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(2) A transferor by delivery is not liable on
$ 58. the instrument.
Not liable on
instrument, Further, a transferor by delivery is not liable on the consideration in respect of which he has transferred the bill, if the bill be dishonoured, unless (1) the bill was given in respect of an antecedent debt, or (2) it appears that the transfer was not intended to operate in full and complete discharge of such liability. 4
The transferee, in order to avail himself of the above exceptions, must use reasonable diligence in endeavouring to obtain payment, and in giving notice of dishonour or repudiating the transaction. For example :
1. D., the holder of a bill for 1001., which has been indorsed in blank, discounts it with a banker for 901. without indorsing it. The bill is dishonoured. D. is not liable to refund the 901.6
2. D. changes a banker's note or cashes a cheque payable to bearer for the convenience of the holder. If the bank has stopped payment, or the cheque is dishonoured, D. can recover the money.? (3) A transferor by delivery who negotiates a Warranty by
transferor. bill thereby warrants to his immediate transferee being a holder for value that the bill is what it purports to be, that he has a right to transfer it,9 and that at the time of transfer he is not aware of any fact which renders it valueless. 10
1 Ex parte Roberts (1789), 2 Cox, 171 ; Penn v. Harrison (1790), 3 T. R. 757 ; see also sect. 23.
2 Read v. Hutchinson (1813), 3 Camp. 352; cf. Van Wart v. Woolley (1824), 3 B. & C. at p. 445, Abbott, C.J. ; Evans v. Whyle (1829), 5 Bing. 485.
3 Ward v. Evans (1703), 2 Ld. Raym. at p. 930 ; cf. Camidge v. Allenby (1827), 6 B. & C. at p. 382, Bayley, J. ; but qu. if this exception now applies to bank notes ; Guardians of Lichfield v. Greenc (1857), 26 L. J. Ex. at p. 142.
Van Wart v. Woolley (1824), 3 B. & C. at p. 446, Abbott, C.J. 5 Rogers v. Langford (1833), i Cr. & M. 642 ; Moule v. Brown (1838), 4 Bing. N. C. 266 ; Robson v. Oliver (1847), 10 Q. B. 704.
6 Bank of England v. Newman (1700), 1 Ld. Raym. 442.
7 Turner v. Stones (1843), 1 D. & L. 122, note; Woodland v. Pear (1857), 26 L. J. Q. B. 202 ; cf. Timmins v. Gibbins (1852), 18 Q. B. 722 (notes paid into a bank and credited to customer).
8 Gompertz v. Bartlett (1853), 23 L. J. Q. B. 65 (bill void for want of stamp); see now sect. 52 of the Stamp Act, 1870; cf. Pooley v. Brown (1862), 31 L. J. C. P. 134.
9 Story on Promissory Notes, & 118 : no English decision.
ILLUSTRATIONS. Warranty of 1. C. discounts with D. a bill payable to bearer without indorstransferor by ing it. It turns out that, unknown to C., the amount of the bill delivery. had been fraudulently altered by a previous holder. D. can recover
from C. the money he paid.'
2. A bill broker discounts with a bank a bill indorsed in blank by the payee. The indorser absconds, and the signatures of the drawer and acceptor turn out to be forgeries. The bank can recover the money they paid from the bill broker.?
3. An agent gets a bank to discount a bill drawn and indorsed in blank by his principal, and then pays over the money to his principal. The signature of the acceptor was a forgery, but the agent did not know it. The drawer fails. The bank cannot recover from the agent.
4. The bona fide holder of a bill purporting to be drawn by A., accepted by B., and indorsed in blank by C., discounts it with a banker. It turns out that the signatures of A. and B. were forgeries, and that C., whose indorsement was genuine, is insolvent. The banker can recover from the holder the money he paid.*
When the transferee discovers the defect in the bill, he must repudiate the transaction with reasonable diligence.5
There is some confusion in the cases owing to the distinction between the warranty of genuineness and the liability on the consideration having been lost sight of. The warranty of genuineness is an incident of the contract of sale, and it is immaterial whether the thing sold be a bill or any other personal chattel. The transferor is for this purpose an ordinary vendor. In New York the warranty is more extensive than in England. The transferor of a note warrants the solvency of the maker at the time of transfer.
Contract of indemnity on accommodation bill.
Accommodation Party and Person Accommodated. When a person draws, indorses, or accepts a bill for the accommodation of another, the person accommodated im
(1859), 20 New York R. 228; Bridge v. Batchelor (1864), 91 Massachus. R. 394.
Jones v. Ryde (1814), 5 Taunt. 488 ; cf. Burch field v. Moore (1854), 23
Puller v. Smith (1824), R. & M. 49.
* Gurney v. Womersley (1854), 24 L. J. Q. B. 46; Merriam v. Wolcott (1861), 85 Massachus. R. 258.
6 Pooley v. Brown (1862), 31 L. J. C. P. 134.
pliedly engages (a) that he will provide funds for the payment of the bill at maturity; (b) that if, owing to his omission so to do, the accommodation party is compelled to pay the bill, he will indemnify such party. For example :
1. B. accepts a bill to accommodate the drawer. The drawer sends funds to B. to provide for the bill, but becomes bankrupt before the bill matures. B. can retain those funds to pay the bill with.
