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Published online by Cambridge University Press: 24 January 2025
1 [1973] 2 N.S.W.L.R. 159. Supreme Court of N.S.W.; Sheppard J.
2 References to sections in this Case Note are to sections of this Act unless the contrary is stated.
3 Steele v. M’Kinlay (1880) 5 App. Cas. 754; Jenkins & Sons v. Coomber [1898] 2 Q.B. 168 and M. T. Shaw & Co. Ltd v. Holland [1913] 2 K.B. 15 are the only cases in which the drawer-payee has not succeeded against the surety-indorser. Steele v. M’Kinlay has been distinguished on the ground that it was a special case in which there was insufficient evidence of the parties’ intentions: Durack v. West Australian Trustee Executor & Agency Co. Ltd (1944) 72 C.L.R. 189, 205-206 per Starke J.; Byles on Bills of Exchange (23rd ed. 1972) 172-173. The other two cases have been overruled by subsequent decisions: Durack’s case (1944) 72 C.L.R. 189, 206 per Starke J.; Byles, op. cit. 173 n. 49.
4 (1880) 5 App. Cas. 754.
5 Id. 782.
6 lbid. Chalmers, (Bills of Exchange (8th ed. 1919) 214, 215-217, 226)CrossRefGoogle Scholar regarded s. 56 of the Bills of Exchange Act 1882 (Eng.) (s. 61 of the Australian Act) as restating the decision of Lord Watson in Steele v. M’Kinlay.
7 Glenie v. Bruce Smith [1907] 2 K.B. 507, 512 per A. T. Lawrence J.; Gerald McDonald & Co. v. Nash & Co. [1924] A.C. 625; In re Gooch [1921] 2 K.B. 593, 601 per Lord Sterndale M.R.; McCall Bros Ltd v. Hargreaves [1932] 2 K.B. 423, 430 per Goddard J.; Byles, op. cit. 173; Chappenden, “H. Rowe & Co. Pty Ltd v. Pitt [sic]: Old and New Problems as to Bills of Exchange” (1975) 49
8 His Honour made two observations on the facts. First, in view of the fact that the defendant had expressly agreed that his signature on the back of the bill of August 1971 made him personally responsible to the plaintiff, what could he have thought was the necessity for him to sign the back of each of the bills of November if not to incur personal liability. Secondly, in the light of the defendant's admitted knowledge of the implications of his indorsement of the earlier bill, if his intention really had been not to expose himself to personal liability to the plaintiff on the later bills it was incredible that he did not take extreme care to see that he only signed these bills on behalf of the company: [1973] 2 N.S.W.L.R. 159, 166.
9 As to the general circumstances in which directors will be held to have intended to incur personal liability when their signatures appear on legal documents including bills of exchange see: Black v. Smallwood (1966) 117 C.L.R. 52, 60-61; Electrical Equipment of Australia Ltd v. Peters (1957) 57 S.R. (N.S.W.) 361, 363; Chapman v. Smethurst [1909] 1 K.B. 73; Elliott v. Bax-Ironside [1925] 2 K.B. 301; ss. 21, 36(5), 31(1) and 31(2) of the Act.
10 [1973] 2 N.S.W.L.R. 159, 168. A further submission of the defendant, which was also rejected by Sheppard J., was that proper notice of dishonour of the second bill had not been given. For a discussion of this point see Chappenden, op. cit. 178-180.
11 Chalmers on Bills of Exchange (13th ed. 1964) 186-187; Durack’s case (1944) 72 C.L.R. 189, 194 per Latham C.J.
12 In most cases involving this type of transaction the extrinsic contract will be verbal and in all States except New South Wales, where the relevant provisions of the Statute of Frauds have been repealed, it will be unenforceable. One effect of the judgment of Sheppard J. is that in New South Wales the plaintiff will have to elect to bring his action on either the bill or the contract of guarantee. The existence of an independent contract will not assist the plaintiff if he chooses to sue on the bill rather than the contract since this alternative basis for his action will not be allowed: [1973] 2 N.S.W.L.R. 159, 169.
13 (1880) 5 App. Cas. 754, 782.
14 Byles on Jlills of Exchange (23rd ed. 1972) 169.
15 Chalmers on Bills of Exchange (13th ed. 1964) 186; Durack’s case (1944) 72 C.L.R. 189, 194 per Latham CJ.
16 Steele v. M’Kinlay supra n. 13; Ferrier v. Stewart (1912) 15 C.L.R. 32, 37 per Griffith C.J.; Durack’s case (1944) 72 C.L.R. 189, 195 per Latham C.J.
17 [1973] 2 N.S.W.L.R. 159, 167-168 (italics added).
18 McCall Bros Ltd v. Hargreaves [1932] 2 K.B. 423, 430 per Goddard J.
19 Wilkinson & Co. v. Unwin (1881) 7 Q.B.D. 636, 638 per Bramwell L.J., 639 per Baggallay L.J.; Gerald McDonald & Co. v. Nash & Co. [1924] A.C. 625, 632 per Viscount Haldane L.C.; National Sales Corporation Ltd v. Bernardi [1931) 2 K.B. 188, 191-192; Durack’s case (1944) 72 C.L.R. 189, 203 per Rich J., 207 per Starke J., 212 per McTiernan J.; Lombard Banking Ltd v. Central Garage & Engineering Co. Ltd [1963] 1 Q.B. 220, 229.
