Supreme Court of Canada
MacLeod Savings & Credit Union Ltd. v. Perrett,  1 S.C.R. 78
MacLeod Savings & Credit Union Ltd. Appellant;
Bob Perrett Respondent.
1980: June 25; 1981: January 27.
Present: Martland, Ritchie, Beetz, Estey and Mclntyre JJ.
ON APPEAL FROM THE COURT OF APPEAL FOR ALBERTA
Negotiable instruments—Promissory notes—Sum certain—Interest to be paid “from date of advance”—Extrinsic evidence needed to determine date—Whether or not sum uncertain preventing instrument from being promissory note within the meaning of the Bills of Exchange Act—Bills of Exchange Act, R.S.C. 1970, c. B-5, ss. 28, 176(1), 186.
Respondent signed, with another, an instrument by which both promised to pay the appellant $16,589.75, at twelve per cent annually, in monthly installments of $575 commencing and terminating on set dates, with the final payment being “equal in any case to unpaid principal and interest of loan”. The promisor agreed to pay “…the stated principal amount… with interest on the unpaid principal from the date of advance both before and after maturity at the rate… set forth until the full amount of principal and interest has been paid…” Default occurred after two payments had been made causing the whole balance to come due. Appellant sued on the instrument, alleging it to be a promissory note which it held as payee and asserting that respondent was liable as accommodation maker. Respondent, however, contended the promise in the instrument was not a promise to pay a sum certain within the definition of promissory note found in s. 176(1) of the Bills of Exchange Act. The sole issue was whether the words “with interest on the unpaid principal from the date of advance” rendered the sum secured uncertain so as to prevent the instrument from being a promissory note within the meaning of the Act.
Both courts below held the instrument in question not to be a promissory note. Appellant, in order to hold respondent as guarantor, had to succeed in its appeal for the terms of The Guarantees Acknowledgment Act otherwise would not have been met.
Held: The appeal is dismissed.
“A sum certain” within the meaning of the Act referred to both the principal and the interest. Neither the case law nor the leading text-books supported appellant’s first submission to the contrary and its rejection was further supported by the rule that interest made payable by a bill or note was “part of the debt and not merely damages for detaining the money”.
The second submission, that the instrument was a promissory note even though extrinsic evidence could be required to determine the date of the advance, failed. The scheme of the Act was to ensure the currency of negotiable instruments. The general rule was certainty on the face of the instrument, unless it was impossible to implement a particular provision without recourse to extrinsic evidence. It could be a matter of judgment, however, whether explicit or implicit reference to extrinsic circumstances created such a degree of uncertainty as to affect the currency of the document and alter its nature. The document in issue was neither certain nor negotiable.
The decisive reason why the submissions were unacceptable was that they both destroyed negotiability: the courts had to repudiate any mechanical construction of the Act which ran contrary to its very purpose and policy.
Lamberton v. Aiken (1899), 37 Sc. L.R. 138; Bank of England v. Vagliano,  A.C. 107; Rosenhain and Co. v. Commonwealth Bank of Australia,  V.L.R. 787, considered; John Burrows Ltd. v. Subsurface Surveys Ltd.,  S.C.R. 607, distinguished; Creative Press Limited v. Harman,  I.R. 313, referred to.
APPEAL from a judgment of the Court of Appeal for Alberta, dismissing an appeal from a judgment of Yanosik J. Appeal dismissed.
H. Lorne Morphy, Q.C., and Mary Eberts, for the appellant.
Howard P.J. Heil, for the respondent.
The judgment of the Court was delivered by
BEETZ J.—The facts are undisputed and the issue is a narrow one.
Clement J.A. who, on behalf of the Appeal Division of the Alberta Supreme Court, wrote the
judgment appealed from, stated the facts as follows:
The respondent Bob Perrett signed, with another person, an instrument dated 7 June 1974 by which both promised to pay to Macleod Savings & Credit Union Ltd. (the Credit Union) the sum of $16,589.75 with interest at the annual rate of 12 percent by monthly installments of $575, commencing 15 June 1974 and ending 15 March 1976, the final payment, however, to be “equal in any case to unpaid principal and interest of loan”. Perrett made two payments. Thereafter default was made and the whole balance became due.
