Proposed definition

of accommodation bill.

Capacity and

to provide for the bill when due. I take it to mean that if, as between the original parties to the bill, that one, who would primâ facie be principal, is in fact the surety, whether he be drawer, acceptor, or indorser, that bill is an accommodation bill. No doubt if the acceptor accepts for the accommodation of the drawer, that is an accommodation bill, and probably the most common sort of accommodation bill; but it does not follow, that no bill is an accommodation bill unless it is one to which an acceptor has become a party for the accommodation of the drawer. Suppose for instance there was no acceptor at all. Suppose the drawer drew for the accommodation of the payee, and the bill after half a dozen indorsements was dishonoured by non-acceptance. This according to Mr. Justice Byles's definition would be an accommodation bill, and this bill could, under section 59 (3), be discharged by payment in due course by the payee, who was the party accommodated, though, primâ facie, the drawer would be the principal debtor on that bill. Suppose again that to accommodate the person who, on the face of the bill, figured as the first indorsee the person who appeared as payee and first indorser had drawn in a fictitious name upon a fictitious drawee, and, money being raised upon the bill in that form, it was negotiated and dishonoured by non-acceptance. Here again there is no acceptor on the face of the bill, the drawer also turns out a myth, and the first real responsible party, the one who would primâ facie be the principal debtor, viz., the payee and first indorser, is in reality a surety only for the second indorser. Here again, within the definition in "Byles on Bills," this is an accommodation bill, by reason of the indorser, who would primâ facie be the principal debtor, being in fact the surety.

In the absence therefore of any definition in the Codifying Act, or of any express judicial definition, the best solution I can suggest to you is to say that where, as between the original parties to the bill, that party (whether drawer, acceptor, or indorser), who would, if he had received value, have been the principal debtor, is merely the surety, and the party who would, if he had given value, have been surety, is in fact the principal "who is to provide for "the bill when due," that bill is an accommodation bill, and, if paid in due course by the accommodated party, is discharged under section 59 (3).

Besides cases where a party, notwithstanding, a grievance against Authority. another in immediate relationship with him, is held, bound to a holder in due course or (where his grievance does not amount to a defect of title) to a holder for value, there are cases in which even a holder in due course has no remedy whatever against some person purporting to be a party to the instrument; for the simple reason that such person never became bound by the signature at all. This situation arises where the signature in question is forged

or unauthorised. There may be a good claim on the part of the holder against parties from whom or through whom he got the document after such signature, but, against the person whose supposed contract is a nullity, there is no remedy at all; nor can any title be made through the signature in question. There are other cases where the party really signed, but there is no remedy against him because the signature did not bind him. Strange as it may seem, however, there is a remedy, not only against parties subsequent to him, but, through his signature, against parties beyond and prior to him. These questions range under the head of Fictitious or non-existent parties-Capacity-Genuineness of signature-Authority.

Now let us clear off first of all the mist which is apt to hang over non-existing parties on the first approach. A student may say "How can business men be dealing with non-existent parties? The answer is that if all bills were genuine trade bills there would be no such thing as fictitious or non-existent parties. But we saw, in looking at the object and uses of bills, that they have, from their convenience, come to be largely used (1) as guarantees, (2) as mere acknowledgments of indebtedness for the purpose of fixing the amount and the date for payment. The result is that when two or more persons have resolved to resort to the convenient machinery of a bill and have no real drawer, or real acceptor, or real payee to make up the trio, they take in a dummy, and one of them becomes the drawer, upon a fictitious acceptor we will say, in favour of the other, who then negotiates the bill away for value, probably arranging with the drawer to find money to retire the bill or take it up at maturity. Or, the bill is drawn in a fictitious name, while the acceptor and payee are real persons. Or, the drawer and acceptor are real persons, and the payee is a non-existent person. In each of these cases no genuine signature of such person can be given, so that one of the interested parties signs the fictitious name, and if all goes well and the bill is retired or met at maturity no questions are asked, and the bill has fulfilled its object. But if the money is not forthcoming at maturity and the holder begins to look to the parties liable on the bill, he finds out, perhaps for the first time, that one or other of the parties is non-existent or fictitious. Thus arises one class of those questions, which we shall deal with under estoppels or preclusions, where the holder has to fall back upon some real party who is precluded from disputing his liability.

