Story Case

Howard Drew & Company, merchants, sold a stock of goods to Earl Simpson on January 14, 1915. On February 1, Drew & Company sent its collector, Edward Lund, to Simpson with the following instrument:

"$100, On demand, please pay Edward Lund, or order, the sum of one hundred dollars, for goods delivered.

(Signed) Howard Drew & Company."

When Lund presented the paper to Simpson, the latter said that he was not in a position to pay, but would be willing to acknowledge the instrument so that Drew & Company could discount it as a bill of exchange. Simpson signed on the back of the paper: "Accepted by Earl Simpson."

Lund indorsed the paper to Drew & Company, who indorsed and delivered the paper to Robert Lawson. Thereafter, Simpson repeatedly refused to pay on the instrument. Should Lawson bring suit on a bill of exchange or on a promissory note?

Ruling Court Case. Peto Vs. Reynolds, Volume 9 Exchequer Reports, Page 410

Reynolds, the defendant herein, was a merchant at Bristol; he was the owner of a vessel called "Mary," which had sailed from Bristol to the coast of Africa, under the command of an agent, Righton. Peto, the plaintiff, was the treasurer of a foreign missionary society, and owner of a vessel called the "Dave," sent by that society to the coast of Africa. While Righton was at Cameroons, in Africa, he saw the "Dave" and wished to purchase it to assist in loading the "Mary." He offered £300, which was accepted. He paid £100 and in payment of the balance, the following instrument was given to Peto:

"Exchange for £200. Cameroons, Sept. 5,1852.

At sight of this, please pay to S. M. Peto, Esq., or order, the sum of two hundred pounds. Alfred Righton."

Then Righton, as agent for Reynolds, wrote across the face of the bill the following acceptance:

"Accepted. Samuel Reynolds, Esq. Bristol." When time for payment arrived, Reynolds refused to pay. Suit was brought upon it as a bill of exchange. It was contended by Reynolds that this was not a bill of exchange because it was addressed to no one as drawee. If this were true, suit could not be brought upon it as such.

Decision: Since this instrument was addressed to no one as drawee, the court was of opinion that it was not a bill of exchange, and that suit was improperly brought upon it as a bill. In order to be a valid bill of exchange, it must contain the name or description of some one as drawee. But the court was of opinion that suit might be brought on such an instrument as a negotiable note, since the acceptance amounts to a valid promise to pay the amount called for in the instrument. Mr. Baron Parke, in his opinion, said: "With the exception of Regina vs. Hawkins, there is no case in which it has ever been decided that an instrument could be a bill of exchange, where there was not a drawer and a drawee, but I do not see why the instrument should not be treated as a promissory note, because, upon the face of it, there is a promise to pay the amount, written in the name of Samuel Reynolds." Judgment was given for Reynolds in this action.

Story Case Answer

A bill of exchange is an instrument in which the drawer, the person who draws it, directs another person, the drawee, to pay a certain sum to the person named as payee. Now in order to be a bill of exchange it is obvious that the drawee must be named in the bill, or described with reasonable certainty. In the court case of Peto vs. Reynolds, the instrument was addressed to no one; accordingly, the court held that it could not be a bill of exchange. In the Story Case, Lawson's suit should be on a promissory note, since Simpson, the drawee, is not named. When Simpson accepted the instrument, he promised to pay, and hence, in substance, executed a negotiable note. The Negotiable Instruments Law provides: "Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty."