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Decisions of the Superior Courts of New South Wales, 1788-1899

Fawcett v. Irving (1843) NSW Sel Cas (Dowling) 409; [1843] NSWSupC 8

bill of exchange, custom of merchants

Supreme Court of New South Wales

Dowling C.J., Burton and Stephen JJ, 20 April 1843

Source: Dowling, Select Cases, Vol. 6, S.R.N.S.W. 2/3464, p. 358

By the custom of merchants, the holder of a bill drawn in the Colony upon a house in London and there dishonoured is entitled to recover re-exchange from his immediate endorser without proving actual damage.*

This was a special case stated for the opinion of the Court. The case stated that the plaintiffs were merchants residing in London, and the defendants commission agents residing in Sydney. In the year 1840 the plaintiffs consigned to the defendants goods to be sold by them on behalf of the plaintiffs for a del credere commission. The net proceeds after deducting the commissions were remitted by defendants to plaintiffs in bills of exchange in June 1841, drawn in Sydney by Robert Duke & Co. of Sydney, or Richard Duke of London, in favor of the defendants, payable 60 days after sight and endorsed by defendants payable to plaintiffs or their order. They were only presented by plaintiffs to Richard Duke in December 1841, acceptance of which was refused and they were therefore duly protested for non acceptance. They were afterwards duly presented for payment, which was also refused. They were then duly presented for non payment and immediately returned by plaintiffs to Sydney for recovery against the defendants and the defendants had due notice of the non payment.

The question for the opinion of the Court is whether under these circumstances the plaintiffs are entitled by the custom of merchants to recover against the defendants re-exchange on the bills. If the Court should be of opinion in the affirmative, the plaintiffs and defendants agree that a verdict shall be entered for the plaintiffs for £477.4.2 over and above the principal and interest which have been tendered. But if the Court should be of opinion that the defendants are not so liable for re-exchange, then it is agreed that a verdict shall be entered for the defendants.

This case was argued before us on the 3rd February last. On the part of the defendants it was contended that the contract of a bill of exchange between a drawer and endorser was the same as that of an endorser and an endorsee, each being liable to his immediate privy for the consequences of dishonor by the payee. The plaintiffs as endorsees had a right to look to the defendants as their immediate endorsers for the default of the drawee and as the plaintiffs were in a condition, if entitled by the custom of merchants, to redraw in London upon the defendants, the defendants were answerable for re-exchange as an incidental damage resulting from the nonpayment of the bill by the drawee, though they had not in fact redrawn.

The act of endorsing is an implied engagement that the bill shall be duly honored. The defendants therefore as endorsers were bound to their endorsees to pay the bill together with the re-exchange according to the custom of merchants, for as they were entitled to have their money immediately at the place where it was made payable, the expense of re-exchange was an implied ingredient in the contract for which they might have redrawn and they were not to be deprived of the benefit of it, although they had not in fact redrawn. It was sufficient that they were in condition to redraw, or might have done so. The payment of re-exchange in the event of the drawees' non payment was part of the original contract between the plaintiffs and the defendants and it mattered not that the plaintiffs were in fact damnified by redrawing, instead of sending back the bill to the defendants to obtain payment in Sydney. The cases of Francis v. Rucker (1768) [ Francis v. Rucker (1768) Amb. 672, 27 E.R. 346], Mellish v. Simeon (1794) [ Mellish v. Simeon (1794) Bl. H. 378, 126 E.R. 605], and De Tastet v. Baring (1809) [ De Tastet v. Baring (1809) 11 East. 269, 103 E.R. 1006, 2 Camp. 65, 170 E.R. 1083] were cited.

On the part of the defendants it was contended that according to the custom of merchants, the holder of a bill of exchange, as in the present case, who has never paid nor become liable to pay re-exchange cannot recover for it against his endorser, on the principle that the money was worth more to him at the place on which the bill was drawn than in that in which it was redrawn. The only contract between the defendants and the plaintiffs was that if the drawee did not pay the bill they would pay together with all such expenses as were necessarily incurred in consequence of the dishonor.

