1888

HARVEY v.

5. That against the bank he cannot be heard to deny the validity of the instrument he signed with his co-directors.

I find on the evidence, without hesitation, that the defendant is BANK OF not correct in asserting that he signed the note knowing that it was HAMILTON. not negotiable. I hold it to be an accidental mistake.

I cannot believe that the law is so lamentably defective as to exonerate from liability in a case such as we have now before us. My view may be thus summed up:

I find that the defendant signed an acknowledgment of debt due by him to the wrecking company for the express purpose that it should be used to induce the plaintiffs, or any other lenders, to advance money on it; that, with his knowledge and sanction, it was so offered to plaintiffs, and they advanced the money to his company on his and his co-signers' resposibility; that he repeatedly admitted his liability, and cannot now be heard to deny it or to urge a non-liability on his part to the company as a defence against the plaintiffs.

I think their equity is clear as against him, and also (if necessary) to require the company or its liquidators to execute a valid transfer to them of the chose in action evidenced by the note.

Burton J.A.-It may be that if the facts stated in the plaintiffs' statement of claim had been established in evidence they might have warranted a recovery against the defendant. They were, however, not established, and I offer no opinion as to what the relative rights and liabilities of the parties would have been under that state of facts.

If there can be a recovery on the facts proved in this case, then I can imagine no case in which a party to a non-negotiable note, given with the knowledge that the payees intended, if possible, to raise money on it, would not be liable. It may be that as a matter of ethics it would be proper that he should be liable, but with that, fortunately, we have nothing to do. I notice that a change has recently been made in England whereby all notes, although not expressed to be payable to bearer or to the order of the payee, are now negotiable, but it requred an Act of Parliament to effect the change, and I think we shall act wisely in leaving that extension of the liability of parties upon commercial paper to the Legislature, and not allow our ideas of any supposed hardship to unsettle the well-established principles of law applicable to such instruments.

It is abundantly evident that the discount of this piece of paper with the bank was made without the privity or knowledge of the defendant, and the money was advanced, not to the defendant, but to the wrecking company.

I cannot agree in the view that the delivery of the note in this case can be treated as an equitable assignment of the debt apparently secured by it. One of the peculiarities of a mercantile instrument like this is that consideration is presumed, so that if properly transferred to a bonâ fide holder for value he can recover, although in

point of fact, there could have been no recovery between the immediate parties; but this can only be where the note has been duly transferred in the form and manner prescribed by the law merchant.

1888

HARVEY

v.

But, assuming that we were at liberty-which, in my humble BANK OF judgment we are not-to ignore the fact that this was a commercial HAMILTON. instrument, and we could treat it as a mere acknowledgment of a debt, if no debt in fact existed, such an instrument could not create one, nor put the transferees in a better position than the original payees, and they could not recover if it were shewn that it was given gratuitously. Any more formal assignment, therefore, would not assist the plaintiffs.

The reference to Chalmers, made by Mr. Robinson, applies to a very different case, viz., to the case of a bill, payable to order, which has been transferred for valuable consideration without endorsement. There the bill being negotiable, the transaction operates as an equitable assignment of the bill, and the transferee has the right to compel the endorsement, and he then becomes vested with all the rights of an endorsee, but only from the time when the actual endorsement is given; and the case cited by Mr. Martin, Whistler v. Forster (c), appears to be fatal to his contention on this branch of the case, as the court here held that until the title was completed by enforcement the transferee had no better title than the person from whom he obtained the bill.

Here the bill was not negotiable and could not be transferred so as to vest in the plaintiffs a right to sue upon it; and in the other view, that it might be treated as an acknowledgment of the debt, it is shewn that no debt existed, and the defendant is not estopped from shewing that, as he made no representation to the plaintiffs to induce them to change their position.

The fact that the plaintiffs signed the note with the knowledge and with the intent that the company should raise money on it, does not assist the plaintiffs unless some representation was made to them by the defendant whereby they were induced to change their position. It is clear that he made no representation directly, and the note being non-negotiable was, if notice of any thing, notice that a person taking it would do so at his peril.

The defendant repudiated all liability upon the bill before it matured, and I am unable to discover anything in any subsequent transaction sufficient to fix him with a legal liability.

The transfer of the mortgage was made upon the express understanding that its execution should not affect either the rights of the makers of the note or the bank, the note being then in suit and the defendant denying his liability. It would be strange indeed if the transfer of the stock could have any such effect. The defendant owed $1,500 upon his stock in the wrecking company, and this he agreed -provided he could obtain the assent of the wrecking company-to apply pro tanto on the note, and this was done by a transfer of the

(c) 14 C.B.N.S. 248.

1888 HARVEY บ. BANK OF

stock in the loan company, first as security that he would pay the $1,500 on obtaining the consent of the wrecking company, and on that consent being obtained, in payment.

After the transfer of the mortgage to the bank, admittedly done HAMILTON with the knowledge on the part of the bank that the defendant disputed his liability—and upon the express understanding that that transfer should not affect the legal liabilities of the parties, the defendant, I assume in the interest of the bank, made an affidavit which was very naturally commented on with much severity by counsel, but I am unable to see how a statement of that kind, made either with or without the additional sanction of an oath, can, under the circumstances, create any liability on the part of the defendant to the bank in whose interest he was acting.

I say nothing upon the question so much argued at the bar as to whether this affidavit, made for the purpose of enforcing the bank's claim under the mortgage assigned upon the understanding I have mentioned, ought, or ought not, to have been tendered or received in evidence; but, assuming it to have been properly received, I am at a loss to understand upon what principle it is contended that it creates a liability not previously existing on the part of the defen dant to the bank. See Mayenborg v. Haynes (d).

