A bill had for 4 years lain over without protest or diligence. It was found not to exclude compensation against an onerous indorsee.
Click here to view a pdf copy of this documet : PDF Copy
Upon the 20th August 1744, Henry Spence, writer in Edinburgh, granted a bill to Alexander Thomson, for L. 47 Sterling; and, at the same time, indorsed to Thomson a bill of Robert Colvill's, dated in July 1742; and Thomson, by a back note, declared that Colvill's bill was indorsed to him in security of the L. 47 contained in Spence's own bill, it being always in his (Thomson's) option, to do diligence upon the one or the other.
Prior to Colvill's accepting his bill to Spence, he stood bound as cautioner for him in a greater sum, which having now paid, it was for him alleged, That as he could have pleaded retention till he had been relieved of his cautionry, so now having paid the debt, he was entitled to compensation; and thereupon two points occurred in the process against him at the instance of Thomson as indorsee.
1mo, Whether compensation was not competent even against an onerous indorsee, where the indorsation was not in the way of commerce, but in security of a debt due by the indorser, as it was in this case? 2do, Whether the bill itself had not lost all its privileges, that only excepted of being transmissible by blank indorsation, by lying over since its date in July 1742, without protest or diligence done on it till November 1746 when this process was brought.
On the first point two cases were referred to for the defender, 15th January 1708, Crawfurd against Piper, No 110. p. 1524. where, on this ground, That the indorsation was in security of a prior debt, a general discharge by the indorser was sustained against the indorsee; and 16th January 1713, Campbell against Graham, No 192. p. 1120. where the indorsation by Campbell, after he was bankrupt, was found reducible on the act 1696, the suspender proving that the indorsation was in security of a prior debt.
On the 2d point a case was referred to, 6th February 1719, Farquharson against Brown, No 183. p. 1626. where an inland bill having lain over three years without protest or other diligence, compensation was found competent on the debt of the indorser against the onerous indorsee, in respect, that as the collector has marked the decision, it was not judged for the benefit of commerce, that bills not protested in three years should be better than bonds.
Accordingly, without distinguishing between the two points, the Lords in general found, “That the defender was, in this case, entitled to plead retention or compensation against the bill pursued on.”
It appeared, however, from the reasoning, that the decision was put upon the second point. For, as to the first point, How far an indorsee in security was obliged to admit compensation or retention on the debt of the indorser? The Court seemed to be of opinion, That, supposing the indorsee to prosecute on the bill within three years, he was no more obliged to admit compensation upon the debt of the indorser, than if he were a simple indorsee for value; and that without distinction, Whether the indorsation was given for security of an anterior contraction, or as a collateral security for the debt contracted at the time; by which distinction only it was that the procurators for the pursuer had endeavoured to avoid the force of the decisions in the above cases of Pyper and Graham, but which would not have been satisfying; for the distinction must ly here or no where, that an indorsation, not in the way of commerce for value, but as a collateral security of another debt, is not entitled to the privileges of an indorsation. But, as has been said, the Court was of opinion, that it was entitled in the one case as well as the other, where the bill is duly negotiated by the indorsee: For, that nothing was more common among merchants, than such indorsations for security of former balances; and that they are every day taken by both the banks; and to find them liable to every exception competent against the indorser, would be attended with unforeseen effects. At the same time it must be owned, that the above decisions do not well consist with this doctrine.
But, as to the second point, the Lords were clear, That where any bill lies over without protest or diligence, it loses its privilege of excluding retention or compensation on the debt of the drawer. How long time it must ly over before it lose its privilege is not fixed; that matter has always been judged of on the case as it stood. First, it was found that a bill, having lain over five years, had lost its privileges, and afterwards that it had lost them, having lain over three years, which is the shortest time upon which a judgment has been given; but it is little to be doubted, that even a shorter time would be found sufficient did the case occur.
Nay, it was said, there was great reason to confine the endurance of the privilege of bills to the six months in which summary diligence is competent. As first in general, no good reason could be given why summary diligence should have been denied upon bills after six months, if it be supposed that they were to be vehicles of commerce after that period; and more particularly, 2do, Where a bill is protested and registered within the six months, and thereafter assigned, although the assigee will not be obliged to admit the cedent's receipts of date prior to the lapse of the six months, yet he will, as any other common assignee, be obliged to admit his receipts, of date after the lapse of the six months, and prior to the intimation of the assignation; and, is it not absurd that bills, not duly protested and registered, should have a stronger effect in favour of the indorsee, than bills duly protested and registered have in favour of the assignee?
Fol. Dic. v. 3. p. 91. Kilkerran, (Bills of Exchange.) No. 21 p. 85.*** D. Falconer reports the same case:
Robert Colvill of Ochiltree accepted a bill, 6th July 1742, for L. 51 Sterling, payable, six months after date, to Henry Spence, writer in Edinburgh, who, 20th August 1744, indorsed it to Alexander Thomson, Bute-pursuivant, in security of L. 47, for which he at the same time gave his own bill: And Mr Thomson, September 1746, pursued Ochiltree thereon.
Pleaded in defence: Ochiltree and Mr Spence had jointly, at Whitsunday 1741, borrowed L. 100, of which L. 50 was applied to Mr Spence's use, and he gave his letter of relief for it. And in February 1745, he became bound for Mr Spence in L. 100, for which he gave his bond of relief, and another L. 100 in August 1744; which two sums he had been obliged to pay: That the bill lay over for two years in the drawer's hands without diligence, and was then indorsed in security, and remained other two years undemanded by the pursuer: That, in these circumstances, it was not entitled to the privileges of a bill, but the acceptor could plead compensation against the indorsee, or retention, till relieved of his obligations, Mr Spence being bankrupt.
Pleaded for the pursuer: The bill was indorsed for present value, and not in security of an old debt; which was the case of two decisions, Crawford against Pyper, No 110. p. 1524.; Campbell against Graham, No 192. p. 1120.; by which indorsees in security were found not entitled to the privileges of onerous indorsees: And it is not yet fettled, that bills lose their privileges by lying over three years; which this has not done; for reckoning from the time it fell due, and deducting the endurance of the rebellion, appointed by statute not to be reckoned in short Prescriptions, the action was brought in time.
The Lords found the defender was entitled to plead compensation or retention against this bill.
Reporter, Tinwald.Act. Fergusson.Alt. R. Craigie.
D. Falconer, v. 2. No 51. p. 50.
