Scottish Court of Session Decisions

This was an action brought in the Sheriff Court of Lanarkshire at Glasgow by Alexander Russell, iron and machinery merchant, Coatbridge, against the Bank-nock Coal Company, Limited, in which the pursuer sought decree for the sum of £189, 17s., being the amount paid by him to retire a bill which he had accepted under the circumstances hereinafter narrated.

On 23rd June 1896 the pursuer and John Knox, coal merchant in Glasgow, agreed to grant each other accommodation by way of cross bills to the extent of £189, 13s., payable at four months' date. In pursuance of this arrangement the pursuer wrote across a paper bearing a bill stamp which would cover the sum of £189, 13s., his acceptance payable at the Bank of Scotland Hope Street Branch, Glasgow, and handed it to John Knox. Though it was in the contemplation of the parties that each should become drawer of the bill to be accepted by the other, there was no agreement between them precluding Mr Knox from getting the pursuer's acceptance filled up with another name as drawer than Knox's own. He was neither specially forbidden nor specially authorised to do so by the arrangement between the parties.

Mr Knox, in addition to carrying on business on his own account, was also managing director of the Banknock Goal Company. As his own personal credit was not very good at the time, he, in order to facilitate the discounting of the bill, procured the paper handed to him by the pursuer with his acceptance thereon to be filled in with the agreed—on sum payable at four months' date, but with the Banknock Coal Company, Limited, as drawers, their subscription being adhibited by himself as a director, and by Jonathan Howell, the secretary of the company. The bill so completed and

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endorsed, was discounted by the company with the Clydesdale Bank, and the proceeds, less discount, were applied to the uses of Mr Knox by being put to his credit in account with the defenders. The whole of the amount realised by the discounting of the bill was ultimately received by the Banknock Coal Company in discharge of sums due by Knox to them.

Mr Knox, having meanwhile become bankrupt, failed to retire the bill when it fell due, and called a meeting of his creditors for 28th October 1896, on which day the pursuer retired the bill. The sum sued for was the sum paid by him as due under the bill, 4s. being added as expenses of noting.

The Bills of Exchange Act 1882 (45 and46 Vict. cap. 61) enacts as follows:—Section 20 (1) “Where a simple signature on a blank stamped paper is delivered by the signer in order that it may be converted into a bill, it operates as a prima facie authority to fill it up as a complete bill for any amount the stamp will cover, using the signature for that of the drawer, or the acceptor, or an indorser; and in like manner, when a bill is wanting in any material particular, the person in possession of it has a prima facie authority to fill up the omission in any way he thinks fit. (2) In order that any such instrument when completed may he enforceable against any person who became a party thereto prior to its completion, it must be filled up within a reasonable time. and strictly in accordance with the authority given. Reasonable time for this purpose is a question of fact. Provided that if any such instrument after completion is negotiated to a holder in due course it shall be valid and effectual for all purposes in his hands, and he may enforce it as if it had been filled up within a reasonable time and strictly in accordance with the authority given.”

Section 29 (1)—“A holder in due course is a holder who has taken a bill, complete and regular on the face of it, under the following conditions, namely:— (a) That he became the holder of it before it was overdue, and without notice that it had been previously dishonoured, if such was the fact. (b) That he took the bill in good faith and for value, and that at the time the bill was negotiated to him he had no notice of any defect in the title of the person who negotiated it.”

Section 64 (1)—“Where a bill or acceptance is materially altered without the assent of all parties liable on the bill, the bill is avoided except as against a party who has himself made, authorised, or assented to the alteration, and subsequent indorsers.”…

The pursuer averred that the blank stamp was filled in with the defenders' name as drawers in direct contravention of the arrangement between Knox and him, and without his knowledge or authority.

The pursuer pleaded—“(1) The said bill having been accepted by the pursuer for the accommodation of the drawers, the defenders, as drawers thereof, are bound to relieve the pursuer of all liability thereunder. (2) The defenders having without the authority of the pursuer, filled up and signed the said bill as drawers, and having thereafter negotiated the same, are liable to relieve the pursuer of liability therefor. (3) The pursuer having paid the said bill to the Clydesdale Bank, Limited, the holders thereof, is entitled to reimbursement from the defenders. (4) The defenders not being endorsers of said bill are subject to all objections pleadable against the same in a question with Knox.”

