Duncan Fox & Company v North and South Wales Bank
| Jurisdiction | UK Non-devolved |
| Judgment Date | 1880 |
| Court | House of Lords |
| Year | 1880 |
| Date | 1880 |
Bill of Exchange - Indorser - Surety - Securities.
The acceptor of a bill of exchange knows that, by his acceptance, he does an act which will make him liable to indemnify any indorser of it who may afterwards pay it. The indorser is a surety for the payment to the holder, and, having paid it, is entitled to the benefit of any securities to cover it deposited with the holder by the acceptor.
He is so entitled whether at the time of his indorsement he knew, or did not know, of the deposit of those securities.
The surety's right in this respect in no way depends on contract, but is the result of the equity of indemnification attendant on the suretyship.
S. C. R., one of the partners of S. R. & Sons, in December, 1874, deposited with the N. & S. W. Bank the title deeds of two of his own freehold properties, and signed a memorandum acknowledging them to be deposited as securities for what the N. & S. W. Bank might advance to the firm in the way of discounts.
In November, 1875, D. & Co. sold to R. & Sons a cargo of corn to be paid for in cash. Cash was paid only for part. R. & Sons offered a bill of exchange for the rest, which was declined. D. & Co. were customers of the N. & S. W. Bank. R. & Sons said if D. & Co. would inquire of those bankers they would find it would be all right with the R. bills. The bank manager refused to discount the bill without the indorsement of D. & Co., but said that he believed D. & Co. would incur no more than a nominal liability by putting their names on the bill. D. & Co. thereupon consented to take the bill, indorsed it in the ordinary way, and it was discounted by the bank and carried to their credit. In January, 1876, R. & Sons stopped payment. The bill became due in February, and was dishonoured. D. & Co., who then became acquainted with the fact that securities had been deposited with the bankers to cover advances on R. & Sons' bills, brought an action against the N. & S. W. Bank to have the benefit, so far as they would go, of the securities deposited in December, 1874, claiming to be sureties to the bankers for what was due upon the bill:—
Held, that D. & Co. were sureties on the bill, and that as such they were entitled to the benefit of these securities.
THE two firms of the Appellants carried on business at Liverpool as merchants. They were not connected together in business, but the transactions of both with the Radfords were exactly of the same kind. It will be sufficient to refer to one alone.
Radford & Sons were millers and corndealers at Liverpool, the firm consisting really of Samuel Collins Radford and James Radford.
The Radfords were not strictly the customers of the North and South Wales Bank, but had opened a discount account with it, and were indebted to it in respect of discounts of bills of exchange. This discount account was considerable.
On the 1st of December, 1874, Samuel Collins Radford deposited with the bank certain deeds of freehold property belonging to himself, for the purpose of securing payment of the amount then due, and to become due, on discounts, from his firm to the bank. The deposit was effected by two memorandums, one of which, executed by Mr. S. Collins Radford alone, stated that the deposit was made “in pledge to secure to the said bank the balance, for the time being, owing to the said bank by my firm of Samuel Radford & Sons for discounts and advances, and for all other moneys in or for which the said firm, whether alone, or jointly with any other person or persons, were, or might, from time to time thereafter be or become indebted or liable on their account, or which the said bank might at any time claim against the said firm.” The second memorandum relating to other property of S. C. Radford was in a similar form.
