DISCHARGE OF BILL.

Sections 59 to 63, inclusive, treat of the circumstances under which a bill is discharged. These are, payment by the acceptor, his becoming the holder, his being released, or the bill being cancelled or materially altered. Section 61, s-e. 2, treats of the release of a party to a bill from his liability thereon, without the bill itself being discharged. Section 48 had provided for the discharge of a drawer or indorser to whom notice of dishonor was not given.

Besides the foregoing, the liability of a party to a bill may be terminated by the other means by which a debt may be extinguished. In the province of Quebec an obligation to pay a sum of money may become extinct by payment, by novation, by release, by compensation, by confusion, by prescription, and by some other special causes: C. C. 1138. In the other provinces a bill may be satisfied in several ways and may be discharged in whole or in part by set-off. In connection with the five following sections, these various subjects will be briefly noticed, as will also the release of a surety by the holder's dealings with the principal.

It is possible that the last section (8) of the amending Act of 1891, may have an important bearing upon these and other matters not specifically mentioned or provided for in the Act. The reader is referred to the notes upon that section for a discussion of the question.

Thus far the numbering of the sections has followed that in the Imperial Act. Section 60 of the latter provides, that where a cheque or bill payable to order on demand is drawn on a banker, and he pays it in good faith, he is not responsible, although the indorsements are unauthorized or even forged. Our Parliament struck this section out of the

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§ 59. bill, so that section 60 of our Act is section 61 of the Imperial Act, and this difference is continued in the numbering of the succeeding sections.

Discharge

by payment.

Payment in due course.

59. A bill is discharged by payment in due course by or on behalf of the drawee or acceptor:

Payment in due course" means payment made at or after the maturity of the bill to the holder thereof in good faith and without notice that his title to the bill is defective; Imp. Act. s. 59 (1).

Payment.-Payment is not defined in the Act. A bill is for a sum certain in money, but it may be satisfied at or after maturity, in any way in which any other contract to pay money may be satisfied, and, as provided by section 61, in a manner which would not be sufficient in the case of ordinary contracts. "By payment is meant the discharge of a contract to pay money, by giving to the party entitled to receive it, the amount agreed to be paid by one of the parties who entered into the agreement. Whether the transaction is a purchase or a payment, is a question to be resolved according to the intention of the parties, and looking to the substance of the matter rather than its form. Credit given by the drawee of a bill or by a party to a bill or note, who is liable for its payment to the holder at his request, is equivalent to payment. Payment of a debt is not necessarily a payment of money; but that is payment which the parties contract shall be accepted as payment, or which the law recognizes as such": 2 Daniel, § 1221.

Payment in due course.-If the drawee or acceptor pays a bill before maturity, it is not thereby discharged; he may negotiate it. If the bill is payable to bearer or in

dorsed in blank, he may pay to the bearer; if indorsed in § 59. full he may pay to the indorsee or to his order. Payment is in good faith if made honestly; mere negligence is not enough to vitiate it: section 89. As to what may render the title of the holder of a bill defective, see section 29.

Payment by bill or note.-When a renewal bill is taken the original one is not discharged, unless there is a special agreement to that effect. It is a mere conditional payment. So where the bill of a third party is taken. The remedy on the original bill is suspended until the maturity of the new one; if that is paid or discharged, so is the original. If the new one is dishonored, the original liability revives, except as to parties, who are merely sureties, and who may have been discharged by the delay granted to the principal debtor.

In either of the foregoing cases the renewal or new bill will operate as a discharge, if the parties have so agreed. If the holder has retained the old bill, the presumption will be, that such was not the intention of the parties.

Merger. A bill may also be discharged by being merged in a security of a higher nature, such as a bond, mortgage, or the like. So a judgment recovered on a bill, operates as an extinguishment of the original debt, the bill being merged in the judgment.

Novation.-Article 1169 of the Civil Code provides that "Novation is effected (1) when the debtor contracts towards his creditor a new debt, which is substituted for the ancient one, and the latter is extinguished; (2) when a new debtor is substituted for a former one who is discharged by the creditor; (3) when by the effect of a new contract, a new creditor is substituted for a former one, towards whom the debtor is discharged." Such a discharge has been considered in part under payment by bill and merger.

