SECURITIES FOR BILLS OF EXCHANGE.

Rights of Drawer.

Rule 1. Apart from special contract, (1.) Where goods Drawer's lien are sold, to be paid for by buyer's acceptance of seller's as unpaid draft, and the acceptor fails or dishonours the bill, the lien vendor. of the drawer as unpaid vendor thereupon revives, if he has not parted with the possession of the goods or can stop them in transitu; and it is immaterial that the drawer has negotiated the bill.1

(2.) Where an agent buys goods for his principal, and draws on the principal for the price, his rights, in this respect, are the same as those of an ordinary vendor.2

It is essential to distinguish between the sale of goods to the acceptor, where the property in them vests absolutely in him, subject only to the vendor's lien until they reach his possession, and the case of goods which are sent to the acceptor as cover for the bill, where there is a kind of mixed property in the goods, both drawer and acceptor having a defeasible interest therein. The rights and duties of a commission merchant who buys for a foreign principal are explained by Lord Blackburn in Ireland v. Livingston.*

Rule 2. Where the drawer of a bill remits goods or securities to the drawee as cover for the bill, and in consequence of the drawee's failure is obliged to take up the bill, he is entitled to the return of any such goods or securities as the drawee may hold unrealized at the time of his failure."

1 Gunn v. Bolckow, Vaughan & Co. (1875), L. R. 10 Ch. 491; cf. Ex parte Chalmers (1873), L. R. 8 Ch. at p. 292; Ex parte Lambtɔn (1875), L. R. 10 Ch. at p. 415.

2 Ex parte Banner (1876), 2 Ch. D. at p. 287, C. A.; cf. Ex parte Gomez (1875), L. R. 10 Ch. at p. 645.

3 Id. See, too, Ex parte Lambton (1875), L. R. 10 Ch. at p. 416.

▲ Ireland v. Livingston (1872), L. R. 5 H. L. at p. 408.

5 Cf. Re Broad, Ex parte Neck (1884), 13 Q. B. D. 740, C. A.; Ex parte Dever (No. 2) (1885), 14 Q. B. D. 611, at p. 624, per Cotton, L.J., C. A. ; and see Rule 4.

Right or lien of acceptor.

Effect of acceptor's failure.

Rights of Drawee or Acceptor.

Rule 3. Where the drawer of a bill of exchange remits goods or securities to the drawee as cover for it, and the drawee accepts, he thereby acquires a lien upon or right to the goods or securities. If the drawee do not accept he has no right to or lien upon the goods and securities.2

ILLUSTRATIONS.

1. A. consigns goods to B., and draws on him for the price. A. sends the bill of lading and bill of exchange to his own agent who forwards them to B., requesting him to accept the bill. If B. do not accept the bill of exchange he cannot retain the bill of lading.3

2. A., the principal, sends goods to B., his agent, on the terms that B. is to sell the goods, receiving a commission, and to accept A.'s drafts in proportion to the goods sent, and if the proceeds of the goods do not cover the acceptances in full, A. is to remit the difference. B. accepts for 2001. Before the bill matures A., the drawer, fails. B. has a lien on the goods to the extent of 2007.

3. A. consigns goods to B. for sale, draws on him for the price, and negotiates the bill of exchange with bill of lading attached. B. accepts the bill, payable on delivery of bill of lading. This operates as a pledge of B.'s interest in the goods to the holder, who becomes as regards B., a secured creditor.5

6

Lord Cairns points out in Banner v. Johnston, that where a bill is only allowed to be drawn against shipments or against bills of lading, the stipulation is for the assurance and protection of the drawee, and not for the benefit of the holder. In France, it seems, the property in the goods would pass with the bill. See Nouguier, § 715, and Belgian Code, Art. 26.

Rule 4. If the acceptor fails during the currency of the bill or dishonours it at maturity, his lien upon or right to

1 Ex parte Brett (1871), L. R. 6 Ch. at p. 841; Ex parte Oriental Bank Corporation (1874), 30 L. T. 803, L.JJ.; Re Pavy's Patent Fabric Co. (1876), 1 Ch. D. 631; Lutscher v. Comptoir d'Escompte (1876), 1 Q. B. D. 709; cf. Ex parte Banner (1876), 2 Ch. D. at p. 287, C. A.; see, too, Stee e v. Stuart (1866), L. R. 2 Eq. 84.