The promise to pay is in these terms:
“For value received, I promise to pay to the order of The Credit Union, the stated principal amount above set forth with interest on the unpaid principal from the date of advance both before and after maturity at the rate above set forth until the full amount of principal and interest has been paid;…”
The Credit Union has sued on the instrument, alleging it to be a promissory note which it holds as payee, and asserting that Perrett is liable on it as accommodation maker. Perrett contends that the promise in the instrument is not a promise to pay a sum certain within the definition of a promissory note given by s. 176(1) of the Bills of Exchange Act R.S.C. 1970 c. B-5:
“A promissory note is an unconditional promise in writing made by one person to another, signed by the maker engaging to pay, on demand or at a fixed or determinable future time, a sum certain in money, to, or to the order of, a specified person or to bearer”.
The sole issue is whether the words “with interest on the unpaid principal from the date of advance” render the sum secured uncertain so as to prevent the instrument from being a promissory note within the meaning of the Bills of Exchange Act, R.S.C. 1970, c. B-5, (the Act).
Should the Credit Union fail in this appeal, it cannot hold Perrett as a guarantor since the provisions of The Guarantees Acknowledgment Act, R.S.A. 1970, c. 163, were not complied with.
Both courts below held that the instrument in question is not a promissory note.
Judge Yanosik, the trial judge, wrote:
Without the date of advance appearing on the face of the document, it is impossible to calculate the exact amount of interest promised to be paid, and for that reason it cannot be said that the promise to pay is a promise to pay “a sum certain in money”. The document, therefore, is not a promissory note with the definition to be found in the Bills of Exchange Act.
Clement J.A. wrote:
It is clear from the purpose and terms of the Act that certainty in determining the amount of interest payable is as necessary to the validity of a promissory note as is certainty in the amount of the principal sum payable and the due date for payment… The instrument on the face of it discloses an inherent uncertainty for which the act provides no cure.
Counsel for the Credit Union made two submissions.
The first submission as it appears in his factum, although he made it last in oral argument, is to the effect that “a sum certain” within the meaning of the Act, has reference only to the principal, not the interest.
The second submission is to the effect that the instrument in question is a promissory note although extrinsic evidence may be required to determine the date of advance.
In presenting the first submission counsel for the Credit Union referred to s. 28 of the Act which, through the operation of s. 186, applies to promissory notes:
28. (1) The sum payable by a bill is a sum certain within the meaning of this Act, although it is required to be paid
(a) with interest;
(b) by stated instalments;
(c) by stated instalments, with a provision that upon default in payment of any instalment the whole shall become due; or
(d) according to an indicated rate of exchange or according to a rate of exchange to be ascertained as directed by the bill.
(2) Where the sum payable is expressed in words and also in figures, and there is a discrepency between the two, the sum denoted by the words in the amount payable.
(3) Where a bill is expressed to be payable with interest, unless the instrument otherwise provides, interest runs from the date of the bill, and if the bill is undated, from the issue thereof.
It was contended that on a proper construction of the words of s. 28(1)(a) according to their ordinary meaning, the terms “sum certain” refer to a principal sum payable pursuant to a promissory note exclusive of interest thereon i.e. “a sum payable is a sum certain although it is required to be paid with interest”.
It was emphasized that s. 28(1)(a) does not require that a promissory note specify the rate of interest, by contrast to s. 28(1)(d) which requires the rate of exchange, if any, to be indicated.
Not only is the first submission unsupported by any case law but it was dismissed by the Court of Session to which it had been explicitely put in Lamberton v. Aiken. It was held that a written promise to pay two hundred and fifty pounds sterling “together with any interest that may accrue thereon” was not a promissory note on the ground that neither the rate of interest nor the date of payment was specified and the sum payable was accordingly uncertain. Section 28 of the Act is the equivalent of s. 9 of the Bills of Exchange Act, 1882, 45-46 Vict., c. 61 (U.K.), then in force. Lord Adam wrote at p. 139:
Mr. Guy says that a change was made by the Act of 1882 upon the previous law, and that it is sufficient if the principal sum due is certain whether the amount of interest is ascertained or not. In support of that contention he quotes section 9 of the Act, but as I read that section it means no more than that a “certain” sum may be made up partly of principal and partly of interest.
Earlier in his reasons, Lord Adam had stated at p. 139:
The Lord Ordinary has not furnished us with any note of his opinion, but it is stated that his view was that it was impossible on the face of the document to ascertain any certain sum to be payable. I think that view is right. Whether a document be a bill or a promissory-note the law is that it must be for a sum certain, and that sum must appear on the face of the document, but Mr. Smith maintained that you could not ascertain on the face of the document what sum was payable, because it did not specify what rate of interest was to be charged—whether, for example, it was to be bank interest or what is called legal interest, and it did not appear when payment would be demanded or what the amount due would then be. It is quite true that it does not appear on the face of the bill what rate of interest is to be paid—whether legal or bank interest.
