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Not an assignment of funds in England.
According to English Law, the drawee of a bill, as such, incurs no liability to the holder, and there is no privity of contract between them ;? but privity may be created by agreement external to the bill, and the relations of the parties are then regulated by the terms of the agreement. In one instance too, a quasi-privity has been created by sect. 74 (3), post, p. 249, which provides that when the holder of a cheque omits to present it within a reasonable time, whereby the drawer has been damnified (i.e., by the bank failing), the drawer is pro tanto discharged, and the holder is substituted as a creditor of the bank.
In England, again, when a bill is accepted payable at a banker's, there is no privity between the drawer or holder and the acceptor's banker.3
In Scotland the rule is otherwise; thus, where A. having 1001. at his bankers drew a cheque for 1501., it was held that the cheque on presentation operated as an intimated assignation of the 1001. to his credit ; * so, too, where a bill is accepted payable at a banker's, it operates on presentment as an intimated assignation."
In France, as in Scotland, when the drawee has funds, drawing a bill operates as an assignment of them in favour of the holder, and creates a privity between holder and drawee.
Letters of Credit.--A letter of credit, says Story, is “a letter of request whereby one person (usually a merchant or banker) requests some other person to advance moneys or give credit to a third person named therein for a certain amount, and promises that he will repay such sum to the person advancing the same or accept bills drawn upon himself for the like amount. It is called a general (or open) letter of credit when it is addressed to all merchants or other persons in general; and it is called a special letter of credit when it is addressed to a particular person by
Letter of credit.
1 Hopkinson v. Forster (1874), L. R. 19 Eq. 74, cheque ; Shand v. Du Buisson (1874), L. R. 18 Eq. 283, bill of exchange; Carr v. Nat. Bank (1871), 107 Massachus. R. 45; Netherlands Code, Art. 110 ; cf. Vaughan v. Holliday (1874), L. R. 9 Ch. 561.
? Robey v. Ollier (1872), L. R. 7 Ch. 695 ; Ranken v. Alfaro (1877), 5 Ch. D. 786.
3 Hill v. Royds (1869), L. R. 8 Eq. 290 ; Yates v. Bell (1820), 3 B. & Ald. 643 ; Moore v. Bushell (1857), 27 L. J. Ex. 3.
4 British Linen Co. v. Carruthers (1883), 10 Sess. Cas. 923.
name, requesting him to make such advance to a third
§ 53. person.'
See the nature of a letter of credit commented on by Lord Cairns in a case where it was held that a writing opening a credit for a particular sum does not of itself constitute an equitable assignment or specific appropriation of that sum so as to create a trust. It is an undertaking that the person giving it will act as paymaster to the person to whom it is given, up to a certain amount, on his performing the conditions set forth in it.
It is usually operated on by bills of exchange, but it may be operated on by cheques or simple demand of payment. As to open letters of credit, see Illustration 2 ; and see an open letter of credit distinguished from an ordinary or special credit by Brett, L.J.3 By sect. 32 of the Stamp Act, 1891, post, p. 354, a credit to be used in the United Kingdom requires a stamp.
A letter of credit is not a negotiable instrument, and the production of it does not authorize payment of drafts under it to the person presenting it if, as a fact, those drafts are forged. So, too, where a letter of credit in favour of C. was stolen, and the thief having indorsed C.'s name on it, represented that he was authorised by C. to receive the amount, it was held that payment to him did not discharge the paying bank.
Drauee and Drawer.—Subject to the rule that a customer Relations of is entitled to draw cheques on his banker (post, p. 251), a
drawee. creditor, as such, is not entitled to draw on his debtor in respect of his debt; and the drawee of an unaccepted bill of exchange is under no obligation to accept or pay it unless he has for valuable consideration expressly or impliedly agreed to do so.
Story, $$ 459 et seq. See the American cases on credits analysed in British Linen Co. v. Caledonian Ins. Co. (1861), 4 Macq. H. L. 107, at p. 112, n.
3 Morgan v. Larivière (1875), L. R. 7 H. L. at p. 432. And see note to British Linen Co. v. Caledonian Ins. Co. (1861), 4 Macq. H. L. at p. 109.
