Story Case

Theodore Watson explained to Timothy Lane that he was in urgent need of credit to the extent of $2000, for one day's time, in order to successfully negotiate a land contract. Watson persuaded Lane to deliver to him a bill of exchange, drawn upon a fictitious person;

Watson agreed not to use the bill, but to surrender it to Lane on the following day. The bill was as follows:

"$2000 December 27, 1914.

Pay to Theodore Watson, or order, two thousand dollars, in thirty days from date, for value received.

To Western Credit and Audit Company, Sioux City Iowa.

(Signed) Timothy Lane." Contrary to his agreement, Watson indorsed this bill to August Froelick, who paid $1600 for the instrument. When Froelick learned that the Western Credit and Audit Company did not exist, he attempted to hold Lane. The latter maintained in defense that the bill was given without consideration and that it was void, since it was drawn upon a fictitious person. Is this a defense?

Ruling Court Case. Kent Vs. Cummings, Volume 44 Ohio State Reports, Page 796

Cummings was indebted to Kent for the sum of $3014.95. Cummings drew a bill of exchange upon Andrews, payable to Kent, for the amount above mentioned. It was agreed that this bill was to discharge Cummings. Furthermore, Kent orally agreed that he would not hold Cummings upon this bill as drawer, even if Andrews, the drawee, did not pay. Kent took the bill and exercised due diligence in presenting it to Andrews. But the latter refused to satisfy the obligation. Thereupon, Kent brought this action against Cummings upon the bill. Cummings contended that he was not liable as drawer, because Kent orally agreed that he should not be liable as drawer.

Decision: A drawer of a bill of exchange is a party of secondary liability. He promises to pay, in case the drawee does not, provided the holder of the instrument takes reasonable steps to collect from the party of primary liability, the acceptor. Thus, in this case, Cum-mings is liable as drawer, since it appeared that Kent did exercise due diligence in his endeavors to collect from Andrews. The oral agreement, by an arbitrary rule of evidence, cannot be shown. This rule is that a written contract cannot be varied by parol (oral) evidence.

Mr. Chief Justice Owen said: "The liability assumed by the drawing of a bill is clearly recognized by law. The mere act of drawing a bill imports the most certain and precise contract, for presumed adequate consideration, that the bill shall be accepted and paid, and that if it is not, the drawer will pay it." However, "it is a firmly settled principle that parol evidence of an oral agreement alleged to have been made at the time of the drawing, making or indorsing of a bill or note, cannot be permitted to vary, qualify or contradict, add to or subtract from, the absolute terms of the contract." Judgment was given for Kent.

Ruling Law. Story Case Answer

The drawer of a bill of exchange is a party of secondary liability. His promise to pay is not absolute, but only conditional. He engages to pay the instrument, provided the party of primary liability does not satisfy the obligation, after due diligence has been exercised by the holder to procure payment. He promises that the drawee - who is the party of primary liability when he accepts - will accept the instrument when properly presented; or that he will pay it when properly presented. If the drawee does not accept, or accepts and does not pay at the proper time, the holder of the bill, after giving dne notice to the drawer of the non-acceptance or non-payment by the drawee or acceptor, may hold the drawer liable for the amount named in the bill. The alleged defense of Lane, in the Story Case, is not effective.