Lord M’Laren concurred at p. 139:
I am of the same opinion. The leading provision in the Bills of Exchange Act as to the sum payable under a promissory-note is that it is to be “a sum certain in money,” and we are referred back to the sections dealing with bills of exchange, from which it appears that a bill does not cease to be such merely because it contains a stipulation for the payment of interest. Reading these enactments together, it is plain that the interest must either be ascertained in gross on the face of the document, or it must be capable of being ascertained by numerical calculation from materials contained in the document. This would be the case where the document in question specifies the rate of interest and the date of payment, for then it would only be necessary to multiply the rate of interest by the number of days in order to ascertain the amount of the interest due. In the case of a document payable on demand and containing a specified rate of interest, the question is a more difficult one, because the date of payment is not specified, and in order to make the sum certain it would be necessary to go outside the document and supply the date.
Lord Kinnear also concurred at p. 140:
It is not disputed that under the authority of the decided cases an obligation in the same terms as the document we are considering would not be a promissory-note or bill, but it is said that the Bills of Exchange Act of 1882 changes all that and makes it a good bill for a certain sum. I cannot so read the statute. All that it says is, that a bill is an unconditional order for a sum certain in money, and that if it includes interest that fact alone does not prevent it being considered a bill for a certain sum. But before the date of the Act it was quite possible
that a bill should be expressed to be payable with interest, and yet that the whole amount due might be clearly ascertainable on the face of the bill, and the statute seems to me to provide nothing more than that if a bill is expressed to be payable with interest, that alone will not prevent it from being a bill for a sum certain in the sense of the statute if it is for a sum certain in fact.
I find these reasons persuasive.
Counsel for the Credit Union argued that this approach to the construction of the United Kingdom Act was erroneous in the The Governor and Company of the Bank of England v. Vagliano Brothers where it was said that a code such as the United Kingdom Act should be interpreted according to the usual canons of construction and without reliance on prior decisions.
For one thing, I do not see how the above quoted reasons offend against the method of construction adopted in the Vagliano case. The judges do refer to the previous state of the law because they were invited so to do by counsel’s submission but they do not rely on prior decisions in order to solve the problem of interpretation which was put to them; as I understand them, they solve it by remaining within the four corners of the United Kingdom Act.
Furthermore, authoritative as may be the speeches pronounced in the Vagliano case, they cannot prevail over s. 10 of the Act:
10. The rules of the common law of England, including the law merchant, save in so far as they are inconsistent with the express provisions of this Act, apply to bills of exchange, promissory notes and cheques.
It seems to me that the rules of the common law of England, including the law merchant apply to the matter of interest since neither s. 28 nor any other provisions of the Act is expressly inconsistent therewith. And as was conceded in the Lamberton case and illustrated by authorities therein referred to, at common law, the requirement of certainty
clearly applied to interest as well as to the principal.
Examples of a sum certain in money were given in s. 28 for the removal of a doubt, but should a doubt remain, it would be quite proper to look at the previous state of the law:
I am of course far from asserting that resort may never be had to the previous state of the law for the purpose of aiding in the construction of the provisions of the code. If, for example, a provision be of doubtful import, such resort would be perfectly legitimate.
Lord Herschell in the Vagliano case at p. 145.
The Lamberton case is relied upon by a leading text-book, Byles on Bills of Exchange, 24th ed., 1979, by Maurice Megrah and Frank R. Ryder, at p. 18, note 70, in support of a proposition which is a paraphrase of Lord Adam’s reasons:
70 S. 9 means no more than that a “certain” sum may be made up partly of principal and partly of interest. Lamberton v. Aiken (1899) 37 S.L.R. 138… A sum certain must appear on the face of the instrument.
The first submission is also in conflict with other leading text-books according to which, for instance, a bill or a note payable “with bank interest” is not for a sum certain and therefore is not negotiable: Russell on Bills, 2nd ed., 1921, at pp. 116-17; Falconbridge on Banking and Bills of Exchange, 7th ed., 1969, at p. 501; L.J. de la Durantaye, Traité des effets négociables, 1964, at p. 120.
