Summary
In Wallace v. Straus (113 N.Y. 238) one W., plaintiff's testator, a stockbroker, was carrying certain stock for S. on a margin.
Summary of this case from Spier v. McNaughtOpinion
Argued March 15, 1889
Decided April 16, 1889
Stephen C. Baldwin for appellant. W.F. Dunning for respondent.
The primary purpose of the guaranty was to secure the debt owing by Ferdinand Straus to Wallace, 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 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 fluctations 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 plaintiff's testator under section 829 of the Code. The court permitted the witness to answer "yes or no," and he answered "Yes." 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 corresponding section of the prior Code, adopting substantially the language in 1 Greenleaf on Evidence (§ 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 amount of the liability over of 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 Greenl. 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 Greenl. Ev. § 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 upon 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 Johns. 224; Brewster v. Countryman, 12 Wend. 446; Chicago v. Robbins, 2 Black, 418; Lovejoy v. Murray, 3 Wall. 1.) 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.
Judgment reversed.