The Ontario Bank v. Chaplin

Sir W. J. RITCHIE C. J.-For the reasons given.by the Court of Queen's Bench for Lower Canada (appeal side), I am of opinion that this appeal should be dismissed.

I am, however, of opinion that the appellants are entitled in other respects to succeed in their appeal. The promissory notes for the full amount of which the appellants claim to be ranked as creditors without deducting payments received from other parties, were discounted by the appellants in the ordinary course of business, the Exchange Bank having first endorsed theni.

The latter bank thus became liable upon the paper jointly and severally with the prior parties to it. The appellants had therefore, primd facie, a le gal right to get the benefit of this liability in solido by actions brought against all or any of the parties so liable. This being so it seems reasonable that the same right-to obtain payment in full-should be conserved to the creditor in the case of the bankruptcy or insolvency of the debtors -against the bankrupt or insolvent estates unless there is some positive law or enactment to the contrary. There being no such enactment, the solution of the question must depend entirely the old law of France as it existed at the time of the cession of the country, which law formed the common law of Lower Canada. Without entering upon a 'i' critical examination of the various authorities which have been cited, it is sufficient for me to say upon this point that I have come to the conclusion that the ancient law of France was that which was finally Strong established by the jurisprudence.

The state of this jurisprudence is shown by the arr~t of the Parliament of Paris of the 18th of June, 1776, and the arrit of the Council of the 24th February, 1778, reversing the decision of the Parliament of Aix of the 18th

June, 1776, which last arrt is reported by Emerigon

The law as thus declared was embodied in Art.

54! of the Code of Commerce.

I cannot, after a full consideration of all the authorities agree with the

Court of Queen's Bench in holding that this was new law, introduced for the first time by the Code of Com- -merce, and applicable only to commercial matters.; on the contrary, the best opinion I can form is that it was the reproduction of a principle which was established law, not only in commercial but also in civil matters.

I am led to form this opinion, not only by what is said by authors of high authority, particularly Mass6

Alauzet (3); Delvincourt (4); Rivibre ; Bravard- Veyribres, (6); and Larombibre (7); but also by the consideration that in no other way can the creditor who has the joint and several obligation of several debtors obtain his right to a full payment save by treating each person obliged to him as the sole debtor. One of the authors before mentioned, Bravard-Veyribres, in the 7th edition of his work edited by Demangeat, has so clearly demonstrated this upon principle, as to convince me that the creditor has a right to prove for the TE full amount of his debt against each estate without deducting payments received from the other, and that no other conclusion can be consistent with the contractual rights of a creditor to whom several debtors Strong are bound in solido.

I am of opinion that the appeal should be allowed to the extent above indicated.

J.-La question A decider en cette cause est absolument la m~me que celle soulev6e dans la cause de Benning et al. v. Simpson et al. et 1'hon. R. Ttibaudeau an sujet du droit d'un cr~ancier de se pr6senter dans chaque masse en faillite de ses co-d6biteurs solidaires pour la totalit6 de la somme qui lui est due. Il y a aussi la question de savoir si 1'appelante a un privilhge pour se faire payer de la somme de $939.80 qu'elle avait d6pos6e A la banque d'Echange apris la fermeture de ses -portes, pour insolvabilit6.

)ans la premi~re cause il est indubitable qu'il y avait solidarit6, parce que la cr~ance des appelants 6tait pour la plus grande partie fond6e sur des billets promissoires, sign6s par diverses personnes et endoss6s par Marcotte en faveur des appelants Benning et al. Il y a egalement solidarit6 entre la banque d'Echange et les souscripteurs et endosseurs des billets promissoires mentionn6s dans 1'exhibit D. et en date du 21 aoett 1883, transport6s A la banque d'Ontario pour escompte, par la dite banque d'Echange. La solidarit6 ne r~sulte pas dans ce cas comme dans 1'autre, de billets promissoires sign6s par divers prometteurs en faveur de Marcotte et par lui r~gulibrement endoss6s en faveur de Benning et al. Elle r6sulte de la lettre de garantie donne par la banque d'Echange h l'appelante et qui est conque dans les termes suivants:- (Please examine and report immediately.)

Dr.

Cr.

ONTARIO IN EXCHANGE BANK OF CANADA.

B K 00843-D. Morrice & Co.........Oct.

15...Beet Sugar Co......$3,632 46 1-Gault Bros. & Co.......Dec. 24...

...... 4,000 00 Fournier J, 50-C. H. Nash................Dec.

24.. .A. W. Ogilvie....... 8,642 80 9-St.LawrenceSteam'pCo.Nov.17...F.