Next as to capacity. Capacity is a person's power to make a contract which shall bind himself. Authority is power to make a contract so as to bind another. Certain persons are incapable of making a contract which shall bind them. If you enter into a contract with them and they do not depart from the bargain, so much the better for you. If when the time for performance comes

Infants and Corporations..

liability

though escaping liability themselves s. 22 (2).

Different

from case of forgery

or want of authority.

they turn round and plead their incapacity, you have no remedy against them. This applies to infants and corporations not authorised to contract by bill. Now with regard to infants and corporations, the position of the holder of a bill, to which they have May pass on purported to become parties, is this: He has no remedy against the infant or the corporation, but by section 22 (2) he can enforce the bill against any other parties. This would not be like the case where there has been a forgery or a signature without authority, because in those cases there is a defrauded third party whose rights are inconsistent with any effect whatever being given to the signature which purported to convey the title from them. But the infant or the corporation have not been defrauded; they have put their signature to the document and passed it on, probably for value, and are very fortunate not to be liable on the instrument; so that they have no right to object to the bill being enforced against any other parties, whether subsequent or prior to their own transfer. And those other parties have no right to complain, because they are only having enforced against them the liability which they voluntarily incurred. Up to a few years back, there was a doubt whether it would make a difference if the infant gave the bill in payment for necessaries. But the case of In re Saltykoff, bill even for decided in the Court of Appeal in January, 1891, put this beyond a doubt, and the Court held that an infant cannot bind himself by bill, even for necessaries. He may be sued on the consideration-i.e., for the goods supplied-just as in any other case; and if he sets up infancy, the plaintiff may reply that the goods were necessaries and fit for his station in life, and that issue will be for the jury. But this is a less pleasant position for the tradesman who supplied the goods than if he could go into court with the amount settled, the day for payment fixed and consideration presumed, so that he could apply the summary procedure already alluded to for recovering speedy judgment, with interest from the due date of the bill.

Infant not liable on

necessaries.

Corporations.

Now in speaking of corporations just now it was necessary to say "corporations incapable of contracting by bill." A corporation is an artificial body entirely owing its corporate existence (as distinct from that of the individuals composing it) to the law, and, consequently, it can only lawfully do those things which are included in the purposes for which it is created. Any other Acts are ultra vires or beyond its lawful powers. Now whether a corporation has capacity to bind itself by drawing, accepting or indorsing bills, depends upon whether (1) the power to do so is given to it expressly by the Charter, Act of Parliament, Articles of association or other instrument by which its objects and powers are defined, or (2) whether the power to sign bills is necessarily implied in the objects for which it is incorporated. Now, as we have seen, bills are the essential medium for carrying out trade transactions, so that if a corporation is founded for the purpose of

1

trade, it is necessarily implied that it has power to contract by bill; if it is not a trading corporation, the presumption is the other way, and it would require express power given to it to authorise it to contract by bill. Now the sections to which I call your particular attention on this subject of capacity are, firstly, section 22, 22 (1). sub-section 1 (after saying capacity to incur liability by bill is co-extensive with capacity to contract), proviso "nothing in this "section shall enable a corporation to make itself liable as drawer, "acceptor or indorser of a bill unless it is competent to it so to do "under the law for the time being in force relating to corporations.' So that no new capacity to contract is conferred by this Act on corporations.

