ON APPEAL FROM THE COURT OF APPEAL FOR ONTARIO.

Promissory note-Negotiability-Indorsement-Liability of maker.
H., a director of a joint stock company, signed, with other directors,
a joint and several promissory note in favour of the company,
and took security on a steamer of the company. The note was,
in form, non-negotiable, but that fact was not observed by the
officials of the bank that discounted it and paid over the proceeds
to the company. H. knew that the note was discounted, and
before it fell due he had in writing acknowledged his liability on
it. In an action on the note by the bank against H.:—
Held, affirming the judgment of the Court of Appeal and of the trial
judge (Strong J., dissenting), that although the note was non-
negotiable on its face, this afforded no defence to the plaintiffs'
action in view of what took place between the defendant and his
co-makers and between the defendant and the bank.

Held, per Gwynne J., although, in fact, the note was not negotiable,
the bank, in equity, was entitled to recover, it being shewn that
the note was intended by the makers to have been made negoti-
able, and was issued by them as such, but, by mistake or inad-
vertence, it was not expressed to be payable to the order of the
payees.

APPEAL from a judgment of the Court of Appeal for
Ontario, affirming the judgment of the Honourable Mr.
Justice Galt in favour of the respondents.

The "Dominion Salvage and Wrecking Co.," of which the appellant was a director and shareholder, being in want of funds for the purposes of the business, procured

*XVI. Can. S.C.R. 714.

**PRESENT:-Sir W. J. Ritchie C.J., and Strong, Fournier, Henry, Taschereau and Gwynne JJ.

9-SUP. CT. CAS.

1888 HARVEY v.

the appellant and three others, who were also shareholders in the company, to make a promissory note for the accommodation of the company, in order to borrow money thereHAMILTON. on for the purposes of the company by discounting the same. The note was in the words and figures following:

BANK OF

$7,500.00.

13th April, 1883.

Six months after date we jointly and severally promise to pay to the Dominion Salvage & Wrecking Company, $7,500 at the Union Bank of Lower Canada office in Montreal, with interest, for value received.

The note was discounted with the Bank of Hamilton, whose officials failed to observe the note was not negotiable by endorsement. The appellant alleged that he knew the note was non-negotiable when he signed it, but concealed his knowledge from his co-makers; that he left the note in the hands of his co-makers to be discounted by them as a negotiable instrument, and for the purpose of enabling the company to raise money for its operations; that he was aware that the proceeds had been received by his co-makers and by them applied as was intended.

The appellant did not repudiate the note or disclaim his liability until the company's business had proved a failure and the respondents were proceeding to recover upon the note. Letters were written by the appellant to his co-makers and to the bank, in which he treated the note as the property of the bank, and for which he was liable as a joint and several maker, and procured the bank to abstain from suing upon the note for several months.

The appellant demurred to the statement of claim because it shewed no privity between the plaintiffs and the defendant, nor any law by which a promissory note not negotiable could be assigned to entitle the assignee to maintain an action upon it.

1888

HARVEY

HAMILTON.

The demurrer was argued before Wilson C.J., who gave judgment (a) for the respondents upon the demurrer on the ground that the appellant and his co-makers signed the BANK OF note in order that it should be discounted by the company for a purpose in which the makers, as directors of the company, were beneficially interested, and the respondents discounted the note, and with the knowledge and consent of the appellant paid the company the proceeds of the note, and because the appellant had expressly admitted his liability by giving security therefor to the respondents.

The appellant was allowed to defend, and the action went down to trial before Galt J., who gave judgment for the plaintiffs as follows (unreported):

GALT J.-The makers of the note were directors or officers of the Dominion Salvage and Wrecking Co. The company had entered into a contract to raise the "Phoenix," a ship of war that had been wrecked on the coast of P. E. Island. To enable them to provide the necessary appliances for this undertaking, it was necessary to raise a sum of $15,000. The company borrowed $7,500 from a gentleman of the name of Ross, in Quebec, and this note was made by the above named makers, who were largely interested in the company. To enable the company to raise the other $7,500, in order to secure Mr. Ross and the makers of the note, the company executed two mortgages for $7,500 each, one to Mr. Ross and the other to the makers of the note. These mortgages, as I understand from the evidence, were to rank equally. The note in question was discounted by the plaintiffs, at the request of Mr. Gregory, who was the manager and a director of the wrecking company, and the proceeds were received by them. The undertaking to raise the warship "Phoenix" was unsuccessful, so far at any rate as the pecuniary affairs of the company were concerned. The vessel employed by the company was the "Reliof," which had been mortgaged to Mr. Ross and the makers of the note, when the $15,000 were raised. I gather from the evidence that in the course of the efforts of the wrecking company to raise the "Phoenix," certain debts were contracted by them, and the "Relief" was attached in the Admiralty Court at Halifax. It is to be observed that the note now in question is not negotiable, and it is on this ground that the defendant disputes the plaintiffs' claim. When the proceedings took place in the Admiralty Court, the defendant came forward and claimed title to the "Relief" under his mortgage, and in an affidavit made by him in support of his claim, sup

(a) 9 O.R. 655.