3 Union Bank of Canada v. Cole (1877), 47 L. J. C. P. at p. 109.
6 Chitty, p. 200 ; cf. Goodwin v. Robarts (1875), L. R. 10 Ex. at p. 351, Ex. Ch. : see e.g., Smith v. Brown (1815), 6 Taunt. at p. 344 ; Laing v. Barclay (1823), 1 B. & C. 398 ; Huntley v. Sanderson (1833), 1 Cr. & M. 467 (agent authorised to draw on principal ; contract of indemnity); Cumming v. Shand (1860), 29 L. J. Ex. at p. 132 (implied agreement to
In some Continental countries the duty to accept or pay bills arises from the mere relationship of debtor and creditor in a mercantile transaction; whereas here there must be an agreement founded on consideration. Apart from something special in the contract, it seems that the authority or obligation to accept is not revoked by the death of the drawer,” while it is by notice of his bankruptcy; for this renders funds in the hands of the drawee no longer available for the payment of the bill, and incapacitates the drawer from fulfilling his part of the contract. The bankruptcy of the drawee is not per se a breach of contract with the drawer. In France the engagement between drawer and drawee is held to be a contract of “ mandat," and their relations are regulated accordingly.”
Letter of Advice. It is usual, but not necessary, for the drawer to advise the drawee of drafts drawn on him by letter of advice. If, says Story, $ 68, a bill is drawn “as per advice," then the drawee is not bound to accept or pay without such advice, and if he does it is at his own peril.
When the drawee breaks his contract with the drawer by dishonouring his draft, the consequences reasonably resulting from the breach of contract constitute the measure of damage.7 Thus :
1. A customer having a balance of 2001. at his banker's draws a cheque for 1001., or accepts a bill for 1001. payable at his banker's. If this cheque or bill is dishonoured he may recover substantial damages for the injury to his credit, without proving any actual loss.8
let customer overdraw); English Credit Co. v. Arduin (1871), L. R. 5 H. L. 64 (construction of credit).
Pothier, No. 92 ; Nouguier, § 442 ; Belgian Code de Commerce, Art. 8. ? Chitty, p. 202 ; Story, $ 250 ; Cutts v. Perkins (1815), 12 Massachus. R. 206 ; cf. Billing v. Devaux (1841), 3 M. & Gr. at p. 574 ; Att.-Gen. v. Pratt (1874), L. R. 9 Ex. 140.
3 Pothier, No. 96 ; cf. Citizens Bank v. New Orleans Bank (1873), L. R. 6 H. L. 352.
4 Ex parte Tondeur (1867), L. R. 5 Eq. 160 ; cf. Ex parte Agra Bank (1870), L. R. 9 Eq. at p. 733.
5 Pothier, Nos. 91–100; Bravard-Demangeat, 7th ed. p. 219; Code Civil, Arts. 1984—2010.
6 Arnold v. Cheque Bank (1876), 1 C. P. D. at p. 586 ; Nouguier, SS 281 -284 ; Pothier, No. 36.
7 Prehn v. Royal Bank of Liverpool (1870), L. R. 5 Ex. 92; cf. Isley v. Jones (1858), 78 Massachus. R. 260 (accommodation bill).
8 Rolin v. Steward (1854), 23 L. J. C. P. 148 ; cf. Cumming v. Shand (1860), 59 L. J. Ex. 129 : Summers v. City Bank (1874), L. R. 9 C. P. 580; Boyd v. Pitt (1863), 14 Ir. C. L. R. 43.
2. A., in a foreign country, draws on B., in England, under a letter of credit. B. dishonours his draft. A. may recover the re-exchange and notarial expenses which he has had to pay to the holder, and also the cost of telegrams, &c., consequent on the dishonour.'
