Story Case

The Central States Grain Company had regularly shipped grain to the firm of Anstadt & Bergmann in Hamburg, and drawn drafts upon them up to the amount of its price, after shipping the cargo. One shipment was diverted to the Bermuda Islands by the captain of the vessel, because of the dangers to shipping after the declaration of war, and the draft was dishonored. Nevertheless, the Central States Grain Company continued to make up the cargoes as stipulated in their contracts. One such cargo was loaded in the steamer Halcyon, which never left port, but the Central States Grain Company followed its usual practice of drawing a bill of exchange and discounting it. A purchaser of the bill, Moore and Sons, bankers, discovered that all bills drawn since the declaration of war upon Anstadt & Bergmann had been dishonored and that all shipments recently made by the Central States Grain Company, including the cargo described in its bill of exchange, were still in port on this side of the ocean. Moore & Sons made no effort to have the bill presented, but at its maturity, demanded payment of the drawer. They defended that there was no liability until dishonor by the drawee. What should be decided?

Ruling Court Case. Carew Vs. Duckworth, Law Reports, Volume 4 Exchequer Reports, Page 313

Duckworth drew a check for £30 on the Agra Bank, payable to Carew. Carew agreed not to present it for several days. At the time the check was given, Duckworth had £106 in the bank. A few days after giving this check, Duckworth drew out all the money but a few pounds. Carew presented the check for payment, but was refused because of the insufficiency of assets to the credit of Duckworth. Carew, without sending any notice of dishonor to Duckworth, began suit. For Duckworth it was contended that he could not be charged, because he was not given notice of dishonor by the Agra Bank.

Decision: Whenever a drawer of a bill has not furnished the drawee with funds to pay the bill, or has reason to expect that the drawee will not pay, he is not entitled to the usual condition of diligence, as presentment and notice of dishonor. In this case it was shown that Duckworth knew or had reason to believe that the Agra Bank would not pay the instrument in question; consequently, he is not prejudiced by lack of notice; he cannot complain, for he must have anticipated the outcome. Therefore, he is not relieved of liability.

Mr. Baron Cleashy said: "Now, here the check was given with a request that it should not be presented for a few days: but it is nevertheless said that, if at the time of drawing it there were funds, the drawer is entitled to notice of dishonor. But can it be said that after a check has been given with such a request, and the drawer next day draws out the whole of his funds, and never afterwards pays in a farthing, nor has any reasonable expectation of funds coming in, so that he must well know that there never can be any funds to meet the check, he is not completely aware that the check will not be paid? In fact, was there any reasonable expectation that there would be funds to meet the check? The jury has found that Duckworth had no reasonable expectation that the check would be paid, and I think there was sufficient ground for that finding." Judgment was given for Carew.

Ruling Law. Story Case Answer

If the drawer knows, or has reason to believe, when he gives a bill, that it will not be accepted or paid, then the holder of the instrument is under no obligation to present it for payment. The law does not compel the holder to do a useless thing. The purpose of the presentment is to give the drawer the benefit of payment by the drawee; if it is reasonably certain that the drawee will accept or pay, the drawer is entitled to have presentment made to him. But if he knows that it will not be paid, he is not prejudiced by the fact that it is not so presented.

It is a common business practice to draw bills of exchange against the consignee, against or on the security of goods shipped under contract of purchase. It is, therefore, common knowledge that the acceptance of such a bill is given in discharge of the purchase price. When the goods were not being delivered, when other similar bills had been and were being regularly dishonored, and when there was no other obligation upon the drawee to accept for the benefit of the drawer, then it is apparent that an acceptance or payment of this bill could not reasonably be expected. For that reason it would be unreasonable to require a demand for payment, and the drawer is held primarily liable. Without sending the bill over to Hamburg for presentment, and giving notice of its dishonor, the holder can recover immediately of the drawer, the Central States Grain Company. Judgment should be given for Moore & Sons, the plaintiffs.