4. A. draws a bill on B., and indorses it to C. C. indorses it, "Pay D. or order for my use." The bill is dishonoured, and D. sues A. the drawer. If A. have any defence against C. he may set it up against D.1

2

Where a bill is indorsed restrictively the relations between indorser and indorsee are substantially those of principal and agent. If, for instance, the acceptor pay the indorser, it seems that the indorsee cannot sue him, though the indorsee really gave value for the bill. The indorsee is frequently referred to in the cases as a trustee, but he is only a trustee in the sense that an agent or bailee is a trustee.4 German Exchange Law, Art. 17, deals with agency or restrictive indorsements and accords substantially with this section; so, too, does sect. 50 of the Indian Act. In France the mere omission of the statement of the value received makes the indorsement operate as a procuration or agency indorsement.5 Pothier (Nos. 23 and 88-90) has worked out the results with great clearness.

§ 35.

bill continues

36. (1) Where a bill is negotiable in its origin How long it continues to be negotiable until it has been negotiable. (a) restrictively indorsed or (b) discharged by payment or otherwise.

"A bill of exchange," says Lord Ellenborough, in language a little too wide, "is negotiable ad infinitum until it has been paid by, or discharged on behalf of, the acceptor." See sects. 59-64 as to discharges, and sect. 35 (2) as to restrictive indorsements. The character and incidents of negotiability depend on the time of negotiation. As to negotiation, see sect. 31. As to transfer of an incomplete bill, see sect. 20, ante, p. 49.

1 Wilson v. Holmes (1809), 5 Mass. R. 543.

2 Cf. Potts v. Reed (1806), 6 Esp. at p. 59; Rice v. Stearns (1807), 3 Massachusetts R. at p. 532.

3 Williams v. Shadbolt (1885), 1 C. & E. 529, Cave, J.

4 Cf. Cook v. Lister (1863), 13 C. B. N. S. at p. 597; 32 L. J. C. P. 121; see the position of an agent or bailee compared with a trustee, strictly so called, by Jessel, M. R., in Re Hallett's Estate (1879), 13 Ch. D. at pp. 708-711, C. A.

5 Cf. French Code, Art. 138; Nouguier, §§ 744 et seq.

Callow v. Lawrence (1814), 3 M. & S. at p. 97; cf. Leavit v. Putnam (1850), 3 New York R. at p. 497.

§ 36.

After action brought.

Negotiation

of overdue bill.

The fact that an action has been brought on a dishonoured bill does not determine its negotiability; but if a bill be transferred, after action brought, to embarrass the defendant, his remedy is by application to the Court.1 If judgment were obtained, the bill would be extinguished by merger as between the defendant and the plaintiff or any subsequent party.

(2) Where an overdue bill is negotiated, it can only be negotiated subject to any defect of title affecting it at its maturity, and thenceforward no person who takes it can acquire or give a better title than that which the person from whom he took it had.

ILLUSTRATIONS.

1. Note payable to C.'s order made for an illegal consideration. C. indorses it, when overdue, to D. D. cannot recover from the maker.2

2. Bill obtained from the drawer for a special purpose. C., in fraud of that purpose, indorses the bill when overdue to D. D. cannot recover from the acceptor.3

3. Bill payable to drawer's order is accepted subject to a certain condition then agreed on between drawer and drawee. The drawer indorses the bill when overdue to C. C. takes the bill subject to the agreed condition, though he had no notice of it."

4. Bill accepted for an illegal consideration. The drawer indorses it before maturity to C., who takes it for value and without notice. C. indorses the bill when overdue to D. D. can sue all parties, for C. had a good title."

5. The holder of a bill is indebted to the acceptor, e.g. for rent. If, then, he sues the acceptor the arrears of rent can be set off; but if he indorses the bill when overdue to D. for value, the acceptor has no right of set-off against D."

6. Action by third indorsee of a bill against the first indorser. Although the plaintiff took the bill when overdue, the defendant

1 Deuters v. Townsend (1864), 33 L. J. Q. B. 301; cf. Woodward v. Pell (1868), L. R. 4 Q. B. 55.

2 Amory v. Meryweather (1824), 2 B. & C. 573.

3 Lloyd v. Howard (1850), 15 Q. B. 995.

4 Holmes v. Kidd (1858), 28 L. J. Ex. 112, Ex. Ch.

5 Chalmers v. Lanion (1808), 1 Camp. 383; Fairclough v. Pavia (1854), 9 Exch. 690; cf. sect. 29 (3), ante, p. 92.

6 Oulds v. Harrison (1854), 10 Exch. 572; Ex parte Swan (1868), L. R. 6 Eq. 344. The indorsement of a bill, in this respect, differs from the ordinary assignment of a chose in action. Roxburghe v. Cox (1880), 15 Ch. D. 520, C. A.

cannot set-off a debt due to him from an intermediate holder and indorser.'

7. The indorsee of a note sues the maker. The maker may show that the note had been satisfied as between himself and the payee, and that the payee indorsed the note to the plaintiff when it was overdue, and after satisfaction to the payee.2

8. The manager of the "X. Bank" abstracts moneys belonging to the bank, and purchases therewith an overdue bill of exchange, which he negotiates to D. The "X. bank," and not D., is entitled to the bill, and can prove against the acceptor's estate if he become bankrupt.3

9. A bill payable three months after date is accepted to accommodate the drawer. After the bill is overdue the drawer indorses to C. for value. C. can recover from the acceptor.'

