Gorman v. Dixon, (1896) 26 SCR 87

Supreme Court of Canada

Gorman v. Dixon, (1896) 26 S.C.R. 87

Date: 1896-02-27

James Gorman (Defendant) Appellant;

and

George Dixon (Plaintiff) Respondent.

1896: February 18; 1896: February 27.

Present:—Sir Henry Strong C.J., and Taschereau, Gwynne, Sedgewick, King and Girouard JJ.

ON APPEAL FROM THE SUPREME COURT OF PRINCE EDWARD ISLAND.

Principal and surety—Giving time to principal—Reservation of rights against surety.

Where a creditor gives his debtor an extension of time for payment a formal agreement is not required to reserve his rights against a surety, but such reservation may be made out from what took place when the extension was given. Wyke v. Rogers (1 DeG. M. & G. 408) followed.

Per Gwynne J. dissenting. The evidence in this case was not sufficient to show that the remedies were reserved.

An appellate court will not give effect to mere technical grounds of appeal, against the merits and where there has been no surprise or disadvantage to the appellant.

APPEAL from a decision of the Supreme Court of Prince Edward Island sustaining the verdict for the plaintiff at the trial.

The material facts of the case sufficiently appear from the above head-note, and are fully set out in the judgment of the Chief Justice.

Stewart Q.C. for the appellant. The surety was discharged by the bank giving time to his principal. Bolton v. Buckenham ([1]); Devanney v. Brownlee ([2]).

The remedy against the surety could not be reserved by an agreement to which he was not a party and of which he was ignorant. Overend, Gurney & Co. v. Oriental Financial Corporation ([3]); Bolton v. Buckenham ([4]).

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Peters Q.C., Attorney-General for Prince Edward Island, for the respondent. An express agreement is not necessary to reserve rights against a surety when giving time to the principal. A general understanding that the surety is to remain liable will suffice. Wyke v. Rogers ([5]).

The judgment of the majority of the court was delivered by:

THE CHIEF JUSTICE:—This was an appeal from a decision of the Supreme Court of Prince Edward Island refusing to grant a rule nisi for a new trial. The action was brought to recover $160 as an unpaid balance on a promissory note for $200, dated the 18th of October, 1892, and made by the appellant, James Gorman and one John Gorman, his brother, jointly and severally, payable to the Merchants Bank of Halifax, three months after date. This note was discounted by the Merchants Bank for John Gorman who received the proceeds. James Gorman, the appellant, became a party to the note as surety for his brother.

When this note became due in January, 1893, it was dishonoured and remained in the bank unpaid. On the 31st January, 1893, the respondent as surety for John Gorman became a party to another joint and several note for $160 made by John Gorman and himself at three months which was also discounted by the Merchants Bank. The proceeds of this discount were retained by the bank, and in addition the sum of forty dollars was paid to the bank, together with the interest accrued on the first note and the discount on the second note, by John Gorman the principal debtor; the first note, that for $200, was not however given up but was retained by the bank manager, Mr. Arnaud, who pinned

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it to the new note and put them away in the bill case. Mr. Arnaud's account of what occurred is as follows:

The arrangement made was that the old note should be left in the bank and that the new note be held as collateral security till the old one was paid. I undertook to hand back the new note to Dixon when the old note was paid. I took the two notes and pinned them together and put them away in the bill case. It is not the practice to retain the old note when a new one is given in payment or settlement. This was done after old note due. No reason otherwise to hold old note. I kept the two notes in the bank till the $160 became due. Dixon's solicitor paid the new note and I gave him both notes indorsing the old one to him. John Gorman and Dixon were both present and undoubtedly heard what I said. I don't remember John asking me for the old note, I pinned them together in his presence.