2 Shepherd v. Harrison (1871), L. R. 5 H. L. 116; see, at p. 133, per Ld. Cairns, and the comment on this case in Ex parte Banner (1876), 2 Ch. D. at p. 288, C. A.; see, too, Torrance v. Bank of British America (1873), L. R. 5 P. C. 246.

3 Shepherd v. Harrison (1871), L. R. 5 H. L. 116.

Re Pavy's Patent Fabric Co. (1876), 1 Ch. D. 631; see passim Ex parte Dickin (1878), 8 Ch. D. 377.

5 Ex parte Brett (1871), L. R. 6 Ch. at p. 841.

• Banner v. Johnston (1871), L. R. 5 H. L. at p. 174.

the goods or securities is thereby determined, and he holds them at the disposition of the drawer.1

ILLUSTRATIONS.

1. A. draws on B., and remits to B. bills of other parties which he holds to provide B. with funds. B. accepts, fails before his acceptances mature, and compounds, paying the bill-holders 58. in the pound. If B. realizes the bills sent him as cover, A. is entitled to the balance of the proceeds of such bills as were in specie at the time of the failure, after deducting the actual amount paid by B. on his acceptances.2

2. An agent buys goods for his principal, remits them to him, and draws on him for the price. The principal accepts the bill, but fails before it matures. The property in the goods does not re-vest in the drawer, for the goods are the principal's absolutely.3

3. A bill for 4007. is accepted to accommodate the drawer. The drawer forwards to the acceptor the bill of a third party for 4001. to provide for the acceptance. The acceptor discounts the remitted bill, being entitled to do so by the course of dealing, and fails before his acceptance matures. The drawer is not entitled to the proceeds of the remitted bill.+

4. A., in America, consigns cheese to a factor in England, and draws on him a bill running :-"Pay to the order of C. 1,000l., and charge the same to account of cheese, per Brittanic, as advised." The same day A. writes to the factor, enclosing bills of lading for the cheese, and saying: "Against these we value on you in favour of C." A., the drawer, fails, and the factor refuses to accept. C., the bill-holder, has no claim on the goods. They belong to the drawer's trustee.

The case of Brown v. Kough seems finally to dispose of the often discredited case of Frith v. Forbes, by treating it as an erroneous finding on a question of fact. As Mellish, L.J., says, in Robey v. Olliers: A mercantile man who is intended to have a lien on a cargo expects to have the bill of lading annexed (to the bill of exchange); if there is no bill of lading annexed, he only expects

1 Tooke v. Hollingworth (1793), 5 T. R. 215; approved Ex parte Banner (1876), 2 Ch. D. at p. 289, C. A.; Ex parte Kelly & Co. (1879), 11 Ch. D. 306, C. A.; Re Gothenburg Commercial Co. (1881), 29 W. R. 358, C. A. ; cf. Ex parte Smart (1872), L. R. 8 Ch. Ap. at p. 224.

2 Ex parte Gomez (1875), L. R. 10 Ch. 639.

3 Ex parte Banner (1876), 2 Ch. D. 278, C. A.; see at p. 289; see Banco de Lima v. Anglo-Peruvian Bank (1878), 8 Ch. D. 160.

Re Broad, Ex parte Neck (1884), 13 Q. B. D. 740, C. A.; cf. Ex parte Dever, Re Suse (1884), 13 Q. B. D. 766, C. A.; aliter, it seems, if the security were in specie at the time of failure.

5 Brown, Shipley & Co. v. Kough (1885), 29 Ch. D. 848, C. A.; cf. Phelps v. Comber (1885), 29 Ch. D. 813, C. A.

6 Brown, Shipley & Co. v. Kough (1885), 29 Ch. D. 848, C. A.

7 Frith v. Forbes (1862), 4 De G. F. & J. 409.

Robey v. Ollier (1872), L. R. 7 Ch. at p. 699.

to get the security of the bill itself. In Frith v. Forbes, the Court considered that, taking all the letters together, there was an equitable assignment (in favour of the bill-holder).'

Where remittances are made to cover bills, and the drawer by a collateral agreement has assigned his rights to a particular holder, the acceptor holds the remittances for the benefit of that holder as equitable assignee.1

Bill not an assignment of funds.

Bill drawn

against

Rights of Holder.

Rule 5. Where the drawee or acceptor of a bill is indebted to, or has in his hands funds of the drawer sufficient to meet it, the bill does not operate as an assignment of the debt or funds in favour of the holder.2

Such an assignment can only be effected by agreement extraneous and collateral to the bill.3

ILLUSTRATIONS.

