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In an action on the bill, a holder is deemed to be a holder in due course, but the defence may be set up of fraud, duress, illegality or want of consideration, in which case the holder must then show, as decided in Tatam v. Haslar (1889), that after the alleged fraud he took the bill in good faith for value and without notice of the alleged fraud. This decision was slightly amended in the case of Talbot v. Von Boris (1911) to read "unless he is the person to whom the bill was originally delivered."
Occasionally, a bill is signed by a person as drawer, acceptor or indorser, without his receiving value therefor, for the purpose of lending his name to some other person. The person so signing is, as before mentioned, an "accommodation party " to the bill, and, in effect, is surety for his friend. A holder for value may sue the accommodation party, even though when the holder took the bill he knew the party to be a surety only. But until value has been given no party is liable on an accommodation bill. Such bills are often termed fictitious bills," "kites" or "windmills."
If a bill is given for money owing for gaming or wagering debts, the consideration is illegal and the bill void as between the original parties. Even a holder for value who takes with notice cannot enforce payment; but if he took without notice he would be able to do so.
The adequacy or otherwise of the consideration is immaterial, provided, as was held in the case of Jones v. Gordon (1877), that it is not so extremely small as to raise the presumption that the holder did not take the bill in good faith and without notice.
Alteration of Bill.
The completion by the holder of an inchoate instrument, as provided for by section 20, must be carefully distinguished. from material alteration.
Where a bill or acceptance is materially altered without the assent of all parties liable on the bill, it is avoided except as against a party who has himself made, authorized or assented to the alteration, and subsequent indorsers. But, where the bill has been materially altered and the alteration is not apparent, and the bill is in the hands of a holder in due course, such holder may avail himself of the bill as if it had not been altered, and may enforce payment of it according to its original tenor. The following are examples of material alterations-alteration of the date, the sum payable, the time of payment, the place of payment and, where a bill has been accepted generally, the addition of a place of payment without the acceptor's assent. The alteration of the number of a bank note, and adding the name of a maker to a joint and several note, have been held to be material alterations.
In the case of Garrard v. Lewis (1883), A signed an acceptance with the amount not filled in in the body of the bill, but the figures in the margin were £14 0s. 6d. The drawer having filled up the bill for £164 0s. 6d. altered the figures in the margin to correspond. It was decided that the figures were not a material part of the bill, so that the alteration was no defence to an action by a bona fide holder. But, in the case of Scholfield v. Lord Londesborough (1896), a bill was drawn for £500 with a stamp sufficient to cover £4,000, and with vacant spaces before the amount, both in the words and figures. The acceptor, having written his acceptance, handed it to the drawer, who fraudulently altered the bill into one for £3,500. It was held that a holder in due course could recover only the £500, the amount for which the bill was originally drawn, and that there was no duty on the acceptor to take precautions against opportunity of fraudulent alteration after acceptance, so that he was not liable on the principle of estoppel.
Presentment for Payment.
The rules given in section 45 as to presentment for payment should receive careful attention, and should be compared with those governing presentment for acceptance (section 41).
As regards the party primarily liable, i.e., the acceptor of a bill, it is not incumbent on the holder of a bill payable on a given day to demand payment. The acceptor is bound to provide for payment on the date the bill becomes due. Even where by the terms of a qualified acceptance presentment for payment is required, by section 52 (2) the acceptor is discharged only by the omission to present if there is an express stipulation to that effect.
But as regards the other parties, i.e., the drawer and indorsers, it is necessary in order to render them liable that the holder should present a bill not payable on demand to the acceptor on the very day it becomes due, or, where the bill is payable on demand, then within a reasonable time after its issue in order to render the drawer liable, and within a reasonable time after its indorsement in order to render the indorser liable. Delay caused by circumstances beyond the control of the holder is excused if not imputable to his default, misconduct or negligence.
Where a bill is presented at the proper place, and after reasonable diligence no person authorized to pay or refuse payment can be found there, no further presentment to the drawee or acceptor is required.
A bill is dishonoured by non-payment when
(a) it is duly presented for payment and payment is refused or cannot be obtained;
(b) presentment is excused and the bill is overdue and unpaid.
Usually, when a bill is dishonoured by non-payment, an immediate right of recourse against the drawer and indorsers accrues to the holder.
Notice of Dishonour.
Unless notice of dishonour is waived or in some way excused, notice of the dishonour of a bill, whether by non-acceptance or by non-payment, must be given within the stipulated time to the drawer and to each indorser, otherwise a drawer or any indorser who does not receive due notice is discharged from all liability both in respect of the bill itself and as regards the debt or consideration for which the bill was given. There are two exceptions to this, however, as specified in section 48 of the Act. To be effectual, notice of dishonour must be given in accordance with the rules laid down in section 49 of the Act. The holder may himself give notice to every party liable, or he may give notice to his preceding party in order of liability and leave it to the parties to pass on the notice from one to the other within the prescribed time. To protect himself, however, a holder should send notice to every party liable, as he thereby preserves his rights against each one of them, and his right to fall back upon any party prior to himself will not depend upon the promptness with which each prior party passes on the notice. If prompt notice fails to reach any party, he is rendered no longer liable as a party to the bill, and consequently is not able to pass on effectual notice to his preceding party. In computing the time at the disposal of each party for giving notice, non-business days are excluded.