1888 HARVEY v.

posed that he was responsible to the Bank of Hamilton, on this note, and in consequence a decree was made in his favour, so far as his mortgage is concerned. After having done this, and after in the most BANK OF solemn manner inducing the court to believe that he was liable on HAMILTON. this note, in my opinion he is estopped from denying his liability. I give judgment in favour of the plaintiffs with costs. As several payments have been made on the note, a reference must be had to Mr. Ghent to ascertain the amount now due.

An appeal from this judgment to the Court of Appeal for Ontario was dismissed upon an equal division of opinion (unreported). The following were the reasons for judgment:

HAGARTY C.J.O.-The facts of this case appear to me to be very plain.

They may be gathered from the defendant's own letters and affidavits, and he need hardly complain or feel any surprise if, under the very peculiar aspect of this case, we prefer giving credence to them whenever they conflict with his oral testimony at the trial. He was a director and member of the executive committee of the wrecking company.

The latter wanted money, and for the avowed purpose of meeting this want the defendant and three other directors made the note in question.

form.

Herriman was president and managing director.
Henshaw, secretary-treasurer.

Apparently by an oversight the note was not in a negotiable

I think it clear from the evidence that the note was offered for discount at the plaintiffs' bank by the company's agent, Gregory, with the knowledge and assent of the defendant and his co-makers. He may not have known at the moment of its being discounted by the plaintiffs, but we must assume that as it was made for such purpose generally, that the defendant cannot be heard averring it was so discounted without his assent. He was a director and member of executive committee, and there is no shadow of evidence for believing that the secretary, Henshaw, a co-maker of the note, was not acting under the board's authority.

The non-negotiability was not noticed at time of discount.

The proceeds were received by the payees, the company, and duly applied for their business purposes.

The indorsement was "Pay to the order of the Bank of Hamilton "Dominion Salvage and Wrecking Co.

"S. E. Gregory,

"F. W. Henshaw, Secy. and Treasurer."

"General Agent, Dom. S. & W. Co."

It was argued before us that, not being negotiable, there was no privity between the present litigant parties.

In the defence there is no denial of the company having duly endorsed, assigned and delivered the note to the bank.

It merely states that it was not negotiable, and that he did not authorize or assent to the discount thereof.

I do not see that the judgment of the court of first instance was asked or given on this point.

In the reasons of appeal it is not taken; it is said that it was not negotiable, and that there was no privity.

But the case must not turn on the non-negotiability of the note. Apart from all rules as to bills and notes, the property and beneficial interest in this instrument as a chattel and chose in action can be transferred to and vested in parties who, on its faith, and the faith of its being legally assigned and delivered to them, pay the full amount thereby secured.

I think the defendant in no part of his defence denies the right of the bank to the ownership and beneficial interest in this document. He insists it is not negotiable, and, therefore, on the grounds set forth, he is not liable. He could truthfully assert the same if it had been a bond, or covenant, or agreement to pay money to the company. But, nevertheless, the whole beneficial interest, property and ownership could be legally vested in an assignee.

During the currency of the instrument full notice was given to the defendant of the bank's claim, and he, at his peril, would have paid the original payees.

If it were necessary for the perfecting of the plaintiffs' title, the company, the payees, or their trustee, or liquidator, could be compelled to execute any formal instrument of transfer.

If an action were brought in the company's name on this instrument, if the latter attempted to release their action, their release would be set aside as fraudulent under the old system of law.

There would, of course, be the difficulty in a suit against the defendant in the name of the company as to consideration.

I rest my decision on the ground:—

1. That this instrument was made for the express purpose of raising money upon faith of it for the company's benefit, and security was taken from the company to secure the defendant against his liability.

2. That on the evidence we must assume and hold that it was with the defendant's knowledge and assent that the security was offered to the plaintiffs, and the advances obtained from them on the faith thereof. He was a director and one of the executive committee. 3. That the money advanced was received by the company and used for their benefit with the defendant's assent and knowledge.

4. That the defendant repeatedly acknowledged his liability to the plaintiffs, and promised to pay and made payments on account.

1888 HARVEY V.

BANK OF HAMILTON.