1. A., having a fund in B.'s hands, draws on B. a bill for the exact amount of the fund. This does not operate as an assignment of the fund to the payee."

2. The holder of a bill purchases it on the faith of a verbal representation made by the drawer that funds sufficient to meet it have been remitted to the drawee, that it is drawn against those funds, and that it certainly will be paid. The drawer fails, and the drawee refuses to accept the bill, though he has funds sufficient to meet it. The bill-holder is not entitled to those funds, and the drawee is justified in handing them over to the drawer's trustee."

This rule does not apply to Scotland. See sect. 53, ante, p. 180.

Rule 6. Subject to Rule 7 (double insolvency), where a bill of exchange is on the face of it expressed to be drawn specific goods. against specific goods or securities, the holder does not

1 Ex parte Carrick (1858), 2 De G. & J. 208.

2 See sect. 53, ante, p. 180; and Shand v. Du Buisson (1874), L. R. 18 Eq. 283, bill; Hopkinson v. Forster (1874), L. R. 19 Eq. 74, cheque; Schroeder v. Central Bank (1876), 34 L. T. N. S. 735, cheque.

3 Thomson v. Simpson (1870), L. R. 5 Ch. 659; Citizens' Bank of Louisiana v. New Orleans Bank (1873), L. R. 6 H. L. 352; see at pp. 360 and 366.

4 Shand v. Du Buisson (1874), L. R. 18 Eq. 283.

Citizens' Bank of Louisiana v. New Orleans Bank (1873), L. R. 6 H. L.

obtain thereby any charge upon the goods or securities if the bill be dishonoured.1

Such charge can only be created by agreement collateral to the bill, and in favour of the person with whom the agreement is made.2

ILLUSTRATIONS.

1. Under a credit, No. 20, a consignor of cotton is entitled to draw on the consignee "against cotton purchased according to instructions." The consignee accepts a draft expressed to be drawn "against credit, No. 20," receives the cotton, but fails before the bill matures, and dishonours it. The holder has no charge on the cotton.

2. A. consigns by ship Acacia a cargo to B., and draws a bill on B. running, Pay to my order 1007., which place to account cargo per Acacia." B. promises A. to protect the draft. An indorsee has no charge on the cargo if B. refuses to accept the bill."

3. A. in India sells and ships cotton to B. in England, and draws for the price a bill running, "Pay C. or order 1,000l., and place the same to account cotton shipments as advised." B. promises the drawer to protect the bill, accepts it, and gets the bills of lading. Before the bill matures, B. fails, and A.'s English house takes it up. The English house has no charge on the cotton."

4. Bills are drawn under a credit against specific consignments. By the terms of the credit, which is shown to the holder, the bills are to be accompanied by bills of lading which are to be surrendered to the drawee on acceptance. If the acceptor fails, the billholder has no claim on the consignments or their proceeds."

See further, Illustration 4 to Rule 4, ante, p. 297, and the note at the end of that rule.

Rule 7. Where the estates of two insolvent parties, Double both liable to the holders of bills of exchange, are adminis- insolvency tered under the control of a court of justice, and one of of parties

9

1 Inman v. Clare (1858), Johns. R. at p. 776; Robey v. Ollier (1872), L. R. 7 Ch. 695, at p. 698.

2 Ibid.; see Ex parte Imbert (1857), 1 De G. & J. 152; Ex parte Carrick (1858), 2 De G. & J. 208; Ranken v. Alfaro (1877), 5 Ch. D. 786, C. A., where the holder's charge has been upheld; and Latham v. Chartered Bank (1874), L. R. 17 Eq. 205, for the construction of a letter of hypothecation. 3 Banner v. Johnston (1871), L. R. 5 H. L. 157.

Robey v. Ollier (1872), L. R. 7 Ch. 695.

5 Ex parte Arbuthnot (1876), 3 Ch. D. 477, C. A.

6 Ex parte Dever, Re Suse (1884), 13 Q. B. D. 766, C. A. The appropriation is for benefit of drawee, not holder.

Hickie's Case (1867), L. R. 4 Eq. 226.

8 Vaughan v. Halliday (1874), L. R. 9 Ch. Ap. 561.

• Powles v. Hargreaves (1853), 23 L. J. Ch. 1.

liable.