$131.

Aval.

English law.

In the Imperial Act the proviso of this section appears as section 56 and reads, as follows: "Where a person signs a bill otherwise than as drawer or acceptor he thereby incurs the liabilities of an indorser to a holder in due course."

This was intended to lay down the English law on what is known in French law as an "aval," which Pothier in his Change, No 122, describes as "the contract of warranty undertaken by a person, either for the drawer, by putting his signature at the foot of the bill; or for the indorser by signing below the indorsement; or for the acceptor by signing below the acceptance." Such person assumes towards the holder of a bill all the obligations of the party whose warrantor he becomes, and is bound by the notice given to his warrantee. So also in modern French law: Code de Com. Arts. 141, 142; Nouguier, §§ 821-840. It is also recognized in Louisiana McGuire v. Bosworth, 1 La. Ann. 248 (1846).

In Lower Canada before the Code, it was held, following the old French law prior to the Commercial Ordinance of 1673, that an indorser "pour aval" was not entitled to notice of dishonor or protest, and this rule was adopted in the Code, Art. 2311.

As pointed out in Steele v. McKinlay, 5 App. Cas. at p. 772, by Lord Blackburn, neither the English nor the Scotch law goes so far as the French; but there was a qualified adoption of it as regards an endorsement. Originally an endorsement could only be made by the holder and for the purpose of transferring a bill payable to his order: later, endorsements of bills payable to bearer were recognized, whether by the holder or by a stranger to the bill.

The most common form of endorsement by a stranger was when it was intended that he should become responsible to the payee as well as to subsequent holders. On account of the technical rules of English pleading the English law did not recognize the liability of a stranger to the payes when he signed his name on the back of the bill above the latter as an aval; but what Burton, J.A., in Duthie v. Essery, 22 Ont. A. R. at p. 192 (1895), called "a clumsy contrivance' and "unnecessary," was resorted to, viz., the payee endorsed "without recourse" and the stranger or warrantor endorsed

below him either in blank or back to the payee, and thus § 131 became liable to the latter.

Aval in 'England.

In Jenkins v. Coomber, [1898] 2 Q. B. 168, an action. under section 56 by the payees who were also the drawers against one who had indorsed a bill as first indorser, a Divisional Court held under the authority of Steele v. McKinlay, supra, that the defendant was not liable, as the plaintiffs were not holders in due course, the instrument not being complete and regular when indorsed to them by the defendant on account of not having been previously indorsed by them as payees.

In Glenie v. Bruce Smith, [1908] 1 K. B. 263, however, in an action by the executors of the drawer and payee against such an indorser on two bills, the authority of Jenkins v. Coomber was considerably shaken. They had been indorsed by the defendant before being filled up by the drawer; one of them he had indorsed above the signature of the defendant, the other below. Evidence was given to show that the defendant had indorsed to guarantee the acceptance to the drawer, and that both bills were filled up in accordance with the authority given. It was held by the Court of Appeal that the plaintiffs were, under sections 20 and 30 of the Act, holders in due course and entitled to recover on both bills.

In re-enacting section 56 of the Imperial Act, our Par- In Canada. liament made an important addition to it, viz., the concluding words of the proviso to this section, "and is subject to all the provisions of this Act respecting endorsers." This was done as stated by the leader of the Senate who had charge of the bill, to make it clear that endorsers "pour aval" such as those above spoken of, should be entitled to notice like ordinary endorsers. It would also make them subject to the same liabilities as other endorsers as laid down in the Act: sec. 133.

Notwithstanding the addition of these words in the Canadian Act, it was said by Sedgewick, J., in Robertson v. Davis, 27 S. C. Can. (1897) at p. 574: "Under no circumstances can the payee of a promissory note or the drawer of a bill of exchange maintain an action against an indorser

Aval.

§ 131 when the action is founded on the instrument itself;" but the appeal was dismissed on other grounds. This dictum and the judgment in Jenkins v. Coomber, were approved and followed in Clapperton v. Mutchmor, 30 O. R. 595 (1899); Canadian Bank of Commerce v. Perram, 31 O. R. 116 (1899); Small v. Henderson, 27 Ont. A. R. 492 (1899); and Secor v. Gray, 3 O. L. R. 34 (1901).

In Canada.

