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1927 Supreme(SC) 46
PRIVY COUNCIL [ON APPEAL FROM THEEAST INDIES]
VISCOUNT SUMNER, LORD ATKINSON, AND LORD CARSON.
M. A. SASSOON AND SONS, LIMITED - Appellant
Versus
INTERNATIONAL BANKING CORPORATION - Respondents
On appeal from the High Court at Calcutta.
Decided On : May. 27. 1927.
Solicitors for appellants:T. L. Wilson & Co. Solicitors for respondents: Sanderson, Lee & Co.
A discounting bank is bound by the instruction "documents against acceptance" (D/A) to surrender documents to the acceptor. This instruction overrides any implied duty to preserve a confirmed credit security, and the drawer remains liable upon dishonour under the Negotiable Instruments Act.
Headnote:(A) Negotiable Instruments Act - Section 30 - Liability of drawers upon dishonour of bills of exchange - Where drafts are discounted with a bank and described as "documents against acceptance" (D/A), the bank is entitled and bound to surrender the shipping documents to the acceptor upon acceptance.
(B) Confirmed Bank Credit - The existence of a confirmed credit does not impose a duty on a discounting bank to deliver documents to the confirming bank if the drawer has specifically instructed the bank to handle the drafts as "documents against acceptance" - Such an instruction overrides the general obligation to preserve the drawer's security.
(C) Recourse against Drawers - A discounting bank retains the right of recourse against the drawers upon dishonour unless a contract specifically excludes such liability.
Facts of the case:
Export merchants sold goods to a buyer under a confirmed bank credit. The merchants discounted the bills of exchange with a bank, describing them as "documents against acceptance" (D/A). The discounting bank sent the shipping documents to the buyer upon acceptance of the bills. The bills were subsequently dishonoured. The merchants contended that the bank should have delivered the documents to the confirming bank to preserve the confirmed credit and that the failure to do so discharged them from liability or entitled them to a set-off.
Findings of Court:
The court held that the term "D/A" was a clear instruction to surrender documents to the acceptor. The discounting bank acted reasonably by following these instructions. The confirmed credit did not modify the ordinary right of recourse or impose a duty on the bank to guess the drawer's intentions contrary to the explicit "D/A" direction.
Issues: Whether the description of drafts as "documents against acceptance" (D/A) obligated the discounting bank to deliver documents to the confirming bank to preserve a confirmed credit, and whether the failure to do so discharged the drawers from their liability.
Ratio Decidendi: The term "D/A" (documents against acceptance) is a specific instruction to surrender shipping documents to the acceptor upon acceptance. A discounting bank is bound to follow this instruction. The existence of a confirmed credit does not create a duty to preserve the security if the bank complies with the drawer's explicit instructions. Liability of the drawer under the Negotiable Instruments Act is not extinguished by the loss of a confirmed credit when the bank has acted according to the drawer's directions.
Result: Appeal dismissed with costs.
Legal Category Hierarchy
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banking law
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negotiable instruments
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bills of exchange
- discounting
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bills of exchange
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letters of credit
- confirmed credit
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negotiable instruments
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commercial law
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shipping and trade
- bills of lading
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shipping and trade
Judgement
Law. Rep. 54 Ind. App. 317 ( 1926- 1927)
M. A. Sassoon V. International Banking C orporation 137
Appeal (No. 99 of 1926) from a decree of the High Court at Calcutta in its appellate jurisdiction (February 11, 1926) affirming a decree of that Court in its original jurisdiction.
The appellants were export merchants at Calcutta, and the respondents carried on business there as bankers. The respondents sued the appellants in the High Court to recover Rs.22,652 being the equivalent of four sterling bills of exchange, two dated August 9, 1923, and two September 6, 1923. The bills were drawn by the appellants on George Knowles & Co., Ld. (hereinafter referred to as G. K. & Co.), of London, and were payable to the respondents or order; they had been dishonoured after acceptance.
The facts, which appear fully from the judgment of the Judicial Committee, were shortly as follows—
On May 11, 1923, the appellants contracted to sell to G. K. & Co. goods to be shipped from Calcutta between July and September at a price in sterling c.i.f., U. K., payment by drafts at 90 days against a confirmed bank credit to be opened by the buyers.
On the same day the appellants, through T. S. Apcar & Co., made an exchange contract with the respondents, whereby the respondents agreed to negotiate " approved bills of exchange, drawn at 3 M/St. D/A on London at Is. 4d. per rupee " ; the abbreviations meaning " three months, sight, documents against acceptance."
G. K. & Co., under a letter of agreement, No. 237, obtained from the Eastern Bank, Ld., in London, a confirmed credit, which that bank communicated to its Calcutta branch.
On June 18, 1923, the Eastern Bank, Ld., Calcutta, sent to the appellants a letter of advice, referring to the letter of agreement No. 237, and stating in effect that they were prepared to negotiate three month bills drawn by the appellants upon G. K. & Co. up to 2080Z., shipping documents being handed to the bank; the letter concluded " When offering drafts for negotiation under this authority, it is imperative that this letter be produced to enable the negotiating bank to note payments on the back thereof."
Shipments under the contract took place in August and September, 1923. Upon the shipment in August the appellants drew two bills of exchange on G. K. & Co. in favour of the respondents or their order for the contract price of the goods shipped, the bills stated that they were drawn under " letter of agreement No. 237, dated May 30, 1923, signed with the Eastern Bank, Ld., London, as per advice dated June 18, 1923." The appellants tendered the bills to the respondents for negotiation, handing them also (1.) the shipping documents, except the policies of insurance which it had been arranged should be produced in London; (2.) a memorandum showing the conversion of the amount of the bills into rupees at the rate agreed on May 11, 1923, and referring to the bills as " our 3 M/St. D/A drafts " ; (3.) the Eastern Banks letter of advice of June 18, 1923.
The respondents, after examining the documents, negotiated the bills and noted them on the back of the letter of advice, which was returned to the appellants.
On the second shipment two further bills were drawn by the appellants and negotiated with the respondents in a similar manner.
The respondents forwarded the bills and documents to London and the documents were handed to G.
K. & Co. upon their acceptances; the bills were dishonoured at maturity.
The appellants, in defence to the claim, pleaded, in addition to a plea not urged upon appeal, that the
M. A. Sassoon V. International Banking C orporation 138
respondents should have handed the documents to the Eastern Bank, and that having regard to the appellants loss of protection under the confirmed credit consequent upon that not having been done, they were not liable upon the bills, or, alternatively, that they had a right of set-off or counterclaim to the same amount.
The trial judge (Buckland J.) made a decree for the amo
