Story Case

It always required a large amount of cash to pay the extra laborers which Carter Henderson employed to pick and ship his cotton crop. To provide this money, he was accustomed to draw a bill of exchange of ninety days' maturity on Judson Breckinridge, the exporter at Charleston, to whom he consigned his cotton, in advance of a shipment to him. These bills he had for years discounted with the local bank, the Planters State Bank. In this course of dealing, one of the bills held by his bank was indorsed in rediscount to the Federal Reserve Bank of Richmond, Va. The Federal Reserve Bank, desiring more security than that afforded by the indorsement of the Planters Bank and the signature of the drawer, Henderson, sent the bill to Charleston for presentment. Breckinridge did not sign the bill, but asserted to the notary, who presented it, that it was good and would be paid by him at maturity. At that time, however, he refused to pay it and it was charged back to the Planters State Bank. Suit was brought by the Planters Bank upon the oral acceptance of the bill. Breckinridge asserted that without his signature, or at least a written promise, he was not liable. Is the bank entitled to recover?

Ruling Court Case. Boss Vs. Swope, Volume 40 Penn. State Reports, Page 186

Forward gave to Swope and Karns the following bill:

"$1616. Somerset, Pa.

May 1, 1915. George Ross & Company, bankers, pay to Swope and Karns, or order, ninety days from date, sixteen hundred and sixteen dollars. (Signed) Ross, Forward."

This paper was indorsed by Swope and Karns and delivered to Ross & Company, upon whom it was drawn. Some thirty days before it came due, Ross & Company received the bill by way of discount. When the bill matured, Forward had no funds in the bank. Ross & Company protested the bill and demanded payment of Swope, as indorser. He refused to pay it, and Ross then brought this suit.

It was contended by Swope, in defense, that by discounting the bill, Ross had accepted and paid the bill. This acceptance and payment, it was insisted, discharged the obligation, and no further action could be brought upon it.

Mr. Justice Strong said: "Acceptance is an engagement to pay a bill according to its tenor and effect at maturity, and not before. A bill is 'paid,' only when it is done in due course, and with an intention to satisfy and discharge it. In this case, Ross & Company did not accept or pay the bill; they merely discounted it. Discounting a bill, even when done by a drawee, is neither acceptance nor payment. Such being the case, this bill was not discharged. The maker not paying, Ross is entitled to collect it from his indorser, Swope." Judgment was therefore given for Ross & Company.

Ruling Law. Story Case Answer

The acceptance of a bill of exchange is the expression of the drawee's willingness to pay the amount named in the bill to the order of the payee, as designated by the drawer of the bill. The drawee, by acceptance, enters into a contract to pay the amount named therein to the payee. As stated in the Negotiable Instruments Law: "The acceptance of a bill of exchange is the signification of the drawee of his assent to the order of the drawer." Of course, acceptance applies only to bills of exchange, foreign or inland, because notes have no drawee, and consequently no acceptance.

The Negotiable Instruments Law also requires that an acceptance be in writing, but before the adoption of this law, and in those states which have not yet adopted it or similar statutes, the rule of the Common Law was otherwise. Acceptance, like other matters of assent, might be given or proved in any manner until statute provided to the contrary. It happens that the state of South Carolina is one of those which has not (in 1914) adopted the Negotiable Instruments Law. But it has had, since an early date, a statute requiring an acceptance to be written and signed. Therefore, the oral statements of Breckinridge to the effect that he would pay the bill, while they do show his assent to the terms in which it was drawn, do not legally bind him to pay it. Judgment should be given for Breckinridge.