On the other hand, in Ayr American Plough Co. v. Wallace, 21 S. C. Can. 256 (1892), where the payees sued respondent as maker because he had indorsed a note before delivery to them, he was held not liable as maker. This was before the Act, and no notice of dishonor had been given him. In that case Strong, J., said (p. 260), that if the case were under the Act, respondent would have been liable as an indorser, but only as an indorser. This view of the Act has been taken in the province of Quebec where the doctrine had always prevailed. See Emard v. Marcille, Q. R. 2 S. C. 525 (1892), and 3 S. C. 268 (1893); Banque Jacques Cartier v. Gagnon, Q. R. 5 S. C. 499 (1894); Abbott v. Wurtele, Q. R. 6 S. C. 204 (1894). Also in other provinces: Balcolm v. Phinney, 30 C. L. J. (N.S.) 240 (1892); Watson v. Harvey, 10 Man. 641 (1894): Wells v. McCarthy, 10 Man. 639 (1895); Fraser v. McLeod, 2 Terr. L. R. 154 (1895); Pegg v. Howlett, 28 O. R. 473 (1897). Also in New Zealand under a section similar to the Imperial Act: Cook v. Fenton, 11 N. Z. L. R. 505 (1895); and under the Negotiable Instruments Law: Reed v. Bacon, 175 Mass. 497 (1900); Davis v. Bly, 164 N. Y. 527 (1900).

The question was finally settled, so far as the Canadian. courts are concerned, by the decision in Robinson v. Mann, 31 S. C. Can. 484 (1901), where it was held that the Molsons Bank were holders in due course of a note made payable to their order and which the defendant had indorsed above them, and that his indorsement was an "aval," a form of liability which the Bills of Exchange Act had adopted; see Slater v. Laboree, 10 O. L. R. 648 (1905) as to the binding force of this decision in Canada.

ILLUSTRATIONS.

1. A bill or note is payable to bearer, or is indorsed in blank. A person who puts his name on it to enable another to negotiate it,

§ 131

or who signs and negotiates it himself, is liable as an indorser to the holder: Scott v. Douglas, 5 U. C. O. S. 207 (1836): Ramsdell v. Telfer, 5 U. C. Q. B. 508 (1848); Booth v. Barclay, 6 ibid. 215 Aval. (1849); Vanleuven v. Vandusen, 7 ibid. 176 (1849); Fairclough v. Pavia, 9 Ex. p. 695 (1854).

2. A. made a note, payable to B. or order, and C. wrote his name on the back, without B.'s first indorsement. Held, that C. could not be considered as a new maker, and that the note would not support a recovery against him by B.: Steer v. Adams, 6 U. C. O. S. 60 (1839); Jones v. Ashcroft, ibid. 154 (1841); Wilcocks v. Tinning, 7 U. C. Q. B. 372 (1850); Skilbeck v. Porter, 14 ibid. 430 (1856); Moffatt v. Rees, 15 ibid. 522 (1857); Robertson v. Lonsdale, 21 O. R. 600 (1892); Morton v. Campbell, 3 N. S. (Cochran) 5 (1859) Burns v. Snow, 9 N. S. (3 G. & O.) 530 (1875); Smith v. Hill, 6 N. B. (1 Allen) 213 (1848); Ayr American Plough Co. v. Wallace, 21 S. C. Can. 256 (1892); Tai Yune v. Blum, 3 B. C. R. 21 (1893); Gwinnell v. Herbert, 5 A. & E. 436 (1836).

3. A. made a note to the order of B. for value and before delivery it was indorsed by C. as surety for the maker. B. indorses it "without recourse "above C.'s signature, and then sues C. He can recover: Peck v. Phippon, 9 U. C. Q. B. 73 (1851); Smith v. Richardson, 16 U. C. C. P. 210 (1865). See also Wordsworth v. Macdougall, 8 U. C. C. P. 403 (1858): Wilders v. Stevens, 15 M. & W. 208 (1846); Smith v Marsack, 6 C. B. 486 (1848); Morris v. Walker, 15 Q. B. 589 (1850); Wilkinson v. Unwin, 7 Q. B. D. 636 (1881); Holmes v. Durkee, 1 C. & E. 23 (1883); Seabury v. Hungerford; 2 Hill (N..Y) 80 (1841); Hall v. Newcomb, 3 ill (N.Y.) 233 (1842).

4. Defendant having indorsed, as security for the maker, a promissory note payable to plaintiff, but not negotiable, he was held not liable as a maker: West v. Bown, 3 U. C. Q. B. 290 (1846); McMurray v. Talbot, 5 U. C. C. P. 157 (1855). Contra, Piers v. Hall, 18 N. B. (2 P. & B.) 34 (1878).

