No mention is made in the bank's letter of the manner in which the additional advance or extended credit of $4,000 to $5,000 was to be allowed to the company. It is obvious, however, that the bank was not prepared and did not agree to give the extended credit without security; and also that the result of carrying out the conditions upon which it was to be given would be to reduce the balance due on current account about $700 only below the amount of the demand note covering that account. It, therefore, seems matter of reasonable inference that the additional advance was to be made by the bank discounting the promissory note or notes of the company, duly indorsed by its directors.

On the 5th of August, 1875, the directors of the St. John's Stone China-ware Company met for the purpose of considering the answer returned by the bank to the application, made through the appellant, for an extension of the company's credit. At that meeting all the directors of the company, five in number, were present, viz., the appellant, the respondent, and Messrs. Marler, Coote, and Macpherson. The minute of the meeting of the 5th of August, 1875, as entered in the minute-book of the company, bears that "the letter of the agent of the Merchants' Bank of the 24th ultimo was submitted, and the directors agreed to give the personal indorsation asked for by the bank, and the secretary was instructed to have the said notes drawn out, signed as required, and handed over to the Merchants' Bank."

In pursuance of that resolution the secretary of the company drew out two notes for $8,500 and $4,500 respectively, which he signed as promissor on behalf of the company, the name of the appellant being inserted as payee, just as it had been in the demand note for $10,000 sent by the bank for signature and indorsation. Mr. Marler, one of the five directors of the company, was also the manager of the Merchants' Bank of Canada in St. John's, and was precluded from signing any of these promissory notes by the regulations of the bank. All the other directors indorsed the demand note for $10,000 (after it had been signed by the secretary for the company) in the following order, (1) the appellant; (2) the respondent; (3) Mr. Coote; (4) Mr. Macpherson. It does not clearly appear whether Mr. Macpherson did or did not become a party to the two notes for $8,500 and $4,500; but these were certainly indorsed by the other three directors in the same order in which their signatures were put on the $10,000 note. Neither does it appear at what dates these two bills for $8,500 and $4,500 were made payable; but it appears to their Lordships to be established that they were new discount bills, and that they were renewed on more than one subsequent occasion, the last renewal of the first of these notes having been made on the 21st of March, and the last renewal of the second upon the 26th of March in the year 1877. These renewal bills were not signed by Macpherson, but they were endorsed by the appellant, by

Mrs. Whitfield, per procuration of her husband the respondent, and by Mr. Coote in the same order as before.

The letter of guarantee sent by the bank was subscribed by the appellant as well as by Messrs. Coote and Macpherson, and their names were inserted in the blank left for that purpose; but it was not signed by the respondent, nor was his name entered therein. When thus completed, the letter was handed to the bank along with the $10,000 demand note.

On the 27th of December, 1877, the Merchants' Bank of Canada instituted a suit against the appellant, the respondent, and Mr. Coote, in the Court of Queen's Bench for Lower Canada, for recovery of the sums then due to the bank as holder for value of the said demand note for $10,000, dated the 24th of July, 1875, and of the two renewal notes for $8,500 and $4,500, dated the 21st and 26th of March, 1877. The demand of the bank was not resisted either by the appellant or by Mr. Coote, but the respondent appeared and defended the action. After a variety of proceedings, which it is unnecessary for the purposes of this case to notice in detail, Mr. Justice Chagnon, on the 1st of September, 1879, ordained the three defendants, jointly and severally, to pay to the bank the contents of the two notes of the 21st and 26th of March, 1877; and also ordained the appellant and Mr. Coote, jointly and severally, to make payment to the bank of the contents of the demand note for $10,000.