In November, 1875, Duncan & Co., through their brokers Maxwell & Co., sold to S. C. Radford & Co. a cargo of wheat ex Rima for cash after delivery. Part of the price was paid in cash, but James Radford applied to Mr. Duncan to take the acceptances of Radford & Sons for the residue. Duncan at first declined to do so, on which James Radford said, “You bank with the North & South Wales Bank, if you go there you will find it will be all right with our bills,” to which Duncan answered, “If the bank will accept those bills without our indorsement, then I can oblige you.” Mr. Duncan went to the bank and saw the manager, who declined to discount the bills without the indorsement of Duncan & Co., stating that it was contrary to all banking customs to discount bills for any one who did not indorse them; he added that he did not think that Duncan & Co. would incur more than a mere nominal responsibility by making the indorsement — or something to that effect. Mr. Duncan thereon informed Radford that he would consent to take the bills, which he did, and then indorsed them and handed them to the bankers, who discounted them, placing the amount to the credit of Duncan & Co. At that time Duncan & Co. had no knowledge that the bankers held any securities from Radford. In January, 1876, before any of the bills became due, Radford & Sons stopped payment. When the bills became due they were presented for payment; they were dishonoured, and Duncan & Co. became liable to the bankers for the amounts. They received formal notice of the dishonour, and a demand of payment. There were other bills of Radford & Co. held by the bankers under similar circumstances on which Robinson & Co. were indorsers, all of which became due between the 22nd of February and the 27th of March. On the 24th of February, 1876, Radford & Co. executed a deed of inspectorship. The bankers made the property deposited with them available for the purpose of covering their claims, and if the bills in question were not included in the general balance, that balance would be satisfied, but if they were included in it, the bankers would still be creditors of Radford & Co. upon the bills. Messrs. Duncan & Fox admitted their liability on the bills; but (having in the meantime heard of the securities held by the bankers) contended that they were entitled, in calculating the amount due upon the bills, to the benefit of these securities, for that they, Duncan & Fox, being merely, as between themselves and the bankers, sureties on the bills, they were entitled to the indemnity afforded by the securities which the principals on the bills, Radford & Co., had placed in the hands of the bankers.
The Appellants, after coming to a knowledge that the bankers held securities to cover discount and balances, applied to them to realize these securities and apply the proceeds in payment of the amounts due on the bills, or to render to the Appellants an account of what was due from Radford & Sons, and, on payment of the same by the Appellants, to transfer to them the securities for the same amount remaining in their hands. Balfour, Williamson, & Co., and the other unsecured creditors, claimed to have the securities paid over to the inspectors for general distribution under the deed. The bankers declined of themselves to adopt either claim, and required the direction of a Court.
An action was thereupon brought by Duncan & Co. in the Chancery Court of the County Palatine of Lancaster, to determine this question. Messrs. Balfour, Williamson, & Co., creditors of the Radfords, were joined as Defendants representing the creditors in general. The Vice-Chancellor (Mr. Little) on the 10th of May, 1878, decided in favour of the claim made by Duncan & Co. The decree, dated the 28th of May, 1878, declared that the Appellants were sureties for the payment by the Radfords of the balance due in respect of the bills held by the bankers, and that the equitable mortgages of the 1st of December, 1874, extended to such bills of exchange and to all other acceptances of the Radfords held by the bankers, whether discounted by the Radfords or for third parties, and relief was given to Duncan & Co. upon the principle that they were entitled to the benefit of the securities so deposited with the bankers. On appeal, this decree was ordered to be reversed and the action dismissed with costsF1. This appeal was then brought.
Mr. E. E. Kay, Q.C., and Mr. W. F. Robinson, Q.C. (Mr. Ralph Neville was with them), for the Appellants:—
The Appellants here bore the character of sureties to the bank for the payment of these bills, and, in that character, were liable on the bills: Byles on BillsF2; and were therefore entitled to any benefit from securities held by the bankers which would diminish the amount of the liability they had incurred. If the acceptors, who were the persons primarily liable, the real principals on the bills, failed to pay them, the Appellants made themselves liable as indorsers: Suse v. PompeF3, that is, as sureties. If the indorsers discharged that liability they then became entitled to sue the acceptors — and, suing them, to take their property in execution. Part of that property would be the securities left in the hands of the bankers, who, if they received payment of the bills from the sureties, the indorsers, could have no right to retain, as against them, the securities which had been deposited to cover the debt of the acceptors which they had satisfied. The right of a surety to be indemnified out of the property of the principal was undoubted: Byles on BillsF4; and was not lessened by the fact that, as between the principal and the surety, the liability arose with relation to a bill of exchange. The deposit agreement under which the securities were given was collateral to the bills and could not affect the rights of the parties to those bills: Byles on BillsF5; it did not amount to giving time to the acceptor...
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