It was insisted that the defendants were entitled to the option of paying the bill in Sydney or in London and were not to be saddled with the expense of re-exchange, which had never been in fact incurred. In Chitty, A Practical Treatise on Bills of Exchange, Checks on Bankers, Promissory Notes, Bankers' Cash Notes and Bank Notes, 9th ed., London, 1840, p. 683 it is said that "the only expense which the holder of a bill at the time it becomes due can be put, to by the dishonor of it, is that of the charge for noting and protesting and he cannot demand more of any of the parties to the bill than a satisfaction for that expense; and this only in the case of a foreign bill". It was conceded that the defendants as endorsers might recover re-exchange against the drawer, by reason of the damage or expense they might be obliged to incur to enable them to take up the bill out of their own funds, but the plaintiffs as mere holders of the bill who had incurred no expense by redrawing could not recover. They had sent out the bill as dishonored and the defendants were ready to pay all they were bound to pay, that is the amount of the bill interest from the date of dishonor and the expense of noting and protesting.

Here the plaintiffs were mere holders, they had not negotiated the bill or transferred it to anybody else to whom they could be liable to re-exchange and consequently they had no claim for a re-exchange. It might be that the money was more valuable to them in London and that they may have sustained a loss for the want of it, but looking to the contract arising between them and the defendants, which was that if the drawee did not pay they would, having the option to take the bill up on being returned to them for non-payment, the defendants were not liable for re-exchange. The only obligation cast upon the defendants was to take up the bill on receiving notice that it was dishonored and paying the expense of noting and protesting, but their liability could not be carried farther without proof that the plaintiff had sustained damage by being obliged to pay and exchange to a previous holder.

The doctrine in Chitty is decisive. Citing Auriol v. Thomas (1787) [ Auriol v. Thomas (1787) 2 T.R. 52, 100 E.R. 29] that author admits that a party who has been obliged to pay the holder in consequence of the acceptors refusal, frequently is put to other expenses by the return of the bill, such as re-exchange, postage, commission and provision. Here the plaintiffs did not think proper to redraw and therefore they are not entitled to recover the re-exchange on the bills themselves. They must be bound by their declaration to return the bills and sue upon them here and cannot recover re-exchange.

Dowling C.J. We have fully considered this case. The sole question is whether the plaintiffs, as holders of these bills indorsed to them by the defendants as a remittance in payment of goods sold on their account are by the custom of merchants entitled to recover re-exchange against their endorsers in consequence of the dishonor by the drawee. The general principle was conceded that by the "law of merchants" the contract by which the drawer and endorser of a bill of exchange are respectively bound is precisely the same, and that an endorser of a bill stands in the same situation to his immediate privy as a drawer does to an endorser and consequently that the holder or endorsee of a bill may redraw on his endorser in the event of the default of the person on whom the bill is drawn. In short that an endorser as respects the endorsee is regarded as a new drawer, his contract being an implied engagement that the bill indorsed shall be duly honored.

It does not seem to have been disputed that if these plaintiffs had themselves indorsed these bills and had been compelled to take them up, they would have been entitled to recoup themselves by charging the defendants as endorsers with re-exchange; nor is it denied that if the plaintiffs had in fact redrawn they would have been entitled to draw for all the expenses incident to the dishonor of Duke's bills, including re-exchange, in order to put themselves in the same situation as if the money was actually paid in London according to the contract.