I can see nothing in this case but an attempt to enforce a nonnegotiable note as if it had been negotiable and duly endorsed in the manner required by the law merchant, or to extend the law of estoppel beyond all reasonable limits, there being nothing on either side to shew that any representation was made by the defendant to the bank to induce them to alter their position, but it being shewn on the contrary that the defendant was in no way privy to their negotiation of the bill.

My brother, Patterson, thinks it may be treated as a direct loan to the company at the defendant's request, or a loan to the company guaranteed by the defendant. I should be glad to see my way to either conclusion, but I think they are not warranted upon any principle of law or equity that I am aware of, and no case is cited in support of either.

I am of opinion, therefore, that the appeal should be allowed, and judgment entered for defendant with costs.

PATTERSON J.A.—I see no reason for entertaining any serious doubt of the defendant's liability for the unpaid balance of the $7,500 borrowed from the plaintiffs on the 4th of June, 1883.

Whatever room for argument there is seems to me to arise only from looking at the transaction as a discount of the note made by the defendant and three other gentlemen on the 13th of April, 1883, and discussing the claim as one depending on that note as a mercantile instrument.

(d) 50 N.Y. 675.

According to the defendant's evidence he did not become a party to the note on any such understanding. He tells us that he knew from the first that it was not negotiable.

The four makers promise jointly and severally to pay to the Dominion Salvage and Wrecking Co. $7,500, which they did not owe the company.

Clearly the note created no legal obligation enforceable by the company, and whatever the other makers of it may have thought, whether or not they overlooked the omission of the words necessary to make the note negotiable-as the cashier of the bank says he did when he took the note-we have the defendant's own evidence that he was under no misapprehension.

The note was made payable at the Union Bank of Lower Canada, in Montreal, but that is an immaterial incident as it was not payable to that bank.

The first question of fact is, did the defendant join in making the note for any purpose beyond mere amusement?

No one reading the evidence can have a doubt that it was signed for the purpose of aiding in raising money for the use of the company; and the defendant, after much cross-examination, and after the question was put directly to him by the presiding judge at the trial, added his testimony on the fact to the other evidence.

The company was pressed for money to meet an emergency, and in order to raise $7,500-which was half the amount required-this note was signed by the four gentlemen, all of them being directors and interested as stockholders in the enterprise for which the money was wanted.

The note is at least important evidence, to be taken with the other evidence, of authority to pledge the credit of the makers for the money borrowed.

The first idea seems to have been to obtain the money from the Union Bank of Lower Canada, which accounts for the name of that bank appearing on the paper, but that was a matter collateral to the purpose of the note.

The money was obtained from the plaintiffs, but not until June, and was applied to the purposes of the company.

The defendant says he was not aware at the time of the borrowing of the money that it was being obtained from the plaintiffs. In fact, if I correctly apprehend his evidence, it is that he did not know that the loan had been effected at all until some time after it had been done. He knew, however, long before the note was due. He says he thinks he knew in July that the note had been discounted at Bank of Hamilton. It fell due on 13-16 October. He made no communication to the bank, although he lived in Hamilton, until after the note was due, and then he pointed out to the cashier that it was not negotiable, and claimed on that account to be free from liability. There are other very important facts in evidence.

The date of the note, it will be remembered, was the 13th of

1888

HARVEY

v.

BANK OF HAMILTON.

1888 HARVEY

v.

April, and the defendant did not know till July that it had been made use of. It was not, in fact, made use of until June. But on the 25th of May the company made a mortgage of a steam vessel BANK OF called the "Relief" to the defendant and his co-makers of the note. HAMILTON. The consideration is stated to be $7,500 lent to the company by the four mortgagees, and the company covenanted to pay to them that sum with interest at seven per cent. per annum on the 13th of October, so far following the tenor of the note, but further covenanting to pay interest at that rate while the principal remained unpaid. A similar sum of $7,500 had been borrowed from or through a Mr. Ross, of Quebec, and the mortgage is said to have been for his security pari passu with the others, or rather, I believe, there were two similar mortgages made.

The company was unfortunate, and the relief was seized at Halifax under admiralty proceedings. I do not know when these proceedings began, but in June, 1884, an affidavit in connection with them was made by the defendant which is important.

In the meantime he had written several letters, which are in evidence, to the other makers of the note. In one to Mr. Batterbury, dated the 2nd of October, 1883, he said: "The joint note for $7,500, re Dominion Salvage and Wrecking Co., falls due on the 16th inst. Has the company any means of paying it, or what is to be done about it, as we agreed to hold the balance of our payment against the note? How much will you pay on account of it? I will pay the balance of mine, $1,500. I wish to see this note paid. My impression is that we have no security; not that the mortgage is not good as against a judgment creditor, as it was not authorized or assented to at a meeting of shareholders, and directors cannot mortgage the property without consent of the shareholders, especially to themselves. If we had not had our stock to pay up, I would not have signed the note without looking into the matter fully."

In a letter to Captain Herriman, who was president of the company, dated the 22nd October, 1883, he said: "You have my letter of 2nd October as to proposed payment of my stock, but this note held by the Bank of Hamilton has to be reduced on which I am liable." And letters to Mr. Henshaw, the secretary, written in the same month, urge arrangements for protecting the note.

One thing done was to assign to the bank the mortgage on the relief. That was done on the 4th June, 1884, seven or eight months after the note was due. I do not think anything turns upon it, particularly as the defendant seems to have before that time set up the dispute as to the non-negotiable quality of the paper, and the assignment was not to prejudice legal rights. The importance of the mortgage as evidence is in the fact that it was made to secure this money, and that although the defendant says he was not consulted about it at the time, he fully recognized and accepted it.

The date of the affidavit in the admiralty proceedings is the 28th