60-W. Angus....

...... Dec. 17...

"

5,000

798-Hyde, Turcot & Co......Nov. 20...A.

"

...... Dec. 20...

"

...... 2,150

800- ...... Jan. 21...

"

"

......

2,150

71-Wm. Tarley...............Dec.

4...M.

836,004 46

In consequence of the Ontario Bank having discounted the above list of notes for the Exchange Bank of Canada, the said Exchange Bank hereby guarantee the prompt payment of the same at maturity.

T. CRAIG, Pres.,

Exchange Bank of Canada. Montreal, 21st Aug., 1883.

Cette lettre constitue d'apris notre loi 1'espice de cautionnement que l'on appelle un aval. Il ne faut pas le confondre avec le cautionnement ordinaire parce qu'il produit des effets plus 6tendus.

L'aval, de quelque maniare qu'il ait t6 donn6, produit de plein droit la solidarit6, etc., etc.

Sur la nature et les effets de l'aval il n'y a aucune diff6rence d'opinion dans le droit frangais.

Celui qui a garanti un effet de commerce est toujours solidaire de celui qu'il garantit.

Ce principe n'a nullement e mis en question dans cette cause.

Les deux cours Suphrieure et du Bano de la lReine 1'ont 6galement reconnu. Le jugement de la cour Sup6rieure s'exprime aiusi i ce sujet:

Attendu que la r6clamante, dans sa rdponse A la contestation du contestant, allbgue: que, daus le mois d'aofit mil huit cent quatre-vingttrois, la r6clamante a prtd h la banque d'Echange du Canada, de trente-cinq umille deux cent quatre-vingt-dix-huit piastres et cinq r centins, et lui a escomptd, en faisant ce prt, divers billets promissoires qu'elle avait alors, et pour le paiement desquels la dite banque d'Echange se rendit conjointement et solidairement responsable, avec CHALIN. les personnes oblig~es an paiement de ces billets, qu'au nombre de ces billets s'en trouvaient trois de lasoci6t6 Hyde, Turcot et Cie, au mon- Fournier J. tant de deux mille cent cinquante piastres chacun.

. La cour du Bane de la Reine a aussi admis la solidarit6 en confirmant purement et simplergent le jugement de la cour Sup6rieure.

Cela suffit pour r~gler la question de solidarit6 entre la banque d'Echange et les souscripteurs et endosseurs des billets garantis par la lettre ci-dessus cit6e.

Comme on le voit, la question dans cette cause se r6sume, comme dans celle de Benning e al., A savoir si l'appelante a droit A un dividende sur le montant de sa demande, ou bien seulement sur la balance de sa r6clamation, apris deduction faite du dividende requ dans la faillite de Hyde, Turcot et Cie.

Je ne crois pas devoir r6p6ter ici l'argument que j'ai d6jh fait sur cette question dans la cause de Benning et al (1), oftj'en suis venu & la conclusion que. le cr6ancier solidaire peut se presenter pour le plein montant de sa cr6ance dans les diff6rentes masses en faillite de ses ddbiteurs solidaires jusqu'd entier paiement de sa cr6ance.

Voir aussi Ruben de Cauder.

Dict. de droit commercial (2).

Les parties conservent la facult6 d'en restreindre l'6tendue par des stipulations particulibres.

(2) 2 vol. vo. Aval.

Quant A la somme de $939.80 r6clambe A titre de privilge, je concours dans les motifs donn6s par l'honorable juge Mathieu pour justifier son refus de reconnaltre Fournier J. l'existence d'un privilge pour le remboursement de cette somme.

D'apris mon opinion le jugement de la cour du Panc de la Reine devrait 8tre modifi6 de manibre A reconnaltre le droit & l'appelante d'6tre colloquie sur le plein montant de sa rclamation sans d6duction du dividende de Hyde, Turcot et Cie.

J.-I am also of opinion that the appeal should be dismissed for the reasons given by the

Court of Queen's Bench for Lower Canada (appeal side).

J.-There are two sums only as to which questions are raised upon this appeal, viz., $2,454.29 and

$944.81; as to this latter sum the Ontario Bank claim a right to rank as privileged creditors on the Exchange

Bank in liquidation.

As to the $2,454.29, the question is whether the Ontario Bank should be allowed to amend a claim brought in and proved by them on oath against the Exchange Bank in liquidation, by erasing from the credit side of the said claim so proved the ab've sum, for which in their claim they had given credit as received out of certain promissory notes discounted by the Ontario Bank for and at the request of and guaranted by the Exchange Bank.

