitted the witness to answer, “ yes or no,” and he answered that he gave instructions to Wallace. This question was followed by one calling for the instructions given, and the objection being renewed, the court sustained it, and excluded the testimony. It must be assumed, in the absence of any objection on that ground, that the testimony offered was material. It is certainly possible that instructions might have been given by Ferdinand Straus to Wallace, the disregard of which would furnish a defense, in whole or in part, to the action.

The question, therefore, is whether the witness was interested in the event of the action, as upon this ground only could the question have been excluded under section 829. The test of the interest which disqualifies a witness not a party, under this section, is stated by Church, Ch. J., in Hobart v. Hobart ( 62 N. Y., 80 ), in construing a corres

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ponding section of the prior Code, adopting substantially the language in 1 Green. Ev., § 390. He says: “ The true test of the interest of a witness is that he will either gain or lose by the direct legal operation and effect of the judgment, or that the record will be legal evidence for or against him in some other action. It must be a present, certain and vested interest, and not an interest remote, uncertain or contingent.” The same rule was reiterated in Nearpass v. Gilman ( 104 N. Y., 507 ).

The witness Ferdinand Straus was not interested within the rule. He was not bound by the judgment rendered against the surety. It is plain that the judgment would not determine his liability in an action subsequently brought by Wallace against him to recover the debt, or in any way limit it, except that if collected it might operate as payment in full, or pro tanto, of the debt. So if the surety, having paid the judgment, should bring an action for reimbursement, the recovery against the surety would not fix the liability of the principal. The judgment against the surety would not be an adjudication as against Ferdinand Straus, that the surety had incurred any liability for which he was entitled to indemnity. It would be admissible to prove the fact of the judgment, and it would determine the extent of the liability over the primary debtor to the surety, when his liability had been otherwise established.

This conclusion results from the “ most obvious principle of justice, that no man ought to be bound by proceedings to which he was a stranger.” 1 Green. Ev., 522. Ferdinand Straus was, within this principle, a stranger to the suit against the surety. He was not a party, nor so far as it appears, was any notice given to him by the surety to defend the action, nor had he undertaken the defense. It may be assumed from the fact that he was called as a witness, that he knew of the pendency of the suit. But before he could be bound by the judgment, he must have been placed by the act of the surety in a situation calling upon him to assume the control of the action, or to aid in its defense, as though a party, with the right to adduce testimony, and to cross-examine witnesses, and to appeal from the judgment. 1 Green. Evi., § 523.

The bare fact that he was called as a witness by the surety, nothing else appearing, did not bind him by the result of the litigation. It will be found in the cases on the subject that something more was necessary. There must be formal notice to defend or something tantamount to such notice, given by the surety, or the principal must have assumed the defense of the action, or aided in preparing the defense in order to bind him by the result. Barney v. Dewey, 13 John., 224 ; Brewster v. Countryman, 12 Wend., 446 ; Chicago v. Robbins, 2 Black, 418 ; Lovejoy v. Murray, 3 Wall., 1 .

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In short no fact determined against the surety, in the-action, or which might have been determined therein, would under the circumstances disclosed, when the ruling in question was made, be available to, or would bind the witness in any subsequent action brought against him either by the surety or the creditor, Wallace.

We think, therefore, the evidence offered was erroneously- excluded and that for this error the judgment-should be reversed and a new trial granted.

All concur.