10. A bill of exchange, indorsed in blank, is handed in Norway to S., who is agent for C. and D., and who was jointly interested in the bill. The bill is seized in Norway for a debt of D.'s, and, after it is overdue, is sold to F. The proceedings are regular according to Norwegian law. F. has a good title to the bill as against Ŏ.5

As to the term "defect of title," see sect. 29 (2), ante, p. 92. It was substituted for the equivalent expression equity attaching to the bill," as that term was unknown in Scotch law. "If," says Buller, J., "a note indorsed be not due at the time, it carries no suspicion whatever on the face of it, and the party receives it on its own intrinsic credit. . . . But where a note is due the party receiving it takes it on the credit of the person who gives it to him."6 After long controversy it now seems settled that mere absence of consideration is not an equity which attaches to a bill, but that if there be an agreement express or implied not to negotiate an accommodation bill after maturity, the agreement constitutes an equity attaching to it.8 In New

1 Whitehead v. Walker (1842), 10 M. & W. 696.

2 Brown v. Davies (1789), 3 T. R. 80.

3 Ex parte Oriental Bank (1870), L. R. 5 Ch. 358; cf. Lee v. Zagury (1817), 8 Taunt. 114; and, by analogy, Re Gomersall (1875), 1 Ch. D. 137. As to the limits of the principle that the rights of a person not a party to the bill may constitute an equity attaching to it, see Warren v. Haigh (1875), 65 New York R. 171.

Stein v. Yglesias (1834), 1 C. M. & R. 565.

5 Alcock v. Smith, (1892) 1 Ch. 238, C. A.

6 Brown v. Davies (1789), 3 T. R. 80, at p. 82.

7 Sturtevant v. Ford (1842), 4 M. & Gr. 101; Er parte Swan (1868), L. R. 6 Eq. 344.

8 Parr v. Jewell (1855), 16 C. B. 684, Ex. Ch.; Carruthers v. West (1847), 11 Q. B. 143, is not to the contrary. See ratio decidendi, per Wightman, J.

§ 36.

§ 36.

When deemed overdue.

York it has been held that if an accommodation bill be negotiated when overdre the holder cannot recover, for the bill is in terms a credit for a limited time, and to negotiate it after that time is a breach of faith.1

Payment and other discharges are sometimes spoken of as equities attaching to a bill, but this seems incorrectthey are rather grounds of nullity. That which purports to be a bill is no longer such; it is mere waste paper. Part payment, however, may be regarded as an equity which attaches to a bill. The position of a holder who takes a bill when overdue, is this: he is a holder with notice. He may or may not be a holder for value, and his rights will be regulated accordingly. He is a holder with notice for this reason: he takes a bill which, on the face of it, ought to have got home and to have been paid. He is therefore bound to make two enquiries: 1. Has what ought to have been done really been done, i.e., has the bill in fact been discharged? 2. If not, why not? Is there any equity attaching thereto ? i.e., was the title of the person who held it at maturity defective? If his title to the instrument was complete, it is immaterial that for some collateral reason, e.g., a set-off, he could not have enforced the bill against some one or more of the parties liable thereon. In France, it seems, no distinction is drawn between overdue and current bills; Nouguier, §§ 679680. By German Exchange Law, Art. 16, the indorsee of an overdue and protested bill acquires only the rights of his indorser.

3

A bill payable otherwise than on demand is overdue after the expiration of the last day of grace. As to instruments on demand, see sub-sect. (3), and as to dishonoured bills, see sub-sect. (5). By German Exchange Law, Art. 16, a bill is not deemed to be overdue till the time for protesting it has elapsed.

Bills negotiated abroad. The provisions of this section perhaps do not apply to a bill which is negotiated in a foreign country, where no distinction is recognised between overdue and current bills.1

1 Chester v. Dorr (1869), 41 New York R. 279.

2 Graves v. Key (1832), 3 B. & Ad. at p. 319.

3 Cf. Leflley v. Mills (1791), 4 T. R. 170.

4 Alcock v. Smith, (1892) 1 Ch. 238, affirmed on the ground that the evidence disclosed no defect of title.

mand, when

(3) A bill payable on demand is deemed to be § 36. overdue within the meaning and for the purposes Bill on deof this section, when it appears on the face of overdue. it to have been in circulation for an unreasonable length of time. What is an unreasonable length of time for this purpose is a question of fact.

See sect. 10, defining what bills are payable on demand. There appears to be no English or American case as to a bill, but the enactment is probably declaratory. Compare sect. 40 (3), post, p. 133, as to the test of reasonable time.

By sect. 86 (3), post, p. 267, notes payable on demand, which are regarded as continuing securities, are exempted from this sub-section.1

By virtue of sect. 73, post, p. 245, this enactment applies to cheques. Therefore a person who takes a stale cheque, takes it at his peril. In a case in 1881, where the previous decisions are reviewed, a cheque negotiated 8 days after date, was held not to be on the footing of an overdue bill, but a cheque taken 2 months after date has been held to be stale.3

as to date of

(4) Except where an indorsement bears date Presumption after the maturity of the bill, every negotiation is negotiation. prima facie deemed to have been effected before the bill was overdue.

4

This is declaratory; but apart from the general rule there is no presumption as to the exact time of negotiation, and it seems that circumstances of strong suspicion, short of direct evidence, may rebut the primâ facie pre

1 Brooks v. Mitchell (1841), 9 M. & W. 15.

2 London and County Bank v. Groome (1881), 8 Q. B. D. 288; cf. Rothschild v. Corney (1829), 9 B. & C. 388, six days.

Serrel v. Derbyshire Railway Co. (1850), 9 C. B. 811; cf. Ex parte Hughes (1880), 43 L. T. N. S. 577, as to dishonoured cheques; and Himmelman v. Hotaling (1870), 6 Amer. R. 600.

4 Lewis v. Parker (1836), 4 A. & E. 838; cf. sect. 30 (2), ante, p. 93. Anderson v. Weston (1840), 6 Bing. N. C. 296.