2. A. signs a bill as drawer to accommodate the acceptor. It is dishonoured. A. receives no notice of dishonour, but nevertheless pays half the amount of the bill to the holder. A. cannot, it seems, recover this sum from the acceptor, for he has not paid under compulsion.3
3. B. accepts a bill to accommodate the drawer, but is not provided with funds to pay it. There is some primâ facie defence against the holder. B. is sued, defends the action, and has to pay the amount of the bill and costs. B. can recover from the drawer the amount he paid, including the costs of defending the action.
4. A bill for 2001., drawn abroad, is accepted for the accommodation of the first indorser. Acceptor and indorser fail. The holder gets 1001. from the acceptor and 1001. from the indorser. The indorser's estate pays 158. in the pound. The acceptor, in proving on the contract of indemnity against the indorser, can get 501., which makes the total amount paid by the indorser on the bill (1501.) to be at the rate of 158. in the pound.
See accommodation bill and accommodation party defined, ante, p. 87. An accommodation party who is compelled to pay the bill has all the rights of an ordinary surety in such case, e.g., he is entitled to the benefit of all securities held by the creditor. The Statute of Frauds does not require the contract of indemnity which arises out of an accommodation transaction to be in writing.?
· Reynolds v. Doyle (1840), 1 M. & Gr. 753; Sleigh v. Sleigh (1850), 5 Exch. at pp. 516, 517, Parke, B. ; cf. Hawley v. Beverley (1843), 6 M. & Gr. at p. 227 ; Asprey v. Levy (1847), 16 M. & W. 851.
Yates v. Hoppe (1850), 19 L. J. C. P. 180. 3 Sleigh v. Sleigh (1850), 5 Exch. 514 ; but see Ex parte Bishop (1880), 15 Ch. D. at pp. 410, 417, C. A.
* Stratton v. Mathews (1848), 3 Exch. 48; Baker v. Martin (1848), 3 Barb. 634, New York, accommodation indorser ; cf. Bagnall v. Andrews (1830), 7 Bing. at p. 222; Garrard v. Cottrell (1847), 10 Q. B. 679. Aliter if the action be defended without reasonable cause ; Roach v. Thompson (1830), M. & M. 487 ; Beech v. Jones (1848), 5 C. B. 696.
5 Ex parte European Bank (1871), L. R. 7 Ch. 103.
6 Bechervaise v. Lewis (1872), L. R. 7 C. P. at p. 377; Gray v. Seckham (1872), L. R. 7 Ch. 680.
i Batson v. King (1859), 4 H. & N. 739.
Where two or more persons become parties to a bill to accommodate some third party, their rights and liabilities between themselves are those of co-sureties, and must be determined irrespective of the position of their names on the instrument. For example :- A bill is drawn by one person and indorsed by another for the accommodation of the acceptor. The drawer has to pay the bill. He can sue the indorser for contribution as a co-surety, though he could not sue him on the bill.?
It is conceived that there is nothing in this rule inconsistent with the decision of the House of Lords in Steele v. McKinlay, which merely decided that the drawer could not sue the indorser on the bill. The drawer there never suggested that he was entitled to contribution from the indorser as a co-surety.
1 Reynolds v. Wheeler (1861), 30 L. J. C. P. 350; Macdonald v. Whitfield (1883), 8 App. Cas. 733, P. C. ; cf. Batson v. King (1859), 4 H. & N. at p. 741.
• Reynolds v. Wheeler (1861), 30 L. J. C. P. 350.
Discharges. [Discharge of Bill.—A bill is discharged when all rights of action thereon are extinguished. It then ceases to be negotiable, and if it subsequently comes into the hands of a holder in due course, he acquires no right of action on the instrument.1
A right of action on a bill must be distinguished from a right of action which a party to a bill may have arising out of the bill transaction, but wholly independent of the instrument. The former can be transferred by negotiating the instrument, the latter cannot. The former is extinguished by the discharge of the instrument, the latter may or may not be so. For example, if one of three joint acceptors pays a bill, it is discharged; but he personally has a right of contribution from his co-acceptors. If an accommodation acceptor pays a bill it is discharged, but he has a personal right of action for indemnity. If an acceptance be given for a debt, and the acceptance is paid, both the debt
and the bill are discharged. Discharge of Parties.-Again, the discharge of a bill must be distinguished from the discharge of one or more of the parties thereto, e.g., the acceptor may be discharged by a discharge in bankruptcy, while the drawer and indorsers are only liberated to the extent of the dividends or composition received by the holder ; 8 or a particular indorser may be discharged by want of notice of dishonour, while the drawer and other indorsers remain liable; or, again, an indorser may be discharged as regards a particular party, but not as regards subsequent parties.4]
59. (1) A bill is discharged by payment in due Payment in course by or on behalf of the drawee or acceptor.5
· Harmer v. Steele (1849), 4 Exch. 1, Ex. Ch. ; Burchfield v. Moore (1854), 23 L. J. Q. B. 261 ; cf. Burbridge v. Manners (1812), 3 Camp. at p. 194 (payment); Cundy v. Marriott (1831), 1 B. & Ad. 696 (stamp).
? Harmer v. Steele (1849), 4 Exch. at p. 14 ; see the converse, Houle v. Baxter (1802), 3 East, 177.
3 Re Joint Stock Discount Co. (1870), L. R. 10 Eq. 11 ; Re Jacobs (1875), L. R. 10 Ch. 211 (composition under Bankruptcy Act, 1869).
4 Cf. O'Keefe v. Dunn (1815), 6 Taunt. 315 ; and sect. 48 (1).