Scottish Court of Session Decisions

This action was raised by the National Bank of Australasia, Limited, against George V. Turnbull & Company, merchants in Leith, for payment, inter alia, of the amount of two bills for £514,15s. 10d. and £186, 17s. With regard to the first of these bills the pursuers averred—“(Cond. 2) Against a shipment of wood pulp to Messrs Phipps, Turnbull, & Company, merchants in Melbourne, the defenders, on 15th November

1889, drew a bill on them, in favour of the pursuers, for £524, 15s. 10d., payable ninety days after sight. The pursuers bought the bill, and obtained therewith the bills of lading of said shipment duly endorsed by the defenders. The bill of exchange was in due course presented for acceptance, but acceptance was refused by the drawees on 24th December 1889, and it was then noted by Mr Alfred Brooks Malleson, notary public, duly admitted and sworn, practising in the city of Melbourne. On 27th March 1890, being the last of the days of grace, the bill was presented for payment, which was refused, and it was then protested against the drawers by Mr Malleson for non-payment.” In Cond. 3 the pursuers made similar averments with regard to the bill for £186, 17s., and further averred that “information of the dishonour of both bills was duly intimated at the time to the defenders.”

The defenders did not deny these averments, but made the following averments in a separate statement of facts:—“(Stat. 1) The defenders have for the last fifteen to twenty years acted as agents in this country for Messrs Phipps, Turnbull, & Company (prior to 1875 Messrs Smith, Turnbull, & Company) of Melbourne, for the purpose of procuring and forwarding consignments of such goods as the said Phipps, Turnbull, & Company desired for the Australian markets. For many years prior to 1881 all transactions were financed by bills drawn by the defenders upon Messrs Smith, Turnbull, & Company, under arrangement with the National Bank of Scotland, Limited, who agreed to discount all bills drawn by the defenders upon the said Smith, Turnbull, & Company, on receiving endorsed the bills of lading of the various consignments, and to look to Smith, Turnbull, & Company alone for payment. (Stat. 2) In 1881 Messrs Phipps, Turnbull, & Company found it desirable to carry out the transactions through a London Bank. They therefore, being old customers of and well known to the pursuers, instructed Mr R. Murray Smith, at that time Agent-General in London for the Colony of Victoria, to make similar arrangements with the pursuers to those which had existed with the said National Bank of Scotland, Limited. This the said R. Murray Smith did, and explained to the pursuers that Phipps, Turnbull, & Company were alone to be liable on any bills discounted by the pursuers drawn by the defenders on them, on receipt of the bills of lading endorsed, which the pursuers agreed to. The defenders, but for this arrangement, would not have relied on Messrs Phipps, Turnbull, & Company accepting the bills for such consignments on a fallen market, and this was well known to the pursuers. At the date of said arrangement the defenders were wholly unknown to the pursuers. (Stat. 3) Numerous transactions were thereafter carried out under this arrangement, amounting in the aggregate to a sum of at least £100,000. (Stat. 4) In 1888 the defenders, by order of Messrs Phipps, Turnbull, & Company, commenced to consign quantities of wood pulp to Australia. Payment of these was, according to the invariable custom, made by drafts on the pursuers, which were met by bills drawn by the defenders on their principals (Messrs Phipps, Turnbull, & Company), payable to the pursuers. As trade in Australia turned bad about the beginning of this year Messrs Phipps, Turnbull, & Company wrote to the defenders cancelling all further consignments, and this the defenders at once did. Two consignments, however, one for fifty tons of pulp and the other for ten tons thereof, could not be cancelled. Payment of these two consignments was made by the pursuers, which payment was met by bills drawn on Messrs Phipps, Turnbull, & Company, and payable to the pursuers in the ordinary way. The sums contained in these two bills (£524,15s. 10d. aud £186,17s.) together form the principal part of the amount now being sued for.”

The pursuers pleaded—“(1) The said bills have been dishonoured by the drawees, the defenders as drawers are personally liable therefor, and the pursuers as holders and payees are entitled to recover the amount contained in the bills, with charges, interest, and expenses as concluded for. (2) No relevant defence having been stated to the action, the pursuers are entitled to decree as concluded for.”