Although possibly an acceptor, as such, may not be liable for re-exchange, it is clear that the drawee by accepting cannot alter or escape from his special contract with the drawer; and this might perhaps be alleged as the ground of his liability for re-exchange, &c., when sued by the drawer, but the probability is, that the cases in which it was held that an acceptor was not liable for re-exchange are simply overruled. As to paying a draft contrary to instructions, see Twibell v. London Suburban Bank.5
54. The acceptor of a bill, by accepting it, Liability of
. (1) Engages that he will pay it according to acceptor.
the tenor of his acceptance ; See sect. 19, ante, p. 46, as to general and qualified acceptances, and sect. 52, ante, p. 176, as to presentment to charge acceptor.
As to variation of the acceptor's liability by ex post facto legislation, e.g., a French®“ loi moratoire,” see Rouquette v. Overman.? As to measure of damages, see sect. 57, post, p. 190. The drawee of a bill, by accepting it, becomes the party primarily liable thereon to the holder. See the primary, and, in general, absolute, liability of an acceptor distinguished from the secondary and conditional liability of a drawer or indorser by Bayley, J. As to the relations inter se of joint acceptors who are not partners, see per Wilde, C.J.10
I Walker v. Hamilton (1860), 1 De G. F. & J. 602; Re General South
? Prehn v. Royal Bank of Liverpool (1870), L. R. 5 Ex. 92.
6 Smith v. Vertue (1860), 30 L. J. C. P. 56, at p. 60 ; cf. Walton v. Mascall (1844), 13 M. & W. at p. 458 ; French Code, Art. 121 ; German Exchange Law, Art. 23.
i Rouquette v. Overmann (1875), L. R. 10 Q. B. 525. 8 Philpot v. Briant (1828), 4 Bing. at p. 720.
9 Rowe v. Young (1820), 2 Bligb, H. L. at p. 467 ; Jones v. Broadhurst (1850), 9 C. B. at p. 181 ; per Cresswell, J.
10 Harmer v. Steele (1849), 4 Exch. at p. 13.
Estoppels binding acceptor.
In the case of a bill accepted for value the acceptor is frequently described as the principal debtor, and the drawer and indorsers as his sureties ; 1 but, as Lord Blackburn has pointed out, this is not an accurate expression. The drawer or indorser “is not exactly a surety for the acceptor, or co-surety with those who are sureties for the acceptor, yet he stands in a position sufficiently analogous to that of a surety” to entitle him to the equities of a surety when the bill has been dishonoured, though not before.
A plea, by the acceptor, of tender after maturity is bad. 3
genuineness of his signature, and his
capacity and authority to draw the bill;4 (6) In the case of a bill payable to drawer's
order, the then capacity of the drawer to indorse, but not the genuineness or
validity' of his endorsement; (c) In the case of a bill payable to the
order of a third person, the existence of the payee and his then capacity to in
See e.g., Cook v. Lister (1863), 32 L. J. C. P. at p. 127, per Willes, J.; Rouquette v. Overmann (1875), L. R. 10 Q. B. at p. 536, per Cockburn, C.J.
2 Duncan, Fox & Co. v. N. & S. Wales Bank (1880), 6 App. Cas. 1 H. L. at
3 Poole v. Tumbridge (1837), 2 M. & W. 223 ; Dobie 5. Larkan (1855), 10 Exch. 776 ; cf. Leake on Contracts, ed. 3, p. 861.
4 Cooper v. Meyer (1830), 10 B. & C. 468 ; Sanderson v. Collman (1842), 4 M. & Gr. 209; National Park Bunk v. Ninth Bank (1871), 46 New York R. 77.
6 Braithwaite v. Gardiner (1846), 8 Q. B. 473 (bankı upt) ; Smith v. Marsack (1848), 18 L. J. C. P. 65 (married woman before the Act of 1882); Hallifax v. Lyle (1849), 3 Exch. 446 (corporation having no power to issue bills).
6 Beeman v. Duck (1843), 11 M. & W. 251 ; cf. Smith v. Chester (1787), 1 T. R. 654.
* Robinson v. Yarrow (1817), 7 Taunt. 455 (bill drawn and indorsed
per proc.” without authority); Garland v. Jacomb (1873), L. R. 8 Ex. 216, Ex. Ch. (bill drawn and indorsed by partner in non-trading firm with. out authority of co-partner).