Scottish Court of Session Decisions

Subject_1 BILL OF EXCHANGE.
Subject_2 DIVISION V.

Bills by the lapse of time lose their Privileges.

George Scougal
v.
Andrew Ker

Date: 24 February 1762
Case No. No 199.

A bill was indorsed away 20 months after the term of payment, during which time no diligence had been done upon it. It was found to have loft its privileges, so as to render compensation against an onerous indorsee competent. See No 12. p. 1407.

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Andrew Ker purchased some cattle from Charles Ker, in May 1755, for the price of which he accepted a bill to Charles, payable at the term of Martinmas thereafter.

In July 1757, about 20 months after the term of payment, Charles Ker indorsed the bill for value to George Scougal, who brought his action against Andrew Ker the acceptor, for payment; and having obtained decreet in absence, the same was suspended by Andrew Ker.

Pleaded for the suspender: The bill having been allowed to lie over for 20 months after the term of payment, without being indorsed, or any diligence done upon it, has lost the privilege peculiar to bills, and is now subject to every exception competent against the original creditor: The suspender is therefore at liberty to plead compensation upon a debt which Charles Ker the indorser owes to him, equal to the contents of the bill.

By the custom of merchants in all the nations of Europe, bills, before the term of payment, pass current by indorsation as bags of money, without being subject to compensation, arrestment, separate discharge, or other defence, arising from the debt or deed of the original creditor, or intermediate indorsees, in prejudice of the last onerous indorsee: But, after the term of payment is elapsed, and the money is not paid in terms of the acceptance, the debtor in the bill is considered as in a state of bankruptcy, and no merchant will give value for such bill: It may be taken in security of debt, in the same way as an assignation to a decreet, or any other ground of debt, but will not be taken as a bag of money. The indorsee, in this case, trusts solely to the faith of the indorser, nor is he tied down to any of the rules of negotiation; if the bill is not paid, he returns it upon the indorsers, and gives himself no further trouble; he is, in effect, a trustee for the indorsers; and therefore, he cannot complain, if every legal objection, competent against the indorsers, is pleaded against him. Nor does it make any difference, whether the non-payment has been owing to any mora upon the part of the acceptor, or merely to the creditors indulgence in keeping the bill too long by him; for, if we shall suppose that the bill has been presented for payment at the term, and that the acceptor has refused to pay, very possibly the cause of his refusal may have been, that he had a liquid ground of compensation against the creditor in the bill; in which case, the creditor ought not thereafter to have indorsed it; and, at any rate, the person who takes the indorsation, takes it on the faith of the indorser, and not of the acceptor, who has thus failed. If, on the other hand, the drawer has kept the bill by him, without ever taking any step against the acceptor, or so much as presenting it to him when the term of payment comes, it is plain, that such bill has not been taken as a proper bill, to pass current in the way of commerce, but has been intended as a security for money, which is but too common a practice; and as such writings are the most frail and informal of all securities, there is no reason why in that case they should be indulged with any extraordinary privileges.

The term of payment, therefore, is the period at which the privileges of bills ought regularly to expire, as it is then that a bill ceases to be considered as a bag of money; at the same time, as the act 20th Parl. 1681 has allowed six months after the term of payment for registration and summary diligence, it may be thought that the other privileges of bills ought, from analogy, to have the same endurance; but certainly they ought then to be at an end; the bill no longer admits of summary execution, but must be pursued by way of ordinary action, like any other simple ground of debt, and consequently ought to be subject to the common defences pleadable in ordinary actions. Accordingly, it has been found in many cases, that compensation upon a debt of the indorser, is pleadable after the elapse of three, four, and five years; and for the same reason, the compensation ought to be sustained in the present case; for, unless either the term of payment, or the six months allowed for summary diligence, shall be adopted as the rule for the expiration of all the extraordinary privileges of bills it does not occur what other period can be fixed upon between these and the long prescription; and it is obvious what mischief would follow if bills were allowed to pass current as bags of money for 40 years.

Answered for the charger:—It is clear, that bills pass current for some time at least, without being liable to any exceptions proponable against the authors and indorsers: This arises from the very nature of such writings, without which they could not answer the end for which they were introduced and received in all trading nations. The only question is, At what period of time does this privilege expire? The natural and obvious answer is, That it lasts as long as the bill passes current by indorsation, and produces action as a probative writ. The term of endurance of bills is indeed, in most nations, limited to a few years; in England to six, in Holland to seven, and in France to five. In Scotland, it happens unluckily, that there is no short prescription of bills; and perhaps it might be inconvenient, if all their privileges were allowed to accompany them as long as they are probative, and pass by indorsation; but surely it is equally improper to go to the contrary extreme, and circumscribe these privileges to the short term of six months. It is true, that the form of registration and summary diligence is confined by the legislature to six months from the term of payment; but this has no manner of connection with the other privileges of bills: It is a statutory privilege, superadded by the law of this country to those which bills had from, their own nature, and from the law of nations. The legislature did not mean to abridge those other privileges; on the contrary, the preamble of the act expressly refers to the law and custom of other nations. Nor is it of any importance, that, after the six months, payment must be sued for by way of ordinary action. Before the statute, no summary execution at all was competent; and yet it is admitted, that bills even then passed current for some time, without being liable to exceptions arising from the debt or deed of the indorser.

And it would be still more unreasonable to limit the privileges of bills to the term of payment. No person scruples to give money for an indorsation where the term of payment is but a short time elapsed: He may indeed recur upon the indorser, though he should not negotiate very punctually; but he likewise trusts to the faith of the debtor in the bill, who is bound by his acceptance, and lays his account with being liable to every person into whose hands the bill may come; nor can there be any good reason why the acceptor should be benefited by the negligence or indulgence of the creditor in not demanding payment exactly when the bill becomes due.

As the law, therefore, does not limit the privileges of bills to either of the periods above-mentioned, the only question is, How far the Court, from motives of expediency and public utility, ought to limit those privileges to any shorter term than the duration of the bill itself, and what this shorter term ought to be? This question, originally arbitrary, is now fixed by decisions; upon the faith of which, the lieges have in all probability rested; for the Court having found, in the case of Farquharson contra Brown, 6th February; 1719, No 183. p. 1626. that a bill which had lain over for three years had lost its privileges, it was thereafter decided, in the case of Grierson contra Earl of Sutherland, February 1728, (No 184. p. 1626.), That a bill which had lain over for two years and eleven months, from the term of payment, was still current as at the beginning; and that compensation upon a debt of the indorser's was not pleadable against the onerous indorsee: From which decisions, it is plain, that the space of three years from the term of payment has been fixed upon by the Court as the proper period for the duration of the extraordinary privileges annexed to bills in this country.

‘The Lords found compensation competent.’ See Compensation.

Act. Ilay Campbell et Burnet. Alt. Pat. Murray et Walter Stewart. Fol. Dic. v. 3. p. 91. Fac. Col. No 79. p. 174.

*** Lord Kames has taken occasion, in reporting this case, to make some general observations on the nature of bills. His report is, therefore, placed in Div. 1. sect. 2. p. 1407.