creditor must use due diligence to collect it and give notice of dishonour, if necessary, otherwise it will be treated as so much money in his hands.1

payment.

Where a bill or note is given by way of payment, the Conditional payment may be absolute or conditional, the strong presumption being in favour of conditional payment. It is immaterial whether the instrument is payable on demand or at a future time. "The title of a creditor," says Lush, J., “to a bill given on account of a pre-existing debt, and payable at a future day, does not rest upon the implied agreement to suspend his remedies. The true reason is that a negotiable security given for such a purpose is a conditional payment of the debt, the condition being that the debt revives if the security is not realized. This is precisely the effect which both parties intended the security to have, and the doctrine is as applicable to one species of negotiable security as another; to a cheque payable on demand, as to a running bill or a promissory note payable to order or bearer, whether it be the note of a country bank which circulates as money, or the note of the debtor, or of any other person." 3

In some American States, for instance, Massachusetts and Vermont, the common law presumption is reversed, and a bill or note is primâ facie deemed to have been taken as absolute and not as conditional payment; but in most States the English rule prevails.*

The effect of a bill or note as conditional payment may be illustrated by the contract of sale. If a bill be taken for the price of goods sold, the seller's lien is gone during the currency of the bill, but revives on its actual or practical dishonour. Thus, in Gunn v. Bolckow, Vaughan

1 Peacock v. Purssell (1863), 32 L. J. C. P. 266.

2 Cf. Maillard v. Argyle (1843), 6 M. & Gr. 40; Leake v. Young (1856), 25 L. J. Q. B. 266; Bottomley v. Nuttall (1858), 28 L. J. C. P. 110.

3 Currie v. Misa (1875), L. R. 10 Eq. 153, at p. 163, Ex. Ch. ; cf. Crowe v. Clay (1854), 9 Exch. 604, at p. 608, Ex. Ch.

4 Story on Sale, § 219.

Creditor holding higher security.

& Co., where iron rails were sold to be paid for by buyer's acceptances of seller's drafts against wharfinger's certificates, it was held that the giving of the acceptances was not an absolute payment, but conditional on the acceptances being met, and that upon the insolvency of the acceptors the seller's lien on the goods revived, and the fact that the sellers had negotiated the bills made no difference. "No doubt," says Mellish, L.J., "if the buyer does not become insolvent then credit is given by taking the bill, and during the time that the bill is current there is no vendor's lien, and the vendor is bound to deliver. But if the bill is dishonoured before delivery has been made, then the vendor's lien revives; or if the purchaser becomes openly insolvent before the delivery actually takes place, then the law does not compel the vendor to deliver to an insolvent purchaser." Though the bills had been discounted, the seller was liable on them, with recourse over only against the insolvent buyer, otherwise the fact that the bills were in the hands of third parties would have been material.2

When the bill or note is dishonoured it seems that the debt which was conditionally paid may be treated as subsisting throughout. Thus, where a debtor had given his creditor a cheque, but on the debt being garnisheed, stopped the cheque, it was held that there was a good subsisting debt which could be garnisheed.3

There appears to be a qualification of the rule that a bill or note operates as conditional payment in the case where the creditor already possesses a higher remedy. In Belshau v. Bush, where it was held that the acceptance of a third

1 Gunn v. Bolckow, Vaughan & Co. (1875), L. R.10 Ch. App. 491, at p. 501. 2 National Savings Bank v. Tranah (1867), L. R. 2 C. P. 556. Α vendor's lien on real estate does not seem to be waived by taking a bill or note. Ex parte Loaring (1814), 2 Rose, 79.

3 Cohen v. Hale (1878), 3 Q. B. D. 371; Loughman v. Barry (1858), 6 Ir. R. C. L. 457; cf. Re London and Birmingham Bank (1865), 34 L. J. Ch. 418, as to the effect of a renewal bill on a banker's lien, sed qu. ?

Belshaw v. Bush (1851), 11 C. B. 191, at p. 206.

person operated as a conditional payment, Maule, J., says: "The cases in which the giving of the bill has been held not to suspend the remedy on a demand by specialty, or for rent, may be accounted for on the ground that the legal implication of an assent that the bill shall operate as a conditional payment does not arise, where, if it did, the plaintiff would be deprived of a better remedy than an action on a bill, as in Davis v. Gyde, in which the debt being for rent, the plaintiff would part with a remedy by distress; and, as in Worthington v. Wigley, where the demand being on a bond the plaintiff might in certain events have recourse to other funds than he could in an action on a simple contract." Possibly this qualification of the general rule requires re-consideration in some respects now that the operation of a bill as conditional payment is firmly established.3

It has recently been held that a promissory note, payable by instalments, given contemporaneously to the holder of a bill of sale to secure the same debt, and with a proviso that on default of payment of any instalment the whole is to become due, constitutes a defeasance of the bill of sale within sect. 10 of the Bills of Sale Act, 1878.4 And in Ex parte Matthew, it was held that when a judgment creditor had issued a bankruptcy notice, but afterwards

1 Davis v. Gyde (1835), 2 A. & E. 623. Held on demurrer that a note given and received for rent does not extinguish the claim for rent which is a debt of a higher degree, and that if such note be pleaded in bar to an avowry it must be shown that the note was accepted in satisfaction, or that by special circumstances or other circumstances pleaded, it suspended the right of distress. But an agreement to take the note as conditional payment will be inferred from very slight evidence, Palmer v. Bramley, (1895) 2 Q. B. 405, C. A.