I am reinforced in the conclusion that the first submission ought to be dismissed by the rule according to which interest made payable by a bill or a note “is part of the debt, and not merely damages for detaining the money”. Falconbridge, op. cit. at p. 500. The distinction is clearly made by s. 134 of the Act.
In support of the second submission, counsel for the Credit Union relied on s. 28(3) of the Act.
He argued that extrinsic evidence would be required and admissible under this provision to determine the date of issue of an undated promis-
sory note and that where, as in the case at bar, the instrument “otherwise provides”, in that it specifies interest from the date of advance, extrinsic evidence was likewise required and admissible to prove the date of advance.
Other sections of the Act were referred to which contemplate circumstances wherein the amount of interest payable on a promissory note cannot be ascertained from the face of the note but only by reference to an extrinsic event, such for instance as s. 23 relating to instruments payable on demand and s. 24(b) which provides that an instrument is payable at a determinable future time within the meaning of the Act, that is expressed to be payable
(b) on or at a fixed period after the occurrence of a specified event that is certain to happen, though the time of happening is uncertain.
I am of the view that the second submission should also fail.
The scheme of the Act is to insure the currency of negotiable instruments. The general rule is accordingly that of certainty on the face of the instrument, unless it is impossible to implement a particular provision of the Act without having recourse to extrinsic evidence. Section 28 (3) constitutes such a provision only in its last part relating to the date of issue of an undated bill and this part has no application in the case at bar.
I adopt in this regard the following reasons delivered by Clement J.A. in the judgment appealed from:
As well, it is urged that there are a number of sections in the Act which contemplate the introduction of extrinsic evidence in order to effect a certainty not otherwise to be collected from the face of the instrument or calculable from its terms. This is so. Then, it is argued that s. 28(3) is such a section. In my view the proper canon of statutory construction serves to deny this argument.
Stated in general terms, the canon of construction which is applicable here is this: if it is necessary to the effective operation of a section of the Act, that extrinsic evidence be given of circumstances within the intend-
ment of its operation, then by necessary implication such evidence is admissible.
But the canon of construction I have stated does not assist the Credit Union. We are not concerned with the apparent lack of a date necessary to implement statutory provisions supporting the validity of a bill. The instrument by its terms specifies a date for the accrual of interest, but it is a date which is inherently uncertain without the aid of evidence. The operation of s. 28(3) does not at all touch such a provision, nor does any other section call for such evidence to make its operation effective. The instrument on the face of it discloses an inherent uncertaintly for which the act provides no cure.
I wish to add that while certainty on the face of the instrument is the rule, certainty is not necessarily an absolute term. It may be a matter of judgment in some cases whether an explicit or implicit reference to extrinsic circumstances creates such a degree of uncertainty as unduly to affect the currency of the instrument and alter its nature.
Thus it could be argued that the type of instrument contemplated in s. 24(b) of the Act ought not to be considered as a negotiable one, but Parliament in its wisdom has otherwise provided and, needless to say, its judgment is conclusive.
On the other hand, a promissory note payable on demand is inherently negotiable although the date when it will become due does not appear on its face and the amount of interest ultimately payable is not known at the time the note is made. But payment can be demanded at any moment, which is an advantage for the taker, and the exact amount of interest owing can also be calculated at all times, which provides sufficient certainty to insure currency. It might even be said that this very flexibility tends to enhance the currency of the note.
permitting the maker, at his own discretion, to make payment on account of principal from time to time in advance of maturity. Counsel contended that in such a case interest could not be calculated without extraneous information concerning possible prepayments. Nonetheless, the instrument was held to be a promissory note.
That case is not of any assistance to the Credit Union. It was decided on the basis that the instrument under consideration was a promissory note because it created no contingency and complied with the definition given in s. 176(1) of the Act. Ritchie J., who delivered the unanimous judgment of the Court, wrote at p. 614:
The instrument here in question is an unconditional promise in writing made by the respondent to pay the appellant or order the sum of $42,000 at a fixed and determinable future time, namely, nine years and ten months from April 1, 1963. This was a promise of the kind defined in s. 176(1) and the fact that the maker was accorded the privilege of making payments on account of principal from time to time did not alter the nature of his unconditional promise to pay at the time fixed by the instrument, but merely gave him an option to make earlier payment.
I am accordingly of opinion that the instrument in question was a promissory note,…
The case at bar has to do with the certainty of the amount, not the contingency of the promise.