The defenders pleaded, inter alia—“(1) The action is irrelevant. (4) Defenders being in the position as regards pursuer of holders for value, are not bound to relieve pursuer of liability for said bill, and should be assoilzied with expenses. (5) Pursuer not having accepted said bill for the accommodation of defenders, they should be assoilzied with expenses.”

A proof before answer was allowed, the facts established by which, so far as important, are stated in the foregoing narrative.

Thereafter, on 26th March 1897, the Sheriff-Substitute ( Erskine Murray), issued an interlocutor, whereby, inter alia, he found in fact “that it was understood between them (i.e., Knox and the pursuer), if not expressed, that each was to fill in his own name as drawer in the bill which the other accepted; “and found on the whole case and in law, (1) that in the circumstances defenders, before they could resist the pursuer's demand, would have to prove that in inserting their names as drawers they did so under authority from him; (2) that they had failed to prove that they had such authority; and (3) that the action was relevant; and repelled the pleas-in-law stated for the defenders, and found them liable to pursuer in the sum of £189, 17s. as craved with interest and expenses.

Opinion.—“The points of law at issue in this case are very nice and somewhat doubtful, although there is little variance between parties as to the facts. The law applying to the subject may first be dealt with.

“Before the passing of the Bills of Exchange Act 1882, the leading authority on the point at issue appears to have been the English case of Schultz v. Astley, 1836, 2 Bingham's New Cases, 544. In that case, which came up in the Court of Common Pleas before Lord Chief-Justice Tindal and the other Judges, it was stated in the judgment—‘Nor can we see any distinction in principle, when the bill has passed into the hands of third parties, between holding the acceptor liable to a given amount, when the bill is afterwards drawn in the name of the party who has obtained the acceptance, and when it is drawn by a stranger who becomes the drawer at the instance of the party to whom the acceptance was given. The blank acceptance of the bill is an acceptance of the bill which is afterwards put upon it; and it seems to fallow from the doctrine of Lord Mansfield in Bussell and Langstaffe that it does not lie in the mouth of the acceptor to say that the drawing or endorsing of the bill is irregular. As all that he (the acceptor)

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desired was to raise the money, it could make no difference to him, either as to the extent of his liability or in any other respect whether the bill was drawn in the name of one person or another.’ If therefore the present case fell to be decided by the broad rule laid down in Schultz, it is obvious that the pursuer must fail in his action. It must be noted, however, in view of subsequent law that the pursuer Schultz was not the drawer but an endorsee, who would, in the terms of the recent Bills of Exchange Act, have been held to be a ‘ holder in due course,’ and would therefore, had the case occurred even under the recent Act, have been entitled to succeed.

The pursuer has called attention to two cases that occurred before the Act. The first, Awde v. Dixon, 6 Exch. 869, was the case of a bill delivered over when incomplete in the sum, and on the condition that a third party, Robinson, was to be a joint surety along with the acceptor, and Robinson refused to join. Baron Parke laid down that a party who took such an incomplete instrument could not recover on it unless the person from whom he received it had a real authority to deal with it, or the party granting the note conducted himself in such a manner as to lead the plaintiff to believe that there was authority.

In the case of Hogarth v. Latham, 1878, L.R., 3 QBD 643, the pursuer Hogarth received from his partner Cotton two bills with the drawer's name blank accepted in the partnership name of the defenders Latham & Company, of which the partners were Forster & Latham. It afterwards appeared that Forster had accepted them without Latham's authority, which he was not entitled to do. When the plaintiff got the bills he believed that they had been lawfully accepted, but after his suspicions were aroused that there was something wrong, he yet filled in the name of his firm as drawers. The Court assoilzied. Lord Bramwell held that even ‘supposing the plaintiff was entitled to assume that value had passed as between Cotton and defender's firm, yet as the acceptance was in the handwriting of one partner only, the pursuer had not, as against the other partner, and as a mattar of right, the power of putting in his name as the drawer, he not being the creditor, and as he did so, he must show that the partner whose name was not on the bill authorised the other partner to put the document in circulation, and gave authority to any holder to put in his name as drawer. It is one thing to authorise a creditor to put his name to a bill, and another thing to authorise him to insert the name of a third person.’