Next section 91 (2) "in the case of a corporation, where by S. 91 (2). "this Act any instrument or writing is required to be signed, it is "sufficient if it be sealed with the corporate seal. But nothing in "this section shall be construed as requiring the bill or note of a "corporation to be under seal." The mere putting on the seal is not to invalidate the bill or note as a negotiable instrument. This last proviso is necessary because the usual method for a corporation if it can contract by bill or note is not to contract under seal but per pro the corporation, one of its officers signing for the corporation, as we shall see when we come to the subject of indorsements hereafter.

Act, 1862.

Now, as you know, Limited Liability Companies are regulated Companies by the Companies Act, 1862, and later statutes incorporated therewith and assuming that the Company is one which, by its documents of incorporation, is empowered to sign bills and notes, the 47th section s. 47. of that Act lays down expressly: "A Promissory Note or Bill of "Exchange shall be deemed to have been made, accepted, or indorsed "on behalf of any company under this Act if made, accepted, or "indorsed in the name of the company by any person acting under "the authority of the company, or if made, accepted or indorsed by "or on behalf or on account of the company by any person acting "under the authority of the company." Section 41 of the same Act provides that "every limited company under this Act shall have its name engraven in legible characters "on its seal and shall have its name mentioned in legible "characters in all Bills of Exchange, Promissory purporting

66 #

66

"Notes, Indorsements, Cheques
"to be signed by or on behalf of such company
And by s. 42, " #
if any director, manager, or
"officer of such company, or any person on its behalf, uses or
"authorises the use of any seal purporting to be a seal of the
"company whereon its name is not so engraven as aforesaid,
or signs, or authorises to be signed, on behalf
"of such company, any Bill of Exchange, Promissory Note,
"Indorsement, Cheque,
wherein its name is not

с

S. 91 (1).

S. 23.

S. 24.

"mentioned in manner aforesaid, he shall be liable to a penalty "of £50, and shall further be personally liable to the holder for the amount thereof, unless the same is duly

66 #

"paid by the Company."

This brings us to the subjects of genuineness and authority; because after you have satisfied yourself of the capacity of the principal (whether an individual or a corporation), you have still the questions: Is this a genuine signature? If so, has it been placed there by the principal or by an agent? And if by an agent, was he authorised to sign? On these points we have two very important sections of the Bills of Exchange Code to consider.

The first is s. 91 (1) "Where by this Act, any instrument is "required to be signed by any person, it is not necessary that he "should sign it with his own hand, but it is sufficient if his signature is written thereon by some other person by or under "his authority." And remembering qui facit per alium facit per se applies to signature, our next section will be 23. "No person "is liable as drawer, indorser or acceptor of a bill who has not "signed as such." Provisos, "(1) Where a person signs a Bill in "a trade or assumed name, he is liable thereon as if he had signed "it in his own name; (2) The signature of the name of a firm is "equivalent to signature, by the person so signing, of the names of "all the persons liable as partners of that firm."

Then we come to s. 24, which lays down that if the signature is a forgery, or placed on by a person without authority, it is a mere nullity so far as regards charging the person whose signature has been so forged or signed without authority.

Now you will see that that section contains the broad rule, that forged or unauthorized signatures confer no rights whatever, but the section begins with the words subject to the provisions of this Act; and, towards the end, points to the possibility of a person, who has relied on such a signature, being able to treat it as a valid signature against certain parties who are spoken of as precluded from setting up the forgery or want of authority.

We will for the present under the questions of genuineness of signature and authority, confine ourselves to the rule, and merely remark here that those two qualifications will be the subject of important considerations hereafter, the former as to the protection afforded to bankers against forgery and want of authority in certain cases, the latter as to the preclusions of parties to the bill.

Bearing in mind then the absolute nullity of a forged or unauthorised signature so far as regards fixing the person whose name is so signed, we need not enlarge on forgery, but may at once proceed to enquire, who are authorised to sign for others? The first thing to remember is the difference between a general authority to draw, accept or indorse, and a limited, or special, or particular authority.