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Barber v. Union Bank of Scotland.1 In this case payment had been made to the forger just before the Act 16 and 17 Vict. c. 592 became law. But the opinion was expressed that section 19 of that Act does not apply to letters of credit 3; and if it does not, then neither do sections 60 and 80 of the Bills of Exchange Act. The duty of the addressee of a letter of credit is to pay drafts truly drawn by the grantee of the letter. If the addressee accepts the signature of the grantee on the letter in place of his draft, he is entitled, provided he has in fact made payment in accordance with the letter, to recover the amount from the writer, but is not entitled to the protection specially conferred on bankers on whom money drafts at sight are drawn.

The Royal Bank of Liverpool at request of the pursuer undertook to honour drafts by his firm at Alexandria. While drafts by the firm at Alexandria were in the hands of indorsees in this country, the bank stopped payment and intimated to the pursuers that they could not honour the drafts. In consequence of this the drafts were protested, and the pursuers, to prevent the bills being sent back, incurred expense in telegraphic communications and in commission paid to a firm who agreed to accept the bills supra protest. The pursuers were found entitled to recover the commission and the notarial and telegraphic expenses.* But the mere fact that a bank suspends payment while drafts are current, must not be treated as a breach of its contract to pay them.5

Letters of credit are not negotiable instruments, and the right to receive money upon the credit of the granter, which is conferred by them, is not transferable." An indorsement by the grantee upon a special letter has simply the effect of a draft thereunder. But they are documents on which it is intended that the grantee shall raise money. Therefore any

1 Cit.; British Linen Company and Caledonian Insurance Company, 1859, 21 D. 1197, affd. 1861, 4 Macq. 107. 2 See p. 254, infra.

3 Per L.C. 112.

4 Prehn v. Royal Bank of Liverpool, 1870, L. R. 5 Ex. 92.

5 Agra Bank, ex parte Tondeur, 1867, L. P. 5 Eq. 160.

6 Orr and Barber v. Union Bank, cit. per L.C., 1 Macq. 523; Struthers v. Commercial Bank, 1842, 4 D. 460, per Lord Mackenzie, 466.

7 British Linen Company v. Caledonian Insurance Company, cit. 8 See Story on Bills, ss. 461-2.

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person who on the faith of a letter of credit pays, or gives value for, a bill drawn and issued under it and in accordance with its terms, is entitled to recover the amount of the bill from the writer of the letter, notwithstanding any right of compensation 1 or collateral stipulation not contained in the letter,2 which may exist between the writer and the grantee of the letter. But if the bill has not been drawn and issued in accordance with the terms and conditions of the letter, if, for example, under a documentary credit, it is presented without shipping documents, or is presented with shipping documents consigning goods to one port, while the letter stipulates that the goods shall be shipped to another port, or is drawn and indorsed without any security, while the letter stipulates that it shall be drawn against goods appropriated to meet it, 5 the writer is not liable to pay it.

The person at whose instance a letter of credit is granted, is entitled to recover from the granter the consideration paid by him for it, to any extent to which he does not use it. But, as a condition of obtaining repayment, he must redeliver the letter of credit, or, where this is impossible, undertake to indemnify the granter against claims thereunder, unless he can satisfy the Court that the letter has come into the hands of the addressee without his having made the advance authorised by it."

In the case of Orr & Barber v. Union Bank it was said that the letter of credit gave Orr & Barbour, in whose favour it was granted, no right of action against the addressees, in that case the Manchester and Liverpool Bank.8 An addressee domiciled in Scotland, though not liable ex contractu to the holder of the letter of credit, is liable if, at

1 Agra Bank ex parte Asiatic Bank, 1867, L.R. 2 Ch. 391.

2 Maitland v. Chartered Mercantile Bank of India, London, and China, 1869, 38 L.J. Ch. 363.

3 Union Bank of Canada v. Cole, 1878, 47 L.J. C. P. 100.

4 Brazilian and Portuguese Bank v. British and American Exchange Banking Corporation, 1868, 18 L.T. N.S. 823.

5 Union Bank of Canada v. Cole,

cit.; Chartered Bank of India, Australia, and China v. Macfayden, 1895, 64 L.J.Q.B. 367.

