LEGAL DECISIONS AFFECTING BANKERS. MACDONALD v. WHITFIELD. (Reported in full, see below.) Messrs. Macdonald and Whitfield, with others, were Directors of the St. John's Stone China-ware Company, of St. John's, Canada. That Company, being indebted to their bankers, applied to them for further advances, which they agreed to make, upon those advances and part of the sum already due being secured by the personal guarantee of the Directors, to be given in the shape of endorsements by them of the company's promissory notes. The notes were accordingly signed on behalf of the Company, and indorsed by the Directors (for the Company's accommodation) in the following order-(1) Macdonald, (2) Whitfield, (3 and 4) the other Directors. The bankers having obtained judgment in Canada against all the Directors upon the notes, Whitfield brought an action against Macdonald claiming to be indemnified by the latter against all sums he might have to pay under the judgment on the ground that Macdonald was a prior endorser of the notes, and thus liable to the subsequent endorsers. The Court of Queen's Bench in Canada allowed this claim; but on appeal The Privy Council held, that although in the absence of evidence to the contrary, the first endorser of a note must, according to the law merchant, indemnify subsequent endorsers; it is a well established rule that the whole facts and circumstances attending the making and endorsing of bills and notes may be referred to. In this case the Court considered it was plain from the evidence that the Directors were asked, and agreed, to become co-sureties for the Company without any stipulation inter se as to their becoming sureties for one another. Therefore, Whitfield was not entitled to an indemnity, but all the Directors were entitled to equal contribution inter se. On Appeal from the Court of Queen's Bench for Lower Canada in the Promissory Notes-Indorsement as co-Sureties-Liability of Indorsers to equal Contributions inter se. The liabilities inter se of successive indorsers of a bill or note must in the absence of all evidence to the contrary be determined according to the ordinary principles of the law-merchant, whereby a prior indorser must indemnify a subsequent one. But the whole circumstances attendant upon the making, issue and transference of a bill or note may be legitimately referred to for the purpose of ascertaining the true relation to each other of the parties who put their signatures upon it either as makers or indorsers; and reasonable inferences derived from these facts and circumstances are admitted to the effect of qualifying, altering, or even inverting the relative liabilities which the law merchant would otherwise assign to them. Where the directors of a company mutually agreed with each other to become sureties to the bank for the same debts of the company, and in pursuance of that agreement successively indorsed three promissory notes of the company : Held, reversing the judgment of the Court below, that they were entitled and liable to equal contribution inter se, and were not liable to indemnify each other successively according to the priority of their indorsements. Reynolds v. Wheeler (10 C.B. (N.S.) 561) approved; Steele v. McKinlay (5 App. Cas. 754) distinguished. According to the Civil Code of Lower Canada (arts. 2340 and 2346) the law of England, in force on the 30th of May, 1849, is applicable to the question raised in this appeal. APPEAL from a judgment of the Court of Queen's Bench (September 23rd, 1881) reversing a judgment of the Superior Court held at St. John's, in the district of Iberville (September 1st, 1879), and condemning the appellant to indemnify the respondent in respect of a decree obtained against him by the Merchants' Bank of Canada on three promissory notes. The notes had been made by the St. John's Stone China-ware Company, payable to the order of the appellant, and indorsed by the appellant and respondent in succession. The facts of the case appear in the judgment of their Lordships. Matthews, Q.C., and Fullarton, for the appellant, contended that the respondent had framed his action upon the allegation of actual indorsement and delivery by the appellant to him. The evidence did not sustain it. The respondent should prove that the notes had been indorsed to him with the intent that he should be the holder, and the appellant liable to him thereon. Otherwise there was no contract between appellant and respondent by the law merchant; and no contract to undertake successive liabilities as between themselves and the other directors: See Denton v. Peters (1). * Present-Lord Watson, Sir B. Peacocke, Sir R. P. Collier, and Sir A. Hobhouse. (1) Law Rep. 5 Q. B. 475. The footing upon which the indorsements by the Directors took place clearly appears upon the correspondence with the bank. From that correspondence and by necessary inference from all the facts and surrounding circumstances it appears that the directors all agreed to become co-sureties to the bank of their company's notes, and that they indorsed the notes in pursuance of that agreement. The right of contribution inter se arises independently of contract. It accrues to each co-surety by rules of equity, and the liability so to contribute is imposed by equity independently of contract to that effect: Dering v. Lord Winchelsea (1); Reynolds v. Wheeler (2). The right and the liability arise from the intention to become co-sureties: Whiting v. Burke (3); Gray v. Seckham (4) ; Wilkinson v. Unwin (5); Steele v. McKinlay (6). In Canada the authorities in our favour are Clipperton v. Spettigue (7), Cockburn v. Johnston (8); while opposed to appellant's contention are Janson v. Parton (9) and Fisken v. Meehan (10), both decided by a majority of the judges on grounds distinguishable from this case as regards the circumstances connected with the making of the notes. As regards the right of action reference was made to the Civil Code of Lower Canada, arts. 1235, 1955, and 1935. Hugh Cowie, Q.C., and M. D. Chalmers, for the respondent, contended that he was not a co-surety with the appellant or with any of the other directors. Upon the instruments they had all signed in a manner which imported successive liability; they had not indorsed jointly, or in any way which distinguished it from the ordinary form. The Court below relied not merely