On the 17th of January, 1878, the respondent, availing himself of the provision of article 1953 of the Civil Code, brought an action en garantie before the same Court against the appellant, concluding to have the appellant condemned to acquit and relieve him of any sum of principal and interest, for which decree might be given against him in the suit at the instance of the bank. In the declaration filed by him in that action, the respondent treated the three promissory notes in question as if they had been ordinary commercial paper. His allegations in regard to each of these notes were in substantially the same terms, and after reciting the making of the note by the company, payable to the appellant, thus proceeded :

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Lequel billet la dite St. John's Stone China-ware Company remit au dit défendeur Edward Macdonald, qui là et alors signa et endossa le dit billet et le remit au dit demandeur en garantie George Whitfield, qui là et alors signa et endossa le dit billet et le remit au dit Isaac Coote, qui là et alors signa et endossa le dit billet et le remit à la dite Merchants' Bank of Canada, qui en est encore porteur et propriétaire."

The plea founded by the respondent on that allegation was to the effect that the defendant,

"Etant, ainsi qu'il appert par les allégués ci-dessus, endosseur précédent et antérieur au dit demandeur en garantie, sur tous et chacun des trois billets plus haut mentionnés, est obligé et tenu en

D

loi de rembourser, garantir et indemniser le dit demandeur en garantie de tous troubles et de toute condamnation qui pourrait intervenir contre lui, sur et à raison des dits billets, et dans et à raison de la dite action instituée par la dite Merchants' Bank of Canada."

In this action of warranty judgment was given by Mr. Justice Chagnon on the 1st of September, 1879. The learned judge held that the evidence given by the respondent himself, with regard to the circumstances in which these notes were made and indorsed, showed that the property of the notes was not passed by the indorsations, and that there was, in point of fact, no delivery by one indorser to another. And, inasmuch as that testimony, in his opinion, contradicted the allegations upon which the respondent's claim of indemnity was based, he dismissed the action as laid, reserving to the respondent any recourse which might be competent to him against the appellant.

An appeal was taken by the Merchants' Bank of Canada against the judgment of Mr. Justice Chagnon of the 1st of September, 1879, in so far as it absolved the respondent from liability to the bank in respect of the demand note for $10,000. The respondent also appealed against the judgment of the same date, in his action en garantie. On the 18th of June, 1881, the two actions were consolidated by an order of the Queen's Bench.

Thereafter, on the 23rd of September, 1881, the Court of Queen's Bench gave judgment in the conjoined causes. The Court, in the suit at the instance of the bank, reformed the judgment of Mr. Justice Chagnon and condemned the respondent in payment to the bank of the $10,000 demand note, with interest and costs. In the action at the respondent's instance, the Court reversed the judgment appealed from, and condemned the appellant to guarantee, acquit, and indemnify the respondent from all the condemnation in principal, interest, and costs pronounced against him by the judgment in favour of the bank, and further condemned the appellant to pay to the respondent the whole costs incurred by him in the suit at the banks instance. The present appeal has been brought against the judgment in the action en garantie of the 22nd of September, 1881, by Edward Macdonald, the defendant in that action.

The learned judges of the Court of Queen's Bench were of opinion that the two promissory notes for $8,500 and $4,500, dated the 21st and 26th of March, 1877, were mere renewals of notes which the company had, prior to the 24th of July, 1875, discounted with the bank, upon the indorsation of the appellant; and a finding to that effect is set forth as one of the considerations on which the formal judgment of the Court proceeds. Chief Justice Dorion, who delivered the judgment of the Court, said, "the two notes of the 21st and 26th of March, 1877, are renewals of other notes which, prior to the 24th of July, 1875, were indorsed by Macdonald alone."

The learned Judges were also of opinion that the note for $8,500 was the only one which the bank, by its letter of the 24th of July, 1875, required from the company, in order to cover its overdrafts upon current account; and, further, that it was the only note which the directors of the company, by their resolution embodied in the minute of the 5th of August, 1875, agreed to give, indorsed by them, to the bank. Upon this point Chief Justice Dorion, said: "It is also to be remarked that the bank merely asked the indorsement of the directors on a note for $8,500, to cover the overdrawn account of the company, and that by the resolution it was only agreed to give the indorsation asked for, while the note indorsed by the directors to cover the overdrawn account is for $10,000; the resolution, therefore, does not apply to the note in question, and cannot be invoked as containing an agreement on the part of Whitfield (the respondent) to indorse this note of $10,000 as surety for the company."

