Judgment of the Court
CARTWRIGHT J.:-This is an appeal from a judgment of the Court of Appeal for Manitoba allowing an appeal and dismissing a cross-appeal from a judgment of Bastin J. In the result the action of the plaintiffs was dismissed in toto.
For some time prior to the year 1956 the late George Benjamin Gordon Bater, hereinafter referred to as "Bater" had been employed by others in the business of livestock commission buying. In that year he decided to go into business for himself. The respondent, who had been in the horse business for many years, had substantial financial resources.
[19641 S.C.R.
On October 1, 1956, Bater, as party of the first part and Kare as party of the second part entered into an agreement under the terms of which they were to associate -h themselves together in a company to be incorporated under the name of G. B. Bater Agencies Ltd., hereinafter referred to as "the company", to carry on the business of livestock commission buying at the Union Stock Yards in St. Boniface, Manitoba. This agreement provided that the zuthorized capital of the company should be $50,000 divided into 1,000 Class "A" common shares of $1 each, 1,000 Class "B" common shares of $1 each and 480 redeemable preference shares of $100 each and that Bater should subscribe for 600 Class "A" common shares and Kare for 600 Class "B" common shares. This was done in due course and apparently no other shares were issued. The agreement provided that the holders of "B" shares should be entitled to receive dividends equal to one-third of the amount of the dividends declared on "A" shares, that the directors of the company should be Bater, Mrs. Bater, Kare and Mrs. Kare, that Bater should be president, Mrs. Bater vice-president and Kare secretary-treasurer.
Paragraphs and 7 of the agreement read as follows: When the company had been organized Kare advanced $50,000 to it pursuant to paragraph 7 and Bater deposited certain life insurance policies with the Royal Bank pursuant to paragraph 6 but in addition to this security the bank required written guarantees and postponements of claims from both Bater and Kare. These were signed and given to the bank, each guarantee being limited to $50,000. In October 1958, the bank increased the company's line of credit to $80,000 and Bater and Kare each signed separate forms of guarantee, identically worded, in favour of the bank for that amount. These documents contained the following paragraph:
Up to this time the business had prospered and it continued to do so until in December 1959 an American customer defaulted in its account with the company to the extent of about $50,000.
In the summer of 1960 the respondent withdrew from the company. At this time the amount standing to his credit in the books of the company was $29,850. This amount was transferred from the credit of Kare to that of Bater. All the shares held by Kare and Mrs. Kare were transferred to Bater. The Kares ceased to be directors of the company and Bater became its sole signing officer. A letter, dated September 27, 1960, from the firm of solicitors who acted for Bater reported to him "upon the completion of your settlement with Isaac Kare".
The consideration passing from Bater to Kare was agreed at $29,850 and a mortgage to Kare to secure payment of this amount was signed by Bater and Mrs. Bater. The mortgage was for $37,400; the additional amount was that of a first mortgage which Kare agreed to pay off out of the moneys paid to him under his mortgage. The mortgaged property was the home of Mr. and Mrs. Bater and was owned jointly by them. The mortgage was dated August 30, 1960; it was repayable $100 weekly until the first Monday in August 196 7, when the balance became due; it bore interest at 7 per cent.
Following this settlement the respondent had no further connection with the company but the bank retained his guarantee and he gave no notice determining his liability thereunder.
Bater continued to carry on the business of the company until his death on January 15, 1962. During this period he made payments on account of the mortgage totalling $1,250. No suggestion was made during Bater's lifetime that the mortgage was not valid.
Between the date of Kare's withdrawal from the company and the date of Bater's death the amount of the company's indebtedness to the bank varied widely. As of September 1, 1958, it appears to have been $50,179.31. Thereafter the indebtedness at the end of each month was sometimes more than $50,000 and sometimes less than that amount.
On December 30, 1960, Bater cashed a pension policy and paid to the bank on account of the company's indebtedness $15,976.78. After Bater's death his executors paid $43,560.79 the balance of the company's indebtedness to the bank, making a total paid under Bater's guarantee to the bank of $59,437.57. In the statement of claim it was alleged that the amount so paid was $59,034.21; this figure does not appear to have been questioned and was accepted by the learned trial judge. The bank did not at any time call upon Kare under his guarantee.
On March 19, 1962, probate of Bater's will was granted to the appellants. On July 1962, the statement of claim in this action was issued asking that the mortgage from Bater to Kare be set aside in toto and alternatively that it be set aside as against Mrs. Bater, and claiming $29,517.10 by way of contribution being one-half of the amount claimed to have been paid to the bank pursuant to Bater's guarantee.
The learned trial judge dismissed the claim as to the mortgage but allowed the claim for contribution. Kare appealed to the Court of Appeal and the present appellants cross-appealed. The appeal was allowed and the crossappeal dismissed. The appellants now appeal to this Court. The claim to set aside the mortgage fails on the facts as to which there are concurrent findings in the Courts below, that there was good consideration, that there was no misrepresentation made to Mrs. Bater and that no undue influence was exercised. All of these findings are supported by the evidence. On this branch of the matter I am in substantial agreement with the reasons for judgment of the learned trial judge and those of the Court of Appeal. Turning to the claim for contribution, the generall rule al. is well settled; it is stated as follows in de Colyar on Guarantees, 3rd ed., 1897, at p. 338:
That this is the general rule was not questioned in the 'Courts below or before us; the question is whether the special circumstances of this case have rendered the rule inapplicable; in my opinion, they have done so.
There can be no doubt that co-sureties are free to agree as to the proportions in which as between themselves they shall contribute or that one of them shall pay the whole amount. Such an agreement, of course, would not affect the right of the creditor to whom they are bound to claim against any one or more of them as he saw fit, but it would be binding as between the sureties.
For the reasons given in the Court of Appeal I agree that, on its true construction, the agreement of October 1, 1956, and particularly paragraph 6 thereof, obligated Bater to pay the first $50,000 of the liability of the company to the bank for which he and Kare were both sureties.
It remains to consider the final argument of Mr. Dewar that, at all events, the appellants are entitled to contribution as to the $9,034.21 paid by Bater and his estate in excess of the $50,000.
In my opinion, this argument is not entitled to prevail. In this case the benefit derived from Bater and Kare continuing as sureties for the company's running account with the bank after Kare had made his settlement with Bater and withdrawn from the company was in the first instance that of the company but Bater alone was then interested in the company and alone stood to gain from its continued operations. From the date of Kare's withdrawal, as between Bater and Kare, the whole benefit resulting from the suretyship was Bater's. The principle here applicable is accurately stated in the notes to Lampleigh v. Brathwait