Merchants' Bank of Canada v. McKay

Merchants' Bank of Canada v. McKay

Where a creditor holding collateral securities for a debt covered by a continuing security mortgage parts with those securities and accepts forged or valueless renewals in substitution without the surety’s assent, the creditor has deprived the surety of the benefit of those securities and the surety is discharged to the extent of the loss; the creditor must ensure renewals are genuine and preserve securities for the surety, and an account must be taken to identify the paper relating to the guaranteed debt.

Citation
(1888) 15 SCR 672
Parties
Appellant/plaintiff: Merchants' Bank of Canada; Respondents/defendants: William McKay and Others
Court
Supreme Court of Canada
Jurisdiction
Canada
Judgment Date
14 December 1888
Procedural Posture
Mortgage Foreclosure Appeal / Appeal to Supreme Court of Canada From Court of Appeal for Ontario
Outcome
Appeal dismissed; judgment of Divisional Court restored; account referred to master
Legal Topics
Continuing Security, Renewal of Commercial Paper, Creditor Duty to Preserve Collateral, Negligence in Banking, Discharge of Surety, Subrogation, Accounting and Reference to Master
Source Language
English
Suretyship Mortgage Banking Equity Negotiable Instruments Forgery Priorities and Hypothecs Continuing Security +6 more

Case Brief

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Parties

Merchants' Bank of Canada

Appellant/plaintiff

William McKay and Others

Respondents/defendants

Procedural Posture

Mortgage Foreclosure Appeal / Appeal to Supreme Court of Canada From Court of Appeal for Ontario

Legal Issues

  1. 1 Whether acceptance by the bank of forged or worthless renewals in substitution for genuine collateral discharges the surety pro tanto
  2. 2 Whether the bank was negligent in accepting forged renewals or acted in the ordinary course of banking
  3. 3 Whether the mortgage authorized renewals and substitutions of the commercial paper and the effect of that authorization on the surety’s rights

Ratio Decidendi

Where a creditor holding collateral securities for a debt covered by a continuing security mortgage parts with those securities and accepts forged or valueless renewals in substitution without the surety’s assent, the creditor has deprived the surety of the benefit of those securities and the surety is discharged to the extent of the loss; the creditor must ensure renewals are genuine and preserve securities for the surety, and an account must be taken to identify the paper relating to the guaranteed debt.

Court Disposition

Appeal dismissed; judgment of Divisional Court restored; account referred to master

Orders

  • Appeal dismissed with costs
  • Judgment of the Divisional Court restoring defendants' relief reinstated