Story Case

It was the regular practice of the Hilton Wholesale Grocery Company, if a bill was not paid at the first of the month, to draw upon its debtor at the fifteenth of the month. The bills so drawn were taken by its bank, the First National Bank of Hilton, and the account of the grocery company given a conditional credit for the amount. One of the bills so taken was not held for collection, but was sold by the bank to William Clark, a dealer in commercial paper. The bill was accepted by the drawee, Christopher Eappolt, but the day before it became due he called up Clark on the telephone and said, "Mr. Clark, you had better go after the Hilton Grocery Company for your money on that paper of mine. I was unable to collect some of my accounts this month and I don't see how I can pay you." Clark made no effort to present the bill to Rap-polt, but the next day notified the Hilton Grocery Company that it had been dishonored and that he would expect the company to pay. Upon its refusal, he brought suit. The grocers defended by setting up his failure to present the bill as a discharge. He answered that there was no need to present a bill after the acceptor had stated that he would not pay it. Is this answer sufficient in law, or is the Hilton Grocery Company discharged from liability?

Ruling Court Case. The Los Angeles National Bank Vs. Wallace, Volume 101 California Reports, Page 478

Babcock, Collins, and Wallace decided to go into the business of growing and selling oranges. Babcock and Collins were to furnish the land and orange trees, while Wallace, who was an experienced horticulturist, was to be the manager and be paid a salary. In order to raise money for carrying on the business, it was arranged that Wallace was to draw bills upon Babcock, and Collins, who was an officer in the California National Bank, was to guarantee their payment. Under this agreement, Wallace drew two bills upon Babcock. They were duly presented to Babcock for acceptance, were accepted, and payment guaranteed by the California National Bank. These two bills were indorsed to the Los Angeles National Bank for discount. Three weeks before the maturity of the bills, it was understood that both Collins and the bank which had guaranteed the bills were insolvent, and Wallace informed the cashier of the Los Angeles National Bank that he feared that Babcock had no money with which to satisfy the obligation. At maturity, the bills were not presented to Babcock for payment. This suit was brought on the bills against Babcock and Wallace.

Since the bills were not presented to Babcock for payment when they became due, nor within a reasonable time thereafter, Wallace contends that he cannot be held as drawer.

The court was of the opinion that no recovery could be had against Wallace. Wallace, by drawing the bills, promised to satisfy them, in case the drawee, Babcock, did not pay them when presented, and notice to him, Wallace, was given of that fact. Wallace was entitled to have these bills presented to Babcock for payment, and entitled to notice of his refusal to pay them. Since such steps were not taken, Wallace cannot be held as drawer. Judgment was accordingly given for Wallace.

Ruling Law. Story Case Answer

We have just seen that if the drawee refuses to accept, the drawer then becomes bound to pay the instrument to the holder. The drawer likewise promises that the drawee, or the acceptor, if the instrument has been accepted, will pay it if properly presented at maturity. The drawer further promises to pay it, in case the acceptor refuses to pay, and he, the drawer, has had reasonable notice of his refusal to pay.

In certain cases, presentment is excused and the drawer may be held without it. But a mere belief that the acceptor or drawee can not or will not pay the bill is not an excuse for presenting it and demanding payment. Nor is the bill presented merely because the drawee is asked to pay it. Nor is a demand for payment, made on some day other than the day of maturity, sufficient. The promise of the indorser or drawer is rigidly qualified, and he is not liable unless the bill is taken, on the very day of its maturity, and actually exhibited to the drawee with a demand that he pay it. If he refuse, or if he is not found on that day at his place of business or at the specified place of payment, notice must be promptly given to the indorsers and to the drawer. In the Story Case, there was no demand for payment made of Rappolt on the day of maturity, nor was the bill ever actually exhibited to him at maturity. A bill can not be presented over the telephone. For want of proper presentment, the holder loses all right of recovery against the drawer. Therefore, Clark cannot hold the Hilton Grocery Company, and the court should give judgment for the defendant.