For discharge by "compensation" or "set-off," see post p. 338.

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The provisions of this section regarding a drawee or acceptor, apply to the maker of a promissory note: section 88.

ILLUSTRATIONS.

1. Notes were given for the purchase money of personal property, and were not to be paid if the property was given up. The property was returned and sold for less than the first sale. Held, that the notes were satisfied by the return of the property as agreed Smith v. Judson, 4 U. C. O. S. 134 (1835).

2. The following are examples of the discharge of the bill or note by merger in the mortgage or other security taken, although the holders may not have so intended: Matthewson v. Brouse, 1 U. C. Q. B. 272 (1843); Bank of B. N. A. v. Jones, 8 U. C. Q. B. 86 (1850); Parker v. McCrea, 7 U. C. C. P. 124 (1857); Fairman v. Maybee, ibid. 467 (1858); Fraser v. Armstrong, 10 ibid. 506 (1860); McLeod v. McKay, 20 U. C. Q. B. 258 (1860); Adams v. Nelson, 22 ibid. 199 (1862).

3. Where a mortgage or other security is taken as collateral to a bill or note, there is no merger, and the bill or note is not discharged, but may be sued if not paid, although the mortgage is not due; Murray v. Miller, 1 U. C. Q. B. 353 (1844); Bank of U. C. v. Sherwood, 8 ibid. 116 (1850); Ross v. Winans, 5 U. C. C. P. 185 (1855); Shaw v. Crawford, 16 U. C. Q. B. 101 (1857); Commercial Bank v. Cuvillier, 18 ibid. 378 (1859); Bank of U. C. v. Bartlett, 12 U. C. C. P. 238 (1862); Gore Bank v. McWhirter, 18 ibid. 293 (1868); Gore Bank v. Eaton, 27 U. C. Q. B. 332 (1868); Molsons Bank v. McDonald, 2 Ont. A. R. 102 (1877).

4. Where a note overdue has been retired and settled by a renewal note, it is cancelled and cannot be put in circulation again even by the payee, who has taken up the renewal note out of his own funds Cuvillier v. Fraser, 5 U. C. Q. B. 152 (1848).

5. In an action by the indorsee against the acceptor of a bill, a plea of payment by the drawer is no defence, unless made

on the acceptor's account and adopted by him; Bank of Montreal v. Armour, 9 U. C. C. P. 401 (1859).

6. Payment by the maker to the original holder after transfer would be at his own risk, and be no discharge though the note was overdue at the time of the transfer; Ferguson v. Stewart, 2 U. C. L. J. 116 (1866); Banque du Peuple v. Viau, 4 L. N. 133 (1880); Hawley v. Beverley, 6 M. & Gr. 221 (1843).

7. Taking the note of a new firm for goods sold to the old firm may operate as a release to the latter: Watts v. Robinson, 32 U. C. Q. B. 362 (1872).

8. A creditor took the note of a partner for a partnership debt, sued on it and took judgment. Failing to recover, he is not precluded from claiming against the partnership: Carruthers v. Ardagh, 20 Grant, 579 (1873).

9. Where a bank held for collection a note made by one customer in favor of the other, and on the day it matured, charged it to the maker and credited it to the payee in their books, and in his pass-book, it was held to be a payment, and irrevocable: Nightingale v. City Bank, 26 U. C. C. P. 74 (1876); Cleveland v. Exchange Bank, 31 L. C. J. 126 (1887).

10. The firm of H. & M. were in the habit of buying goods from D. & C. and giving them notes for the price. They dissolved in 1876, M. carrying on the business and dealing with B. & Co., who took his notes for the running account. He failed in 1880. His payments to B. & Co. were sufficient to pay off the notes of H. & M. if so applied. Held, reversing 7 Ont. A. R. 33, that from the blending of the accounts and the course of dealing, the paper of H. & M. was fully paid: Birkett v. McGuire, Cassels' S. C. Digest, 332 (1883).

11. A note was given for goods. Before maturity the vendor who held the note agreed, on account of partial failure of consideration, to reduce it by $500. After maturity he indorsed it to M. "without recourse." Held, that M. must credit this $500 on the note: McGregor v. Bishop, 14 0. R. 7 (1887).

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