6 Conflans Quarry Co. v. Parker, 1867, L.R. 3 C.P. 1.

7 See Orr and Barber v. Union Bank of Scotland, 1852, 14 D. 395 rev. 1854, 1 Macq. 513; British Linen Company v. Caledonian Insurance Company, 1859, 21 D. 1197, affd. 1861, 4 Macq. 107.

8 Per Lord Chancellor, 1 Macq. 523.

the time when a draft under the letter is presented to him, he holds funds belonging to the writer, to pay the amount of the draft out of those funds to the holder as assignee.1

The letters of credit distinguished in Bell's Principles 2 and Bell's Commentaries 3 as bought at a banker's, are now generally known as bank drafts, and are used for the remittance of money within this country. They are documents in the form of cheques drawn by one branch of a bank upon another, or by a banker upon his correspondent, and are in no way distinguishable, at least when drawn by one bank upon another, from cheques. Their nature when drawn by one branch of a bank upon another branch of the same bank, is discussed in the case of the London City and Midland Bank v. Gordon.1

A letter of credit is subject to the same stamp duty as a bill of exchange.5

1 See Morgan v. Larivière, 1875, L.R. 7 (H.L.) 423; S. 53.

2 279.

3 Vol. i. 389.

* [1902], 1 K.B. 242, p. 164, supra. 5 54 and 55 Vict. c. 39, s. 32, p. 265, infra.

III. CAUTIONARY OBLIGATIONS.

OBLIGATIONS ON THE BILL.

AN obligation on a bill, though in substance a guarantee, is not affected by section 6 of the Mercantile Law Amendment (Scotland) Act, 1856.1 The granter of the obligation is liable on the bill to a holder for value.2 But if the holder, in the knowledge that a party is in fact a cautioner, without that party's assent gives time to, or discharges, the principal debtor or a co-cautioner, except in bankruptcy, the cautioner is discharged, whether the fact that he is a cautioner is indicated by the bill or not. If, for example, the cautioner is the acceptor of a bill and the principal debtor is the drawer or indorser, or the cautioner and the principal debtor are joint parties to a bill,5 or the cautioner is a party to a bill to which the principal debtor is not a party, the holder of the bill, if, knowing the relation of these parties, he gives time to, or discharges, the principal debtor, discharges the cautioner also. And if several acceptors are joint cautioners for the drawer, the discharge of one will discharge the others. The later parties to a bill stand to prior parties not precisely in the relation of cautioner and principal, but in an analogous relation. If the acceptor of a bill is in fact the principal debtor, the drawer and the indorsers

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Lyon v. Butter, 1841, 4 D. 178indulgence without agreement to give time; Aikman v. Fisher, 1835, 14 S. 56-special circumstances.

6 Overend, Gurney, and Co. v. Oriental Finance Corporation, 1871, L.R. 7 Ch. 142, aff. 1874, L.R. 7 H.L. 348; see also Stirling v. Forrester, 1821, 3 Bligh, 575.

7 British Linen Bank v. Thomson, 1853, 15 D. 314.

8 Duncan, Fox, and Co. v. North and South Wales Bank, 1880, 6 A.Ç. 1; see s. 54, n.a,

will be discharged, apart from discharge by lack of notice of dishonour,1 if the holder agrees to give time to the acceptor, though not if he takes a second bill as a collateral security without binding himself not to do diligence on the original bill. But if both principal and cautioner are threatened with diligence, and a stranger intervenes and obtains delay, the cautioner remains bound.3

The cautioner is entitled to relief against the principal debtor. He is also entitled, in a question with his principal, to the benefit of securities for payment of the bill deposited by the principal with an indorsee who is holder of the bill at or after its maturity and demands payment from him.5

COLLATERAL OBLIGATIONS.

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A collateral cautionary obligation for the payment of a bill must be in writing. The cautioner, on making payment, is entitled under his contract to be indemnified by the person for whom he is cautioner. 7 He is also entitled to have the bill and any diligence thereon assigned to him by the creditor, so that he may enforce it against the person for whom he is cautioner and any one liable thereon to that party. 8 It has been held that when it is the known and usual practice for bill-brokers to give a general guarantee to their bankers, with whom they re-discount bills which they have discounted, instead of indorsing each bill, they are entitled, if compelled under their guarantee to take up a bill discounted by them, to be relieved by any party thereto who expressly or by implication has authorised them to deal with the bill in accordance with that custom. 9

A person who without being a party to a bill guarantees payment of it, "is not entitled to notice of dishonour in the

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