Notice given by or on behalf of the holder enures for the benefit of subsequent holders and of all prior indorsers who have a right of recourse against the party to whom it is given. Thus if the holder gives notice to the drawer X, as well as to an indorser Y, or if the holder gives notice to Y and the latter passes on the notice to X, then, in both cases, the holder and Y can take advantage of the notice. But if, in the second case, Y did not send on notice, the holder could sue Y but not the drawer X. Further, any indorser prior to Y could take advantage of the notice given to X.
Under section 50 of the Act, notice of dishonour is dispensed with where the delay is caused by circumstances beyond the control of the party giving notice, and in certain other cases.
Noting and Protesting.
Noting is a minute made by a Notary Public, or a Consul, of the fact that a bill has been duly presented for acceptance or
payment, and that it stands dishonoured by non-acceptance or non-payment, as the case may be. At the request of the holder of a dishonoured bill, a notary again presents it to the party liable, and in the event of dishonour, the notary makes on the instrument, or on a ticket attached thereto, a note of the answer given, the date of presenting, his initials and charges.
Protesting is where a solemn declaration attesting the dishonour of the bill, and containing a copy of the bill, is drawn up by that official. It is not necessary to note or protest an inland bill in order to preserve the recourse against the drawer or indorsers, although it is usual to note a dishonoured bill in order to have legal proof of dishonour. It should be remarked that noting is merely a preliminary to protest; the former is usually made on the day of dishonour, and must always be made within the legal time limit (section 51 (4), and Bills of Exchange (Time of Noting) Act, 1917; see Appendix C), but the formal protest may be extended at any time thereafter as of the date of noting (section 93). Protest of an inland bill is necessary (a) as a preliminary to acceptance or payment for honour (sections 65 and 67); (b) for purposes of summary diligence in Scotland (section 98). It is advisable to protest an inland bill bearing a foreign indorsement so that the foreign signatory may be charged in his own country.
Where a bill is lost or destroyed or is wrongly detained from the person entitled to it, protest may be made on a copy or written particulars thereof. Protest may be dispensed with by any circumstances which would dispense with a notice of dishonour. (a)
If a notary is not available, a certificate of the dishonour of the bill, having the same effect as a protest, may be given by a householder or other substantial resident of the place, attested by two witnesses. (See section 94, and form of householder's protest on page 360.)
Measure of Damages on Dishonour.
When a bill is dishonoured, the measure of damages is(1) The amount of the bill;
(2) Interest thereon at 5 per cent. as from the date of presentment for payment if the bill is payable on demand, and otherwise as from the date of maturity;
(3) Expenses of noting and protesting (if any).
In the case of bills dishonoured, abroad, the measure of damages will be the amount of re-exchange and interest thereon until the time of payment. Re-exchange is the loss resulting
(a) See ante, p. 112, and post, p. 350.
from the dishonour of a bill in a different country from that where it is drawn or indorsed.
The sum recoverable against a drawer or indorser in the United Kingdom is the sum for which a sight bill, drawn at the time and place of dishonour on the place where the drawer or indorser resides, must be drawn in order to realize, at the place of dishonour, the amount of the dishonoured bill and the expenses consequent on its dishonour. The expenses consequent on dishonour mean the expenses of protest, postage, customary commission, and brokerage, and if a re-draft be drawn, the price of the stamp (Chalmers).
Liability of Parties.
The liability of the various parties to a bill is fully and clearly set out in the Act. That of the acceptor is also explained under the heading "acceptance" on pages 102-103. on pages 102-103. For the liability of a drawer and of an indorser, see section 55.
Where a person signs a bill otherwise than as drawer or acceptor, he thereby incurs the liabilities of an indorser to a holder in due course. If a person, not being the holder of a bill, backs it with his signature, he does not strictly indorse it, but he incurs the liabilities of an indorser. Such an indorsement or guarantee is known as an "aval."
Discharge of a Bill.
(1) By payment. See section 59. An accommodation bill is discharged when it is paid by the party accommodated, because he is the party who is ultimately liable in respect of the bill, and because it is put into circulation for his benefit. In the absence of agreement, an accommodated party is held to engage that he will provide funds for the payment of the bill at maturity, or that he will indemnify the accommodation acceptor if the latter is compelled to pay the bill.
Section 60 is very important from a banker's point of view. The banker is not protected if there is evidence of negligence, or of the absence of good faith, or of payment out of the ordinary course of business, or if he pays an instrument bearing a forged indorsement which is not a cheque, as for example a bill of exchange other than a cheque on a banker. Payment of a cheque out of business hours, or the omission to examine the indorsement, or payment to the account of an employee of a cheque payable to a firm, without due inquiry, would involve the loss of the protection.
(2) By waiver. See section 62.
(3) By cancellation. See section 63.
(4) By lapse of time. Under the Statute of Limitations the