The views thus expressed by the learned Chief Justice are, in the opinion of their Lordships, founded on a misconception of the true import of the written communication made by the bank to the company on the 24th of May, and of the action taken upon that communication by the directors of the company on the 5th of August, 1875. It must be borne in mind that the company required a further credit, or in other words a further advance from the bank, and as the bank had not asked for the indorsements of the directors, except as a consideration for making the required advance, it is improbable that the directors agreed to give or gave their indorsations, without making provision for the company getting, in exchange for these indorsations, the advance of $4,000 to $5,000 which the bank was willing to allow. If the note for $4,500 which the directors then indorsed was a new note for discount, then the company got the advance, in respect of which they were asked, and presumably agreed, to give their indorsations upon the notes required by the bank. As regards the note for $8,500 the suggestion that the bank merely required the indorsements of directors upon it in order" to cover the overdrawn account of the company" is inconsistent with the terms of the bank's letter, which states expressly that the $8,500 note was required, not "to cover," but "to reduce," the account. A renewal note could not possibly reduce the overdrafts. The plain import of the letter is that the bank required, not a renewal, but a new note for $8,500, which was to be discounted, and the proceeds, instead of being paid to the company, applied in extinction pro tanto of these overdrafts, in order to bring the balance due below $10,000.

The evidence of Mr. Marler and of the appellant is to the effect that these two documents were new discount notes and not renewals, and their testimony is corroborated by that of the respondent himself. He was adduced as a witness for the appellant, and was examined in regard to the two notes for $8,500 and $4,500 bearing date the 21st

and 26th of March, 1877. These were undoubtedly renewals of the two notes of that amount given to the bank in August, 1875, but the respondent did not assert that they were, as the learned judges have assumed," renewals of other notes which, prior to the 24th of July, 1875, were indorsed by Macdonald alone." His statement is :"The note for eight thousand five hundred dollars, and the one for four thousand five hundred, are renewals for former notes of like amount between the same parties."

These facts connected with the making and issue of the three promissory notes for $10,000, $8,500, and $4,500 in August, 1875, are only of importance in so far as they tend to explain the true legal relation in which the appellant and the respondent, as parties to these notes, stand towards each other. The respondent maintains that, although neither of them gave or received value for the notes, but put their respective indorsations upon them for the accommodation of the St. John's Stone China-ware Company, the appellant, having first written his name upon the back of the notes, has thereby become liable to him, in the same manner, and to the same effect, as if he had been a prior indorser upon a proper commercial bill.

Had the appellant been, in point of fact, the holder of the notes, and had the respondent, in these circumstances, given his indorsements to the Merchants' Bank of Canada, which was about to discount them. the appellant would have been bound to indemnify the respondent against any demand made upon him by the bank, or any subsequent holder, to the same extent as if the respondent had been a proper indorser. That was held to be the legal effect of such an indorsement in Penny v. Innes (1).

In the present case the appellant, although his indorsement was first written, was a stranger to the notes in the same sense as the respondent, and it is not matter of dispute that the indorsements of both were given for one and the same purpose, viz., in order to induce the bank to discount two of the notes, and pay the proceeds to the promissor, the St. John's Stone China-ware Company, and also to give the company credit in account current to the amount of the third note. It was argued, however, for the respondent that, in the absence of some special contract or agreement between them, dehors the notes themselves, strangers giving their indorsements successively must be held to have undertaken the same liabilities inter se which are incumbent on successive holders and indorsers of a note for value. The appellant and respondent must therefore, it was said, be assumed to stand towards each other in the relation of prior and subsequent indorsers for value, inasmuch as it had not been proved, habili modo, that they had specially agreed that their indorsements were to have the effect of making them co-sureties for the promissor. On the other hand, it was contended for the appellant that all the

(1) C. M. & R. vol. i. p. 439.