If the

Exchange Bank had continued solvent they could not have been held liable in an action brought against them upon their contract of guarantee for any greater amount than remained due and unpaid upon the notes guaranteed at the time of the commencement of the action.

So in like manner, upon the Ontario Bank bringing in and proving their claim against the Exchange Bank in liquidation under the Winding-up IV. Act, they could not be received as claimants against the bank in liquidation for a larger amount than that J. bank would have been liable for in an action, if solvent, the Ontario Bank could not be recognized as creditors for a greater amount than was actually due by their debtor.

When therefore the Ontario Bank in their claim made in December, 1884; which was proved upon the oath of their agent, gave credit for the above sum of $2,594.29 theretofore received by them upon the notes which were guaranteed by the Exchange Bank, they acted quite correctly in so doing and to the claim as then made, and which in truth was the only one existing, they must be held.

As to the $944.81 the claim is founded upon the fact that the Exchange Bank after they had stopped payment, but before the Ontario Bank were aware thereof, received from the Ontario Bank for deposit to their credit certain- cheques made in their favour .by certain customers of the Exchange Bank upon them, and which had been marked as good by the latter bank (and received or marked by the Ontario Bank before the Exchange Bank stopped payment) and entered the amounts of the cheques to the credit of the Ontario Bank's account in the books of the Exchange Bank.

This entry was in fact but a completion of the undertaking involved in the marking the cheques as good a couple of days previously before the bank had stopped payment. But assuming this conduct of the Exchange Bank in entering those cheques to the credit of the Ontario Bank as above stated without informing the Ontario Bank of the stoppage of payment by the former, to have constituted an actionable wrong to the Ontario Bank, the nature of their bank's remedy [VrOL. XX. was to compel a return of the cheques so as to enable the Ontario Bank to look to the persons who had given them the cheques and the latter to have proved against the Exchange Bank in liquidation. Not having pursued that remedy, but on the contrary made claim against the Exchange Bank as their debtors in J. respect of their deposit, and having proved the item in their claim presented in December, 1884, in the liquidation, they can only claim in respect of that deposit as ordinary creditors.

J.-The Ontario Bank discounted for the

Exchange Bank, on the 21st of August, 1883, a number of promissory notes, three of which were made by

Hyde, Turcot & Co., the whole amounting to $36,004.- 46, and the Exchange Bank gave a written guarantee of the prompt payment of all the notes at maturity.

The notes were all paid by the parties to them, except those of Hyde, Turcot & Co. who became insolvent.

The Exchange Bank stopped payment on the 17th of

September, 1883, and went into liquidation under the Winding-up Act.

If I correctly understand the documents before us, none of the notes fell due until after

September, 1883, but they had all fallen due before the filing of the claim of the Ontario Bank on which the present contest arises.

That claim was proved on the 5th of June, 1886.

It consists of two items. One is a special claim for

$939.85 the consideration of which we may defer. It has no reference to the notes.

The other item of

$11,216.56, includes $5,472.91 concerning which there is no question before us, and $5,743.59 in respect the notes. This amount is produced by debiting, as of the 21st of August, 1883, $35,298.05 for cash advanced, being the proceeds of the $36,004.46 of notes Patterson J. discounted on that day, and crediting $29,554.46, the amount of all the notes except those of Hyde, Turcot & Co.

Those three notes amounted to $6,450, and the Ontario Bank had received in March and June, 1884, before they proved any claim under the winding-up of the Exchange Bank, two dividends from the insolvent estate of Hyde, Turcot & Co., amounting together to $2,454.29.

The proof made on the 5th of June, 1886, was an amended claim.

A claim had been proved on the 30th of December, 1884, in which credit had been given for these dividends, but that was withdrawn, and the contest, on this branch of the case, is whether the appellants are bound to deduct the dividends from their claim of $5,743.59, or have the right to rank for the whole amount.

It seems perfectly plain that the contention of the appellants cannot be maintained if the transaction is treated as they have treated it in their proof of claim. It is there represented as a loan to the Exchange Bank of $35,298 05 for which that corporation was primarily liable as borrower and the notes security for the loan. I am inclined to think that in putting the claim in this shape the appellants truly represented its real character, but if so they ought to have proved as for a secured claim under section 62 of the Winding-up Act and cannot be allowed to rank without first accounting for the value of their security.

Benning v. Thibaudeau are by no means agreed upon it.

