Story Case

Hoxie and Smithson, an Illinois firm of furniture manufacturers, had sent a representative to South America who had sold several orders there. All the buyers had agreed to pay for the goods in ninety days. In order to make the settlement over this great distance, as well as to get an immediate benefit from the sale, Hoxie and Smithson drew a bill of exchange, addressed to Hermanos y Cie, Buena Celaya. This bill they made payable to the Manufacturers' National Bank of Franklin, which advanced to them the amount of its face, less a discount of five and one-half per cent. The bill was forwarded by the Manufacturers' National Bank of Franklin to the Federal Reserve Bank of the Chicago district, as a deposit of the Manufacturers' bank. It was conditionally credited to the bank, according to banking custom, and was sent by the Federal Reserve Bank to its correspondent in Buena Celaya. The correspondent there presented it to Hermanos y Cie, for their acceptance, but they refused to acknowledge or promise to pay it. At the expiration of the ninety days it was again presented, and Her-manos y Cie refused to pay it. It was then returned to the Federal Reserve Bank of Chicago, where the conditional credit of the Manufacturers' Bank was cancelled, and it was returned to that bank. That bank at once notified Hoxie and Smithson of the dishonor of their bill, and then brought suit against them for the face amount of the bill.

Ruling Court Case. Wood Vs. Scurrells, Volume 89 Illinois Reports, Page 107

Osborn held a judgment against Scurrells, Caldwell, and Baty. One Wood proposed to Scurrells that if he would give a draft, accepted by one Habing, for the amount of the execution, Wood would release Scurrells and Baty, and satisfy the judgment. It was drawn by Scurrells and accepted by Habing. At maturity, the draft was presented for payment. It was refused. On the same day, Scurrells was notified of its dishonor. He refused to pay it, and this suit was thereupon brought. It was contended by Scurrells that he was not liable upon this draft, because Wood had orally agreed to release him from liability.

Decision: The liability of a drawer of a bill of exchange is fixed by presenting the draft on the day of its maturity, and notice that the drawee or acceptor refuses to pay it. In this case Wood took all the steps necessary to charge Scurrells. The latter is, therefore, liable upon this draft. The oral agreement cannot be shown to relieve Scurrells of his liability.

Mr. Justice Walker said: "The evidence in this case shows that the law regulating the liability of parties to inland bills of exchange was complied with by the holder. The bill was properly presented and accepted, and was on the day of maturity presented for payment, and when payment was refused, notice was on the same day duly given to the drawer. His liability was thus fixed and complete under law." Judgment was given for Woods.

Ruling Law. Story Case Answer

When a bill of exchange is drawn, the drawer thereby promises that the person, on whom it is drawn, will accept and pay the instrument when properly presented. He also promises to pay the instrument himself if the drawee refuses to accept or pay the same, provided he, the drawer, has been given due notice of the failure of the drawee to honor the instrument.

The advance made to Hoxie and Smithson by the Manufacturers' National Bank was given in much more reliance upon their credit than upon the credit of the distant and unknown drawees of the bill. Knowing that Hoxie and Smithson had an established trade, the bank was willing to assume that the draft represented an actual sale of goods for which the buyer would be willing to pay. But when, for some undisclosed reason, the buyer or drawee refused to pay, the holder of the draft is not compelled to secure the payment of what is really the drawer's bill. The holder may give notice of the dishonor of the bill of exchange and then resort to the parties from whom he bought the paper. It was the contract of Hoxie and Smithson, according to business usage, that they would pay the amount of this bill of exchange if Hermanos y Cie did not, and they may be sued after the ninety days for the failure to pay, or they might have been sued at once, for the failure of the drawees, Hermanos y Cie, to accept and promise to pay the bill of exchange.