The defenders pleaded, inter alia—“(2) The bills libelled being drawn by the defenders as agents for the drawees, and the pursuers having agreed to look to the drawees alone for payment, the defenders are entitled to absolvitor.”

By section 100 of the Bills of Exchange Act 1882 it is enacted—“In any judicial proceeding in Scotland, any fact relating to a bill of exchange, bank cheque, or promissory-note, which is relevant to any question of liability thereon, may be proved by parole evidence: Provided that this enactment shall not in any way affect the existing law and practice whereby the party who is, according to the tenor of

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any bill of exchange, bank cheque, or promissory-note, debtor to the holder in the amount thereof, may be required, as a condition of obtaining a sist of diligence, or suspension of a charge, or threatened charge, to make such consignation, or to find such caution as the court or judge before whom the cause is depending may require. This section shall not apply to any case where the bill of exchange, bank cheque, or promissory-note has undergone the sexennial prescription.”

On 20th December 1890 the Lord Ordinary ( Wellwood), before answer, allowed parties a proof of their respective averments, and to the pursuer a conjunct probation.

“ Opinion.—The sum sued for, £718,6s. 8d., is made up chiefly of the contents of a bill of exchange for £524, 15s. 10d., dated 15th November 1889, and another bill of exchange for £186, 17s., dated 20th January 1890. These bills were drawn by the defenders in favour of the pursuers upon Messrs Phipps, Turnbull, & Company, Melbourne, the defenders' foreign principals, but in both cases acceptance was refused by the drawees. The pursuers now claim payment of the contents of the bills and certain other charges from the defenders, the drawers of the bills.

The defenders allege and offer to prove that although on the face of the bill they, as drawers, are liable to the payees, the bill was delivered to the pursuers in accordance with an agreement which was followed by a course of dealing extending over six years, by which the pursuers agreed that only the drawees, Phipps, Turnbull, & Company, should be looked to as liable on any bills discounted by the pursuers drawn by the defenders on Phipps, Turnbull, & Company.

The pursuers contend that these averments are altogether irrelevant, or at least that they cannot be proved by parole. There is no doubt that prior to the passing of the Bills of Exchange Act 1882 such averments could only be proved by the writ or oath of the holders of the bills. But the 100th section of that statute made a material alteration in regard to the proof of such matters. It is provided that ‘In any judicial proceedings in Scotland, any fact relating to a bill of exchange, bank cheque, or promissory-note, which is relevant to any question of liability thereon, may be proved by parole evidence: Provided that this enactment shall not in any way affect the existing law and practice whereby the party who is, according to the tenor of any bill of exchange, bank cheque, or promissory-note, debtor to the holder in the amount thereof, may be required, as a condition of obtaining a sist of diligence, or suspension of a charge, or threatened charge, to make such consignation, or to find such caution as the court or judge before whom the cause is depending may require.’ I do not think that the scope of this section has been defined by decision. It is a hard saying that it is now competent to contradict by parole the terms of the contract on a bill of exchange, but the clause is expressed in terms so wide that it is still more difficult to hold that its application is excluded in a case like the present. For instance, the clause contemplates that parole evidence may be led in order to show that a party, who, according to the tenor of a bill is debtor to the holder, is not in reality bound to pay. By the latter part of the section quoted it is provided that a party in that position shall not be entitled to obtain a sist of diligence without making a consignation or finding caution if so required. That seems to imply that while the privileges of summary diligence and the necessity of finding caution or making consignation as the condition of obtaining a sist of diligence are saved, a party to a bill may be entitled in an ordinary action or suspension to prove by parole that he is not truly debtor on the bill in a question with the holder.

Again, I do not think it is disputed that it is competent under this section to prove by parole quo animo a bill is delivered to the holder. The case of Simpson v. Brown, 15 R. 716, may be referred to. The averment in that case was that the acceptor of a bill of exchange had delivered a blank bill to the drawer to be used for a different purpose to that for which it was used. The only question raised at that stage of the case was whether the complainer, the acceptor, was entitled to have a note of suspension passed without caution. The Court held that the Bills of Exchange Act made no difference in regard to caution, but Lord Shand said (p. 718)—There is no doubt that section 100 of the Bills of Exchange Act has introduced a very important and valuable change in the law, for where formerly the mode of proof was restricted to the writ or oath of the parties where the parties, although truly acceptors, had granted bills for accommodation purposes, a proof at large is now competent. But the practice of the Court in regard to caution is saved.’ According to that decision the case of Wilson v. Scott, 1 R. 1003, June 11, 1874, would be decided otherwise now.