2 Worthington v. Wigley (1836), 3 Scott, 558. Held, that a plea of part payment, or the delivery of bills in satisfaction of a bond, after the day on which the money was by the condition made payable is bad on general demurrer. Cf. Drake v. Mitchell (1803), 3 East, 251, as commented on in Re Davison (1884), 13 Q. B. D. 50, at p. 54, and Wegg Prosser v. Evans (1895), 1 Q. B. 108, C. A., where it was held that an unsatisfied judgment against a joint contractor on a cheque was no bar to an action on the consideration against the other joint contractor.

3 Cf. Palmer v. Bramley, (1895) 2 Q. B. at p. 407, C. A. Counsell v. Lond. & West. Discount Co. (1887), 19 Q. B. D. 512, C. A

Effect of laches.

Absolute payment.

took the debtor's promissory note, he could not, during the currency of the note, obtain a receiving order; for the note, till dishonoured, must be treated as payment.1

If a bill or note be taken by a creditor as conditional payment, and he is guilty of laches in respect of it, the bill or note is then treated as absolute payment, and as between debtor and creditor the debt is discharged.

Thus, if a bill be indorsed on account of a debt and dishonoured, and the holder omits to give notice of dishonour to the indorser, he cannot sue him for the debt any more than on the bill; 2 and where a creditor took the cheque of his debtor's agent, and was an unreasonable time in presenting it, whereby his debtor's position was altered, it was held, that, as against the debtor, the cheque must be treated as absolute payment.3

So, too, it was held at common law that if the creditor lost a negotiable bill which he had taken as conditional payment, he was deprived of his remedies, both on the bill and on the consideration, for "if the bill be lost the condition on which payment may be defeated does not arise." 4 The creditor may now sue on the bill (sect. 70, ante, p. 233), but unless he can obtain a new bill under the provisions of sect. 69, ante, p. 233, there appears to be nothing to affect the common law rule that his right of action on the consideration is gone.

Though the general effect of giving and taking a bill or note is that the debt is conditionally paid, there is nothing to prevent its being given and taken as absolute payment if the parties so intend,5 that is to say, the creditor may

Ex parte Matthew (1884), 12 Q. B. D. 506, C. A.

2 Bridges v. Berry (1810), 3 Taunt. 170; cf. Smith v. Mercer (1867), L. R. 3 Ex. 51, as to an "approved bill" given without indorsement.

3 Hopkins v. Ware (1869), L. R. 4 Ex. 268; as to payments by country bank notes, see Lichfield Union v. Greene (1857), 26 L. J. Ex. 141.

Crowe v. Clay (1854), 9 Exch. 604, at p. 608, Ex. Ch., action for price of goods sold and on bill.

5 Benjamin on Sales, 4th ed. p. 732; Cowasjee v. Thompson (1845), 5 Moore, P. C. 165; cf. Sard v. Rhodes (1836), 1 M. & W. 153; Sibree v. Tripp (1846), 15 M. & W. 23.

receive the bill or note in absolute discharge of the debt, trusting solely to his remedies on the instrument. It is a question of fact what the intention of the parties was.1 For instance, the creditor may be offered cash, but may prefer to take a bill instead. Where the debtor is not a party to the instrument, perhaps the presumption of absolute payment more readily arises."

Where there is a disputed liability, it may be compro- Payment by mised by the payment of a lesser sum than that claimed, negotiable security for but the general rule of law is that where a liquidated lesser sum. sum is due, it cannot be discharged by the payment of a smaller amount, for there is no consideration for the creditor's promise to forego the balance.* curious refinement on this rule, it has been held that a liquidated debt may be discharged by the acceptance in satisfaction of a negotiable security for a lesser sum, even if the debtor himself be the only person liable on the instrument.5

But by a

in settlement

There must, however, be an acceptance in satisfaction. Cheque sent If a cheque for a smaller sum be sent in settlement of a received on larger sum, the creditor can refuse to receive the cheque in account. satisfaction, even though he does not return it, and he may then sue for the balance. In a case where a cheque was sent in settlement of a claim for damages for breach of contract, and the creditor retained the cheque, sending back a receipt on account, Bowen, L. J., says: "If a person sends a sum of money on the terms that it is to be taken,

1 Benjamin on Sales, 4th ed. p. 733; Goldshede v. Cottrell (1836), 2 M. & W. 20.

2 Anderson v. Hillies (1852), 12 C. B. 409, and cases there cited.

3 Cf. Camidge v. Allenby (1827). 6 B. & C. 373, at p. 384 (country bank notes): Smith v. Mercer (1867), L. R. 3 Ex. 51 (approved bills), when absolute payment was suggested as an alternative; and see ante, p. 195.

4 Foakes v. Beer (1884), 9 App. Cas. 605, H. L. See notes to Cumber v. Wane, 1 Smith, L. C. 9th ed. p. 366.

5 Sibree v. Tripp (1846), 15 M. & W. 23 (promissory note of the debtor); Curlewis v. Clarke (1849), 3 Exch. 375 (acceptance of third person); Goddard v. O'Brien (1882), 9 Q. B. D. 37 (debtor's own cheque); Bidder v. Bridges (1887), 37 Ch. D. 406, C. A. (cheque of debtor's solicitor).