This evidence was to some extent contradicted by John Gorman. This transaction undoubtedly amounted to a giving of time to John Gorman the principal debtor in respect of the first note; the debt being, to the extent of $160 the same on both notes, and the interest on the second note having been paid in advance by Mr. Gorman, the bank was not in a position to sue him during the currency of that note ([6]). It is, however, the law that if the creditor giving time to the principal debtor reserves his remedies against the surety the latter is not discharged. The respondent insists that such a reservation is by the evidence of Mr. Arnaud proved to have been made in the present case. I am of opinion that the evidence of Mr. Arnaud does show that the remedies against the appellant were so reserved and it was therefore a question for the jury whether they would give credit to Mr. Arnaud's testimony or to that of the principal debtor John Gorman. No formal agreement is essential to effect the reservation of the right to sue the surety and thus to counteract the effect of giving time which would otherwise discharge the surety. This is well established by the case of Wyke v. Rogers

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(1), a case of the highest authority decided by Lord St. Leonards in 1852. There the principal debtor and the surety had joined in a joint and several bond and this bond having become due the creditor took from the principal debtor a promissory note for part of the money due, payable two months after date. The report of the case states that:

The master found that there was a general understanding between the creditor and the principal debtor that the creditor's remedy on the bond was not to be taken away; but he found that there was no written, nor beyond the general understanding before mentioned any distinct parol, agreement respecting the bond between the creditor and the principal debtor.

Upon this finding Lord St. Leonards held the surety not discharged, saying:

The result has been to prove in the most distinct manner that it was understood between the parties that the defendant's remedy on the bond was not to be affected.

The jury in this case having, after a proper charge from the learned Chief Justice, found for the plaintiff must be taken to have given credit to Mr. Arnaud's evidence. The present case is therefore as regards the law on all fours with that of Wyke v. Rogers ([7]), and must be ruled by it.

An objection has been raised founded upon a point of pleading. At the trial the learned counsel for the defendant insisted that the plaintiff was not entitled to give evidence of the reservation of the rights of the bank against the appellant on the first note because there was no replication on the record setting up that answer to the plea of discharge by giving time. Strictly speaking this was matter of replication, but I am of opinion that we ought not to give effect to this objection now. All the evidence which could possibly throw light on the transaction

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was given, the only parties to it—the appellant, respondent and the bank manager—having been examined as witnesses, and it would not be in the interests of justice that we should now on appeal give effect to this highly technical point. The substantial merits of the case are with the respondent and the finding of the jury was warranted by the evidence. It is the practice of the Privy Council not to give effect to mere technical grounds of appeal where the merits are the other way, and there has been, no surprise or disadvantage to the unsuccessful party.

Moreover, under the statute which regulates the procedure of this court (sec. 63 R. S. C. ch. 135) we are authorized or rather required:

To make all such amendments as are necessary for the purpose of determining the appeal on the real question in controversy between the parties as disclosed by the pleadings, evidence or proceedings.

Under this provision we could, if it were necessary to do so, and if any useful purpose would be subserved thereby, now direct by way of amendment that a replication stating the reservation of remedies should be added nunc pro tunc as if made at the trial, and subject thereto dismiss the appeal. As this, however, would be a pure formality there is no necessity for such a proceeding.

It is to be hoped that some statutory amendment of the law may in the future prevent appeals to this court in cases of such very minor importance as the present, in which the amount in controversy is so greatly disproportioned to the expense of an appeal here.

The appeal is dismissed with costs.

GWYNNE J.—This action is brought by the plaintiff as joint maker with his brother John Gorman upon a promissory note bearing date the 18th of October, 1892,

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Whereby the defendant and his brother John jointly and severally promised to pay the Merchants Bank of Halifax or order three months after date $200 which note the statement of claim alleges that the bank endorsed to the plaintiff.

To this action the defendant pleads, among other pleas, the following:

2. Payment before action.

4. That he made the note as a joint maker with his brother John, but for the accommodation of John and as his surety only to secure a debt due by John to the Merchants Bank of which the bank before giving time to John as therein mentioned had notice, and after the note became due the said Merchants Bank, without the consent of the defendant and for good and sufficient consideration, agreed with the said John Gorman to give to him and did give him time for payment of the note beyond the time when the same became due, of all which the plaintiff pt the time of the endorsement to him had notice.