Brett, L.J., held that ‘the person who takes an acceptance with the drawer's name blank has no right to say that acceptance entitles any holder to put on any name he may think fit.’ As in Hogarth the drawer ‘knew in effect that the defendant had given no authority to draw’ at the time when he inserted his name as drawer, his action failed.

Before the Act of 1882, therefore, it appears, taking the authorities together, that while in the case of a person who would now be termed a ‘holder in due course,’ a bill in which the drawer's name had thus been subsequently filled up, with or without authority, must prevail—on the other hand, in the hands of one who himself fills in his name as drawer, the document not being a negotiable instrument when he got it, he can only prevail if he can show that the acceptor, in the words of Lord Bramwell, must be taken to have given authority to anyone into whose hands it might come to fill up the blank. Brett, L. J., says he cannot assume this.

What, then, is done in this matter by the Bills of Exchange Act of 1882? The 20th section gives power to the possessor of a signature on a bill stamp as a bill, to fill it up as a bill, but that it may be enforceable against a prior party by him, it must be filled up ‘strictly in accordance with the authority given,’ while, if such an instrument after completion is negotiated to a holder in due course, he may enforce it as if it had been filled up strictly in accordance with the authority given. Practically the Act recognises the doctrine of both Schultz and Hogarth. It gives effect to the right of such a holder as Schultz, whom it denominates a ‘holder in due course,’ but it imposes on a party who has inserted his own name as drawer in an incomplete instrument the onus of proving authority as in the case of Hogarth.

Now, in the present case the Clydesdale Bank, who cashed the bill when complete, were holders in due course, and therefore could enforce payment from the pursuer as acceptor. But the defenders, to whom the Clydesdale Bank cashed it, and who had filled in their own name as drawers, must prove authority to do so. This they have tailed to do. Neither Knox nor pursuer say that there was any agreement that a third party's name might be inserted as drawer. Each was to draw the bill of which the other was acceptor.

The defenders contend that the pursuer has lost nothing by the substitution of their name as drawers, that Knox got the money as pursuer intended him to get it, and that in subsequently paying it to them he did no more than he was entitled to do. But then it must be remembered that the Clydesdale Bank paid the money to defenders, not to Knox; it only got to Knox by being handed by them to him, which they did for the purpose of enabling him to pay them a debt which he owed them. They therefore are in the position of the drawers of an inchoate bill, which they themselves completed for their own purposes, and as to which they have failed to prove authority to do so. It is clear therefore that they would not have been able to establish liability against the pursuer as acceptor had the question arisen in that form. As it is the acceptor has paid to a holder in due course, but as the bill was admittedly an accommodation bill, he can recover the amount from the party who got the money from that holder,

It may seem that it is hard on defenders that they should be found liable when, had

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Knox filled in his own name, or that of John Knox & Company as drawer, and endorsed it to defenders they would have been safe. This is true. But unfortunately for them the wording of the Bills of Exchange Act is too definite.

The Sheriff-Substitute does not think that in the circumstances of the case there is any sufficient personal bar against the pursuer.”

