Story Case

A bill, payable in ninety days to Hertzog & Kranz, was drawn upon Bertrand Frankton by the Wiltshire Fabric Company, of whom he bought supplies. It was presented a few days after it was drawn, but instead of accepting it, Frankton became indignant that his account had been drawn upon. Instead of notifying the drawer, Hertzog & Kranz, thinking that it could be explained to Frankton that the draft was not a "dun" nor a reflection upon his credit, kept the bill for a week and then presented it again. Frankton, however, could not be placated and the holders were forced to look to the drawer for their remedy. Within twenty-four hours of this second presentment, notice of Frankton's refusal to accept was sent to the Wiltshire Fabric Company. In the meantime, Frankton had written to them of the first request for acceptance, and they claimed that the failure to duly notify them of this discharged them entirely upon the bill, so that they were not liable for the second presentment and dishonor. Suit was brought without any further presentment to Frankton when the bill matured. Is the Wiltshire Fabric Company liable?

Ruling Court Case. Aymar Vs. Sheldon, Volume 12 Wendell, New York Reports, Page 439. Volume 27 American Decisions, Page 137

A bill was drawn in France to the order of Sheldon. It was drawn upon a certain person residing at Bordeaux. By Sheldon it was indorsed, in New York, to Aymar. Aymar presented the bill to the drawee in France for acceptance, but he refused to accept it. He then brings this action against Sheldon, his indorser, to recover from him. Sheldon contended that he was not liable upon the bill because, by the law of France, where the bill was drawn, a negotiable instrument must be presented for acceptance and again for payment before a person of secondary liability can be charged upon it.

Mr. Justice Nelson, who delivered the opinion of the court, said in part: "The contract of indorsement was made in this case, and the execution of it contemplated by the parties in this state, and it is, therefore, to be construed according to the laws of New York. Sheldon, by it, here engages that the drawees will accept and pay the bill on due presentment, or in case of their default and notice, that they will pay it. All the cases which determine that the nature and extent of the obligation of the drawer are to be ascertained and settled according to the law of the place where the bill is drawn, are equally applicable to the indorser, for in respect to the holder, he is a drawer." Judgment was, therefore, given for Aymar.

Ruling Law. Story Case Answer

When a bill of exchange is drawn, the drawer thereby engages that the drawee will accept it, when the instrument is presented for that purpose. But his promise extends further than this; he further promises to pay it himself in case the person on whom it is drawn does not pay it, provided the holder has exercised due diligence in his attempt to procure an acceptance from that person, and has notified the drawer of the fact that the drawee refused to accept the instrument. If the instrument has been presented by the holder to the drawee for acceptance, and the latter refuses to accept it, the holder is under no obligation to wait until the instrument matures and then present it for payment. Immediately upon the refusal of the drawee to accept, the holder may notify the drawer of that fact, and proceed against him on the instrument.

In both the Ruling Court Case and the Story Case the drawer is liable, notwithstanding that the bill was never presented at maturity for payment. Refusal to accept the bill is a dishonor of it and the drawer then becomes primarily liable if he is notified. But the bill may be again presented, and failure to pay at maturity is a new dishonor, for which the drawer is liable, after being notified, whether or not he was ever notified of the original refusal to accept. In the Story Case, Hertzog & Kranz could have kept the bill until its maturity and then presented it the second time. But at any time before maturity, and any number of times, they could call upon the drawee to accept it, and any refusal to do so would be a dishonor of the bill. For the first or for any other dishonor, they were entitled to notify the drawer and to proceed against him, for every dishonor is a breach of his contract that the bill will be accepted upon presentment. Due notice was given of the second dishonor, and it is not material that none was given after the first. Judgment should be given against the "Wiltshire Fabric Company.