5. Defendant owing plaintiff delivered him a note made by a third party payable to defendant or bearer, on the back of which defendant had written "In consideration of $100, I guarantee payment of the within note." Held, that defendant was liable without notice of dishonor: Palmer v. Baker, 23 U. C. C. P. 302 (1873).

6. Defendant indorsed on a note "I guarantee the payment of the within note to D. (the payee and plaintiff) on demand." This was done to secure time, which was given. Defendant was not liable as an indorser, the note never having been negotiated, but he was held liable as a guarantor: Davies v. Funston, 45 U. C. Q. B. 369 (1880).

7. Plaintiff lent money to a firm. One partner made and the other indorsed a non-negotiable note in plaintiff's favor for the amount. The indorser was held liable as a guarantor: McPhee v. McPhee, 19 O. R. 603 (1890); overruled by Robertson v. Lonsdale, 21 O. R. 600 (1892).

8. Defendant put his name on the back of a note as guarantor for the maker. The note was dishonored and defendant duly notified. M'L.B.E A.-21

§ 131 The payee indorsed the note below defendant.. Held, that plaintiff as holder was entitled to recover from defendant: Duthie v. Essery, 22 Ont. A. R. 191 (1895).

Aval.

9. In Quebec one who puts his name on the back of a note before its delivery or indorsement by the payee, is an indorser pour aval, and is liable without notice of protest or dishonor: Paterson v. Pain, 1 L. C. R. 219 (1851); Merritt v. Lynch, 3 L. C. J. 276 (1859); Pariseau v. Ouellet, Mont. Cond. Rep. 69 (1850); Narbonne v. Tetreau, 9 L. C. J. 80 (1863); Latour v. Gauthier, 2 L. C. L. J. 109 (1866). Also one who puts his name on the back of a cheque payable to bearer: Pratt v. MacDougall, 12 L. C. J. 243 (1868).

10. An indorser pour aval is liable on a note although it is null because made by a married woman without authorization by her husband: Norris v. Condon, 14 Q. L. R. 184 (1888).

11. Under the Code, an aval was not entitled to notice of dishonor, and the Act of 1890 is not retroactive, so as to apply to bills or notes made before its coming into force: Fyfe v. Boyce, 21 R. L. 4 (1891); Coutu v. Rafferty, M. L. R. 7 S. C. 146 (1891).

12. Where before the Act an indorser signed below the payee, the presumption is that he is not an aval, but an ordinary indorser; and the fact that he was never holder of the note, out indorsed it merely for the accommodation of the maker, is not sufficient to destroy this presumption: Merchants' Bank v. Cunningham, Q. R. 1 Q. B. 35 (1892).

13. Where a promissory note was drawn payable to the order of the maker and he did not indorse it, the indorsers were held not liable, as it was not a note under Arts. 2344 and 2345, C. C.: Trenholme v. Coutu, Q. R. 2 Q. B. 387 (1893).

14. In English law there cannot be an aval on the bill for the honor of the acceptor: Jackson v. Hudson, 2 Camp. at p. 448 (1810).

15. Where two or more persons become parties to a bill to accommodate some third party, their rights and liabilities between themselves are those of co-sureties, and must be determined irrespective of the position of their names on the instrument. Parol evidence is admissible to prove the circumstances: Steacy v. Stayner, 7 O. L. R. 684 (1904); Vallee v. Talbot, Q. R. 1 S. C. 223 (1892); Reynolds v. Wheeler, 10 C. B. N. S. 561 (1861); Clipperton v. Spettigue, 15 Grant, 269 (1868); Cockburn v. Johnston, ibid. 577 (1869); Macdonald v. Whitfield, 8 App. Cas. 733 (1883), overruling Ianson v. Paxton, 23 U. C. C. P. 439 (1874); and Fisken v. Meehan, 40 U. C. Q. B. 146 (1876).

16. The indorsement of a bill by one who is not the holder, but a stranger to it, is efhcacious in English law. It creates no obligation to those who previously were parties to it, it is solely for the benefit of those who take it subsequently. To hold that a stranger to a bill who writes his name across the back of it, before it has passed out of the hands of the drawer, thereby becomes liable to the drawer, failing payment by the drawees, is inconsistent with the principles of the law merchant: Steele v. McKinley, 5 App. Cas. at pp. 772, 782 (1880). See Hill v. Lewis, 1 Salk. at p. 133 (1710); Penny v. Innes, 1 C. M. & R. 439 (1834).