My own opinion inclines to the recognition in this case of the joint and several obligation.

think that opinion is supported by articles 1103, 1104,

1105 and 2310 of the Civil Code, in connection with which I may refer to an English authority. In the case of Liquidators of Overend, Gurney ( Co. v. Liquidators of Oriental Financial Corporation there was a guaranty in these terms:

Lord Cairns speaking of that guaranty said:

There appears to be an embarrassing conflict of opinion respecting the consequence of this joint and several liability.

Does it entitle the creditor to rank on the estate of each of the co-debtors for the full amount of the debt, not crediting either estate with the amount realized from the other, until his debt is fully answers the question in the affirmative, differing therein from the opinion of Chief Justice Meredith in Rochette v. Louis and supporting his opinion by an able and learned argument, which however failed to Patterson J. convince Mr. Justice Andrews, who in Chinic v. Rattray adhered to the view that the law of France at the time of the cession of Canada to Great Britain, which is conceded on all hands to afford the rule in the absence of legislation, was as it was declared to be by Chief Justice Meredith in Rochette's case. I do not feel that we are at present called upon to decide between these divergent opinions, because I think the question is concluded.by section 62 of the Windingup Act. The debt of the Exchange Bank to the appellants was a secured debt to the extent of the value of the notes they held.

The appellants advance in their factum some arguments against this view. They urge that this being a commercial transaction, and therefore a joint and several obligation under article 1105, the bank is liable jointly and severally with the other parties on the paper. Granted; but so it is in any case of maker and endorser, and yet it cannot be doubted that, in view of section 62, the maker of a promissory note is security to the endorsee. It is further submitted that the section deals only with negotiable paper upon which the company is indirectly or secondarily liable, and that in any event it merely requires a valuation of the security when the paper is not due or exigible. It is urged by the appellants in another part of their factum, on the authority of Demolombe (4) and Sirey that the account must be regarded as of the date of the insolvency and not as the date of the proof. That proposition, if it were true in proceedings under the Winding-up Act, would displace the point taken touching debts not due or exigible, because the notes in question were not due when the winding-up proceedings commenced.

But, apart from that, the appellants do not read section 62 correctly.

The section makes provision for the case of a creditor holding a claim based upon negotiable instru-PattersonJ. ments on which the company is only indirectly or secondarily liable and which is not mature or exigible, enacting that such creditor shall be considered to hold security within the meaning of the section, and shall put a value on the liability of the person primarily liable thereon as being his security for the payment thereof, but that after the maturity of such liability and its noa-payment he shall be entitled to amend and revalue his claim. This is, in my judgment, a distinct affirmance, as applied to the present case, of the claim against the Exchange Bank being, in view of section

62, a secured claim, whether we regard the claim as of the commencement of the winding-up when the liability was not mature or exigible, or as of the date of the filing of the proof when the value of the security had been ascertained and realized. Whatever may be the true doctrine respecting the rights of a creditor who proves the same debt against the estates of two joint and several debtors, and however the general rule may be ultimately settled, it is clear to my apprehension that there are cases, of which the present is one, where an obligation which under articles 1103, 1104, 1105 and 2310 C.C. is joint and several, must be dealt with under the Winding-up Act as provable against the estate of one of two co-debtors as a debt secured by the liability of the other.

I am of opinion that the appellants have been correctly held to be bound to deduct the dividends and to be entitled to rank only for the balance of their claim.

I believe this opinion agrees with the jurisprudence which has obtained in the province of Quebec under our Insolvent Acts of 1869 and 1875, which contained provisions similar to those of section 62 of the Windingup Act.

I refer to In re Bessette (1) ; to Rockette v. Louis and to remarks by Mr. Justice Jett6 in Benning v. Thibaudeau (3).

Patterson J.

The appellants in executing the deed of composition and discharge of Hyde, Turcot & Co. noted that they did not waive their recourse against the bank. Nothing now turns on that reservation. The right of recourse against the bank has been accorded to the appellants without question notwithstanding their release of Hyde, Turcot & Co.

The recourse stipulated for was, as I understand it, for the amount released not for the amount received.

The contest respecting the claim of the appellants to be paid by preference an item of $939.85 relates only to a part of that amount which represents deposit, made by the appellants, of several cheques drawn by customers of the bank upon their accounts there, which cheques were handed in to the bank after the suspension of payment but before the appellants were aware of the suspension, and were passed to the credit of the appellants and charged against the several drawers of them.

I do not think it necessary to say more as to the claim to rank as preferred creditors for this amount than that, while the appellants apparently malke out of the circumstances a case of some hardship, I have not been able to perceive any valid grounds for admitting their claim to be collocated as preferred creditors. On both branches of the case I am of opinion that the appeal should be dismissed.

Appeal dismissed with costs.