upon the absence of any written agreement between the directors, but also on the presumptions arising out of the circumstances of the case. There was nothing to displace the inference from the form of the indorsements that the law merchant applied to the transaction. The strongest evidence was necessary to displace such inference. The co-suretyship of the indorsees was not to be inferred from the indorsements being for the accommodation of the maker. By Art. 1,935 of the Civil Code, suretyship must be express and not presumed. As regards Dering v. Lord Winchelsea (11), see Craythorn v. Swinburne (12), where Lord Eldon explains it in a manner favourable to the respondent. In Whiting v. Burke (13) is a curious misquotation of the passage from 14 Vesey. Reynolds v. Wheeler (14) is the (1) 1 W. & T. 106. (2) 10 C. B. (N.S.) 561; 30 L. J. (C.P.) 350. (3) Law Rep. 10 Eq. 539; Ibid 6 Ch. 342. (4) Law Rep. 7 Ch. 680. (5) 7 Q. B. D. 636. (6) 5 App. Cas. 754. (7) 15 Grant's Ch. Rep. (U.C.) 269. (9) 23 C. P. (U.C.) 439. only case of the kind in the reports; it does not appear to have been commented upon in other cases, though it is mentioned in the text-books. Reference was made to Janson v. Paxton (1); McDonald v. M'Gruder (2); Suse v. Pompe (3); Strong v. Foster (4) ; Wilkinson v. Unwin (5). In America the rule is clear that the first accommodation indorser is liable to the second accommodation indorser unless there is an express agreement to the contrary: McCarty v. Roots (6); Shaw v. Knox (7); Kirschner v. Conklin (8). As regards the respondent's right to recover the costs of the action brought against him by the bank, see Stratton v. Mathews (9). Fullarton replied. The judgment of their Lordships was delivered by LORD WATSON : Edward Macdonald and George Whitfield, who are respectively appellant and respondent in this appeal, were in the year 1875 directors of a trading corporation known as the St. John's Stone China-ware Company, which carried on business at St. John's in the district of Iberville and Province of Quebec. At that time the concern was not in a very prosperous condition, and in the month of July, 1875, the balance due by the company in its account current with the Merchants' Bank of Canada was upwards of $17,000. The appellant was president and chairman of the board of directors; and he had indorsed the company's promissory notes, for its accommodation, to the Merchants' Bank to the amount of $65,000. It appears that he had also given his personal guarantee to the bank for the overdrafts of the company upon its account current to the extent of $10,000. In July, 1875, the company, being in want of funds, applied to the bank, through the appellant, for further credit; and on the 24th of that month the agent of the bank of St. John's sent a written answer to the application, addressed to the late Mr. Lavicount, the secretary of the company, in these terms: "Dear Sir, Respecting your president's application to the bank for further extension of your credit, I have the pleasure to inform you that you have been allowed an extension of four or five thousand dollars in case of need. The bank, however, requires that the present advances, as they mature, be secured by the personal guarantee of your directors, should renewals be required, which could be done by their indorsation of the notes. Your account current is now overdrawn seventeen thousand six hundred and fourteen dollars and (1) 23 C. P. (U.C.) 439. (2) 3 Peters, 470; 8 Curteis, 491. (5) 7 Q. B. D. 636. fifty-four cents; and by giving me the company's note, indorsed as required, for 8,500 dollars, you will reduce your overdrawn account, leaving a balance of 700 dollars of above loan. "I enclose a letter of guarantee along with a note, for signature by your directors, as required by the bank, to take the place of Mr. Edward Macdonald's personal security for the like amount." Along with this communication there were sent to the secretary of the company the letter of guarantee, and also the note therein mentioned. The letter in question, which was dated the 24th of July, 1875, and addressed to the agent of the bank, was expressed as follows:"Dear Sir,-In consideration of the Merchants' Bank of Canada allowing the St. John's Stone China-ware Company to overdraw their account to the extent of ten thousand dollars, we herewith deposit with you, as collateral security for the due payment of such overdraft, the demand note of the company, indorsed by the following directors individually. And we hold ourselves liable without prejudice to the ordinary legal remedies.-Subscribe ourselves, your obedient servants." The note which accompanied the foregoing form of letter for signature by the directors was a promissory note by the company for $10,000, payable on demand to the order of the appellant, at the office of the Merchants' Bank of Canada in St. John's. Having regard to the pecuniary relations then subsisting between the company and the bank, the arrangements thus proposed by the latter are sufficiently intelligible. The bank had made large advances by discounting, or, in other words, purchasing the paper of the company indorsed for its accommodation by the appellant, and had also advanced upwards of $17,000 on current account, which was only secured to the extent of $10,000 by the personal guarantee of the appellant. In these circumstances the bank was willing to make a further advance of from $4,000 to $5,000, provided the company complied with these three conditions:-In the first place, advances upon current notes which had been discounted by the bank were, in the event of renewals being required at maturity, to be secured by the personal guarantee of the directors of the company, such guarantee to be given by their indorsation of the renewal notes. In the second place, the note of the company for $8,500, duly indorsed by the directors as aforesaid, was to be delivered to the bank in payment and extinction pro tanto of the advances on current account, so as to reduce the debit balance of the company to nine thousand odd dollars. And, in the third place, the demand note for $10,000 when duly signed and indorsed by the directors, was to be deposited with the bank as a collateral security for overdrafts on account current, and was to be substituted for the appellant's personal security for the like amount. |