The certainty of the amount payable was not discussed in the judgment of this Court in the John Burrows case, either as to principal or interest, simply because it was not considered to be in issue.
If the maker of such a note as was considered in that case pays part of the principal prior to maturity, he pro tanto discharges it and would be wise to have the partial discharge acknowledged in writing on the instrument. He would otherwise run the risk of paying twice should the note be delivered to a holder in due course who would have no reason to presume that the maker has availed himself of the prepayment privilege.
With respect to the time of payment, such a note is even more certain than a note payable on
demand since it states a definite date beyond which it cannot run. There is no uncertainty as to the amount of principal payable: in so far as a holder in due course is concerned, the full amount is payable less the amount of such prepayments as may have been acknowledged in writing on the instrument. As in the case of a note payable on demand, the amount of interest can be calculated at all times on the basis of the full amount of the principal or of what remains of it on the face of the document. It is true that a new prepayment on account of principal might be forthcoming and this creates a degree of uncertainty relating to the exact amount of interest that will ultimately be payable. But such uncertainty is of the same nature as the uncertainty of the amount of interest ultimately payable in the case of a note payable on demand, although it depends on the option of the maker, not the holder.
The note considered in the John Burrows case was thus sufficiently certain on its face with respect to its essential elements to comply with the requirements of negotiability.
We would be far from that degree of certainty if either of the two submissions made by counsel for the Credit Union should succeed.
Under either of those two submissions, a promise to pay $1,000 in ten years at such rate of interest as was determined by the maker and the promissee in a separate agreement would be a valid promissory note. Yet, no third party could know, looking at the face of the instrument, whether the interest payable would be, say, one and a half times the principal if the agreed rate of interest was fifteen per cent per annum, or a mere $100 if the rate of interest was one per cent per annum. Who would gamble on such an instrument? What third party would in the course of business take it against value, endorse it, or if it be in the form of a bill of exchange, accept it? How can such a document have any currency and be considered a negotiable instrument?
The document in issue fares hardly better from the point of view of negotiability. There is nothing on the face of it to indicate whether the “date of advance” does not antedate the date of the docu-
ment by several years in which case, at the annual rate of twelve per cent, the amount of interest payable would be commensurate with the principal. On the other hand and again taking the document at face value, it is not inconceivable that the “date of advance” might be subsequent to the date of the document; the amount of interest payable might then be a negligible fraction of the principal.
The decisive reason why I find these submissions unacceptable is that they both destroy negotiability and the courts must repudiate any mechanical construction of the Act which thus runs contrary to its very purpose and policy.
The instrument in issue in the case at bar presents analogies with one held not to be a bill of exchange in a judgment of the High Court of Australia, Rosenhain and Co. v. Commonwealth Bank of Australia. The document purporting to be a bill of exchange in that case was drawn on a Melbourne firm for a stated sum payable on a fixed date “with interest at the rate of 8 per cent per annum until arrival of payment in London to cover value received”.
The date upon which interest was to close was not ascertainable in Rosenhain whereas in the case at bar, the date upon which interest is to commence cannot be determined on the face of the document. In both cases, uncertainty as to the date entailed uncertainty as to the amount of interest payable. In a unanimous judgment which carries great weight the High Court of Australia wrote at pp. 790-91:
The “sum certain” must, however, if the document is to constitute a bill of exchange, be payable on demand or at a fixed or determinable future time. “Certainty,” as Ashurst, J., said, in Carlos v. Fancourt [ 5 T.R., at p. 486], “is a great object in commercial instruments; and unless they carry their own validity on the face of them they are not negotiable”. Now, the document under consideration did not fix a “determinable future time” for payment of the sums mentioned therein, but a fixed time—namely, “sixty days after sight”. Consequently, the sum must be certain at this fixed time if it is to conform to the provisions of the
Bills of Exchange Acts. But clearly the sum was not certain on that date, nor could it be made certain from anything appearing on the face of the document, for interest was to run on from the time fixed for payment—namely, “sixty days after sight” “until arrival of payment in London”, and it was quite uncertain, both on the face of document and in fact, when this event would happen, or indeed whether it would happen at all.
I would dismiss the appeal. In accordance with the terms of the order granting leave to appeal, the costs of the appeal are to be awarded to the respondent on a solicitor and client basis.
Appeal dismissed with costs.
Solicitors for the appellant: Faber, Gurevitch, Calgary.
Solicitors for the respondent: Huckvale, Wilde & Krushal, Lethbridge.