The defenders appealed to the Court of Session, and argued—(1) In the Court below the case had been decided on a consideration of the Bills of Exchange Act 1882, section 20, but that section was not really here in question. This was not an action on a bill. The bill had been retired. There was no rule that the person whose name appeared as drawer on a bill, which such person knew to be an accommodation bill granted for the accommodation of someone else, should reimburse the acceptor if he had to retire it. The obligations of the parties to an accommodation bill inter se, not being holders in due course, were determined by the real nature of the transaction. In that view the pursuer had no claim upon the defenders, for the accommodation upon which he founded was given not to them but to Knox, and Knox got the accommodation intended. There was no reason why the defenders should incur liability to the pursuer for giving Knox the benefit of their name to assist him in getting the money from the bank. The pursuer had suffered no prejudice in consequence, for he would have been in exactly the same position if Knox had drawn the bill and indorsed it to the defenders. (2) The defenders were not bound to prove that they had authority from the pursuer to insert their own name as drawers, as found in law by the Sheriff-Substitute. Any bona fide holder for value was entitled to fill up and complete such an acceptance for any amount covered by the stamp—Bills of Exchange Act 1882, section 20—unless it was proved that there was an express agreement between the acceptor and the person to whom he originally handed the bill stamp that such person and no other should be the drawer of the bill, No such agreement was proved here. This case was ruled by Disher v. Kidd, November 16, 1810, Hume's Decisions 64, followed, in Grassick v. Farquharson, July 8, 1846, 8 D. 1073. Indeed, this case was stronger than these, because the drawer was there enforcing the acceptor's obligation on the bill. With regard to the English authorities cited by the Sheriff-Substitute, Schultz v. Astley (1836), 2 Bing. N.C. 544, was in the defenders' favour. See per Tindal, C.-J., at pp. 552–3. In Awde v. Dixon (1851), 6 Exch. 869, the decision turned upon the fact that the signer of the promissory-note made it an express condition of his signature being used that another person should also sign as co-obligant with him, which condition was not purified owing to the other person refusing to sign. In Hogarth v. Latham & Company (1878), 3 QBD 643, the plaintiff was held to be aware that his firm had no authority to sign the bill, and that the firm name of the acceptors had been signed by one partner without authority from the defendant, who was the other partner. To bring this case up to that one the defenders would have to be proved to have known that it was stipulated by the pursuer that no one but Knox was to be the drawer of the bill. The defenders might therefore, being bona fide holders for value, have obtained payment of the bill from the pursuer if they had not discounted it. They were therefore under no obligation to reimburse him what he had paid to the bank.

Argued for the pursuer—This case was ruled by Hood v. Darling, November 25, 1808, Hume's Decisions 59, which was not referred to in Disher v. Kidd, cit., and was treated as still an authority in Grassick v. Farquharson, cit. (2) Under the Bills of Exchange Act, section 20 (2), such a blank acceptance as this could only be enforced against the acceptor if it had been filled up “strictly in accordance with the authority given,” except in the case of a “holder in due course.” The defenders were not “holders in due course.” A “holder in due course” was a holder who had taken “a bill complete and regular on the face of it” and without “notice of any defect in the title of the person who negotiated it” — Bills of Exchange Act 1882, section 29. This document when received by the defenders was not “a bill complete and regular on the face of it it was not a bill at all— Hood v. Darling, cit.; Awde v. Dixon, cit.; Hogarth v. Latham & Company, cit. It was not enough that they had given money for the document. They could not therefore have enforced the bill against the pursuer unless they had found that the pursuer had authorised the insertion of their name as drawers, or at least the insertion of some other name than that of Knox. This they had not done, and the onus was upon them to prove the authority— Awde v. Dixon, cit.; Hogarth v. Latham & Company, cit. Moreover, it was proved that the pursuer granted his acceptance only on the distinct understanding that Knox himself was to be the drawer of the bill. The defenders knew this. Further, the bill had been materially altered and was consequently avoided in terms of the Bills of Exchange Act 1882, section 64. See also Hanbury v. Lovitt (1868), 18 L.T.R. (N.S.) 366. It was therefore plain that the defenders could not have enforced payment of the bill against the pursuer. They were also bound to reimburse him what he had paid to the bank. They had drawn a bill upon the pursuer without authority to do so from him, without giving him value for his acceptance, and without having any claim of debt upon him. They had discounted the bill with the bank and obtained the money for it, in consequence of which he had been compelled to pay the bank, and he was now entitled to have recourse against them. This was an accommodation bill, and the defenders knew this and that the pursuer got no value for his acceptance. They were therefore bound to reimburse the pursuer.

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They could not plead that they were bona fide holders for value. That plea was not open to a person who filled up blanks in a negotiable instrument in his own favour, and such a person's rights were the same as those of the person from whom he had received the instrument in blank— France v. Clark (1884), 26 Ch. D., per Lord Selborne, L.C. at p. 262. The defenders therefore stood in Knox's shoes, and were liable to reimburse the pursuer just as Knox would have been if he had drawn the bill himself.

At advising—