20 Chappenden, op. cit. 176.
21 Supra p. 77.
22 Wilkinson & Co. v. Unwin (1881) 7 Q.B.D. 636, 637 per Bramwell L.J.
23 (1881) 7 Q.B.D. 636.
24 Id. 638, 639 (respectively).
25 Id. 640.
26 Chappenden, op. cit. 176.
27 Ibid. Support for Chappenden’s interpretation of the case is perhaps found in In re Gooch [1921] 2 K.B. 593, 600 where Lord Sterndale M.R. cited Wilkinson’s case as supporting the proposition that, since sufficient consideration had moved from the drawer-payee to the quasi-indorser, the latter could not set up the defence against the drawer-payee arising from the prior indorsement.
28 Byles, op. cit. 170.
29 Ferrier v. Stewart (1912) 15 C.L.R. 32, 38 per Griffith C.J.; Trimper v. Frahn [1925] S.A.S.R. 347, 353-354 per Angas Parsons J.
30 [1926] A.C. 670; also Ayres v. Moore [1940] 1 K.B. 278. For critical comments on Jones’s case see: (1927) 3 Cambridge Law Journal 84; (1927) 36 Yale Law Journal 608; (1927) 36 Yale Law Journal 1005; (1926) 74 University of Pennsylvania Law Review 831; (1926) 6 Boston University Law Review 124.
31 Yeoman Credit Ltd v. Gregory [1963] 1 W.L.R. 343, 348-350; Glenie v. Bruce Smith [1908] 1 K.B. 263, 268-269 per Fletcher Moulton L.J.
32 Yeoman Credit Ltd v. Gregory [1963] 1 W.L.R. 343; Lombard Banking Ltd v. Central Garage & Engineering Co. Ltd [1963] 1 Q.B. 220.
33 [1908] 1 K.B. 263.
34 Id. 266 per Cozens-Hardy M.R., 269 per Fletcher Moulton L.J.
35 [1907] 1 K.B. 794.
36 [1911] 1 K.B. 854.
37 Id. 865-866.
38 (1897) 67 L.J.Q.B. 224.
39 Id. 227.
40 [1924] A.C. 625.
41 Id. 635-636.
42 Id. 632.
43 [1931] 2 K.B. 188.
44 Id. 195-196.
45 Byles, op. cit. 173. However, Byles is not consistent on this point since (at 170) approval also appears to be given to the decision in Yeoman Credit Ltd v. Gregory [1963] 1 W.L.R. 343.
46 [1963] 1 Q.B. 220, 230.
47 [1963] 1 W.L.R. 343.
48 (1912) 15 C.L.R. 32.
49 Id. 37-38.
50 Id. 41.
51 Id. 42.
52 [1914] V.L.R. 41, 51-52.
53 [1925] S.A.S.R. 347, 353-354, 356-357.
54 (1931) 31 S.R. (N.S.W.) 505, 508.
55 (1944) 72 C.L.R. 189.
56 Id. 197.
57 Id. 212.
58 Id. 207-208. While Latham C.J. and McTiernan J. delivered dissenting judgments in Durack’s case, Starke J. was the only member of the majority who considered this point.
59 [1973] 2 N.S.W.L.R. 159, 168.
60 Id. 169.
61 Id. 168.
62 Ibid.
63 Byles, op. cit. 189.
64 Cowen, The Law of Negotiable Instruments in South Africa (4th ed. 1966) 286.Google Scholar
65 [1921] 2 K.B. 593.
66 Id. 601, 607 (respectively).
67 Chalmers on Bills of Exchange (13th ed. 1964) 128.
68 Italics added.
69 Chappenden, op. cit. 178. A third way in which the defendant could have been liable as a party on the bill is as an “accommodation indorser”, that is, as a person who has signed the bill as an indorser with the intention of lending the credit of his name to the acceptor (s. 33(1)) and who is liable on the bill to a holder for value (s. 33 (2)). Trimper v. Frahn [1925] S.A.S.R. 347 appears to be the only Anglo-Australian case in which the liability of the surety-indorser has been based upon s. 33. The same technical difficulties which arise under s. 61 appear to arise under s. 33. First, the surety-indorser is regarded as an indorser of the bill. Secondly, although the section states that the accommodation indorser is liable to a holder for value, the American courts, which have given more consideration to this basis for the surety-indorser’s liability, have interpreted s. 29 of the Negotiable Instruments Law as only allowing a holder who has notice of the want of consideration between the accommodation party and the party accommodated but who is in other respects a holder in due course to recover from the accommodation indorser: National City Bank v. Parr (1933) 185 N.E. 904, 906. However, this interpretation does not ipso facto exclude the drawerpayee from recovering against an accommodation indorser since the American courts have also held that the drawer-payee can be a holder in due course: (1926) 6 Boston University Law Review 124, 126; (1926) 74 University of Pennsylvania Law Review 831, 832. For further comments on the problems involved in the interpretation of the vague provisions of the American equivalent of s. 33 see: Ames, “The Negotiable Instruments Law” (1900) 14 Harvard Law Review 241, 248-250; Brannan, “Some Necessary Amendments of the Negotiable Instruments Law” (1913) 26 Harvard Law Review 493, 494, 498; Behrens, “The Status of an Accommodation Indorser under Section 29 of the Uniform Negotiable Instruments Law” (1949) 23 St. John’s Law Review 333, 338.