The question in this case is, whether the clause applies in a question with a holder for value, but still one of the ‘immediate parties’ to the bill. If it does apply, it would seem that matters can be proved now in Scotland by parole, which cannot be so proved in England. See the case of Abrey v. Crux, L.R., 5 C.P. 42, which is an authority to the effect that it is incompetent, even in a question with an immediate party, to contradict the terms of the contract on the bill by parole. On the other hand, it is hard to distinguish between that case and the case of Castrique v. Buttigiez, 10 Moore, P.C. 94, in which an agent-endorser, in a question with his immediate endorsees, was allowed to prove by parole that he had only endorsed the bill for the purpose of transferring the bills to the endorsees, who were his principals. The distinction drawn appears to be that the contract between the endorser and endorsee consists only partly of the endorsation, and is not completed without deli

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very, and that the purpose of delivery may be proved by parole. But it may be said that the contract between the drawee of the bill and the payee is also not completed without delivery if the law of England be as stated in Abrey v. Crux, and the 100th section bears the construction sought to be put upon it by the defender; it is unfortunate that such wide expressions should have been used in the 100th section as to admit parole evidence in Scotland in cases in which it would not be admitted in England.

Looking to the importance of the questions raised, I think that the facts should be ascertained before deciding whether the 100th section applies or not. I therefore propose to allow a proof before answer, a course which was sometimes adopted under the former law where it was not quite clear on a suspender's statements whether the facts relied on were such as to entitle him to prove that a bill was an accommodation bill, or that he was not the true debtor on it otherwise than by writ or oath. As there are other matters which the pursuer must admittedly prove, I shall allow a proof in the usual terms, but of course as regards the question of liability on the bills, it lies on the defenders to establish the arrangement averred, and the pursuers will be allowed a conjunct probation to meet the defenders' evidence on the point.”

The pursuers reclaimed, and argued — The defender had stated no relevant defence to the action, and were not entitled to a proof of their averments. If they had desired to limit their liability under the bills in question, they could have inserted in the bills a stipulation to that effect as provided for in sec. 16 of the Bills of Exchange Act, but it was incompetent, even in a question with an immediate party to the bill, to contradict the terms of the contract by parole— Abrey v. Crux, 1869, L.R., 5 C.P. 37. A statute was to be construed secundum subjectam materiam—Regina v. Harold, 1872, L.R., 7 Q.B. 361; Commissioners of Weir v. Adamson, 1876, L.R., 1 Q.B.D. 546. It was never intended by the 100th section of the Bills of Exchange Act to let in parole evidence to contradict the contract contained in a bill, and to destroy it as a document of debt. The object of the section was merely to remove certain special rules of evidence previously applicable to bills in Scotland— Brown v. Sutherland, March 17, 1875, 2 R. 615; Dutton v. Marsh, 1871, L.R., 6 Q.B. 361; Notes to Thomson v. Davenport, 2 Smith's Leading Cases (9th ed.) 416; Simpson v. Brown, June 9, 1888, 15 R. 716; Wilson v. Scott, June 11, 1874, 1 R. 1003.

The defenders argued — The defenders had averred a collateral agreement relevant to the question of liability on the bill, and were entitled to prove the agreement averred— Thomson v. Clubley, 1836, 1 M. & W. 212; Brill v. Crick, 1 M. & W. 226. At all events there was here an alleged agreement which might under the old law have been proved by writ or oath, and was now provable by parole under section 100 of the Act of 1882—Bell's Comm. (7th ed.) i. 421. As parole evidence was now admissible in the case of accommodation bills to prove that the acceptor was not liable to the drawer, such evidence was surely admissible to prove that the drawer was not liable to the payee. The alleged agreement operated as an assignation to the pursuers of any rights possessed by the defenders against the drawees.

At advising—