The concession of this fact is a recognition of their right to redraw and the only question is whether the forbearance to re-draw is to deprive them of a right which is incident to the contract itself. The passage cited from Chitty on Bills is not justified by any cited authority and therefore we must look at the nature and incidence flowing from the contract between the parties to a bill of exchange and the principle on which re-exchange is allowable by the law of merchants. The drawer, as well as the endorser, contract with their respective endorsers that the drawee shall pay the bill at the time and place appointed and in default of payment will save harmless the part damnified by the nonpayment. These plaintiffs had a right to have their money in London at the time appointed. It is not paid. By the custom of merchants they had a right to redraw for the amount of the dishonored bill together with the amount of interest payable, expenses of noting and protesting and for the value of the re-exchange according to the rate known to prevail in the place where the redrawing takes place. This is an incident of the contract between the plaintiffs and the defendants. The plaintiffs in fact do not re-draw; but they have a right to stand upon the incidents growing out of the contract, and which the defendants as merchants must be taken to have known at the time the bills were indorsed.

The principle on which the liability is founded is well stated in De Tastet v. Barring . From that case it appears to be quite immaterial whether or not the plaintiffs in fact redrew bills on Sydney and raised the money on the London market. Their loss by the dishonor of the bills in London was exactly the same and could not depend on the circumstance whether they repaid themselves immediately by redrawing for the amount of the former bills, with the addition of the charges upon them, including the amount of re-exchange, or whether they waited until a future settlement of account with the defendants who were liable to them on the first bills. The defendants were at all events liable to them for the difference, for as soon as the bills were dishonored the plaintiffs as holders were entitled to redraw. In that case it is said that where re-exchange has been recovered on the dishonor of a foreign bill it has not been usual to prove that in fact another bill was redrawn. And in delivering judgment Lord Ellenborough C.J. said that the question was properly put to the jury to allow the plaintiff damages and expenses in the name of re-exchange if the plaintiffs were either liable to pay or had paid re-exchange on the bills.

Regarding the right to redraw as an incident of the contract we are bound to hold that by the custom of merchants the holder of a bill drawn in this country upon a house in London and there dishonored is entitled to recover re-exchange from his immediate endorser, without proving actual damage. In the consideration of this case we have had recourse to receive authorities on the subject of bills of exchange and the liabilities of parties thereto. In W. Forbes, A Methodical Treatise concerning Bills of Exchange , 2nd ed., Edinburgh, 1718, p. 198 it is said "Re-exchange is an ordinary article of damages for a protested bill, which was first invented and claimed by the Florentine exiles". In Beawes Lex Mercatoria (per Chitty p. 561 ) it is laid down as settled mercantile custom, "that when a protest is received either for want of acceptance or better security, the person to whom it is sent must presently repair with it to the drawer or endorser of the bill. And upon sight thereof, he must give a satisfactory security, if his own is not satisfactory, for repayment of the money received with re-exchange and charges, if it is not paid when due". Again it is said "If the acceptor of the bill becomes insolvent or refuses to pay it when due, the drawer is obliged for its discharge with re-exchange provision &c although he has not received its value". In p. 572 it is said "No person can be compelled to pay a bill which has not been accepted nor the drawer or endorser to the making restitution, unless the bill be returned with protest for nonpayment; but if it is and the protest is in all circumstances rightly made, he that gave or he quriated the bill must make immediate and punctual satisfaction for the value, re-exchange, postage and protest". In another section (p. 576) it is said "By indorsing the bill the endorser makes it his own bill and obliges himself on the amount of his principal not only for the value by him received, but for all other charges and re-exchanges".

It is settled law that the drawer, acceptor and endorser of a bill of exchange are all liable for the whole amount to the holder, although payment by any one of them is, as against him, a discharge of all the others. This is an illustration put by Mr Evans in his notes on R. J. Pothier, A Treatise on the Law of Obligations and Contract, London, 1806 of the principle laid down by Pothier at s. 2, in treating of certain cases in which solidity between several debtors of the same thing takes place, although it is not expressed. After full consideration of all the authorities we are of opinion that these defendants are, under the circumstances of the case stated, liable by the custom of merchants to re-exchange and the verdict must be for the plaintiffs.

Judgment for plaintiffs.

Published by the Division of Law, Macquarie University