6. As in the 4th plea, that the defendant joined as maker of the said note for John's accommodation solely of which the bank at the time of taking the said note had notice, and afterwards and after the note became due the bank while holder of the note did, without the consent of the defendant and for good consideration, agree with John that he, John, should pay $40 on account of said note and should procure a new and approved negotiable note for the balance signed by himself and the plaintiff, payable three months after its date, which note was made, approved and accepted by the bank, and the bank gave the said John Gorman time until the maturity of the said last mentioned note.

8. Similar to the 4th, but concluding with the allegation that the plaintiff gave no value or consideration for the note sued upon.

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Issue was joined upon the pleas, and such joinder of issue constituted the sole matters which the parties went down to try.

There is much contradiction in the oral testimony, but as to the following facts there is no contradiction whatever, and they are, in my opinion, abundantly conclusive upon the issues joined.

The note for $200 did not become due until the 21st January, 1893, and upon that day John Gorman paid the bank $40 on account, and the note or liability of John and James Gorman in respect thereof was entered in the books of the bank at $160, with a charge in addition of 45 cents. Upon the 31st January John Gorman and the plaintiff made their promissory note, whereby they jointly and severally promised to pay to the Merchants Bank of Halifax, or order, three months after date for value received, the sum of one hundred and sixty dollars. This note was, upon the 1st February, 1893, discounted for John Gorman and so entered in the bank's books, and in the past due bill account, in which the $160 was entered as overdue on the 21st January, the said overdue bill for the $160 was marked paid, and there is no other entry in the bank books except as above relating to the transaction. The bank books thus clearly show the note for $200, or rather the balance of $160 due thereon, to have been paid and satisfied upon the discount of the note which the plaintiff joined in of the 31st January. The discounting of that note for John Gorman, and the application of the amount secured by it in the books of the bank in payment of the balance due upon the note for $200, constituted, in my opinion, an absolute payment of that note by John Gorman and an absolute discharge of him from all liability thereunder; and as the transaction of the 31st January and 1st February, 1893, constituted an absolute discharge of John and a

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payment by him, it of necessity had the same effect as regarded his co-maker, the present defendant. But it is held that the rights of the bank against the present defendant were reserved, although John was discharged, but the discharge of John operated for the benefit also of his co-obligor, the present defendant. It is, however, contended that as between John and James the equitable relation of principal and surety existed the bank could reserve rights against him as if he was as to the bank a surety only and not a principal. As between the defendant and the bank the liability of the former was as co-principal with John, and although by reason of the equitable relation of principal and surety between him and John, the bank could not give time to John without the consent of the defendant without discharging the defendant, still I am not at all prepared to admit that it was competent to the bank so to ignore the relation to them which the defendant bore as a principal debtor with John, so as to reserve any right against the co-obligor James when the dealings of the bank with John discharged him. However no such case is made upon the pleadings, and for this reason the contention of the plaintiff cannot be maintained. For myself, I must say that even if such an issue were upon the record there is nothing in the evidence upon which it can be held that the bank in point of fact did reserve their right of action against the defendant. Such an agreement could not have been made without John Gorman having been a party assenting to it, and there is no evidence that he ever did, and indeed it is inconceivable that he could have assented to an arrangement which, in my opinion, could not in this case have been made without reserving the right of action against John himself also, which it is impossible to hold was done, or in the contemplation of the parties.    The appellant was in my opinion

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clearly entitled to have recovered upon the issue joined on the 2nd, 4th and 6th pleas above, which is sufficient for the determination of this case, and the appeal should therefore be allowed with costs.

Appeal dismissed with costs

Solicitor for the appellant: James J. Johnston.

Solicitor for the respondent: Hector C. Macdonald.