Two-Name Paper Instead of selling his goods on credit on open account, the merchant or jobber may require his customers to give him their notes payable at, say, 6o or 90 days. He may take these notes to his bank and ask to have them discounted, in which event the bank requires the same information as to the business ability, character, and capital resources of the promissor and of the cus tomer offering the notes for discount as it would in case either of them asked to borrow directly on single-name unsecured notes. The bank may not make as close inquiry into the responsibility of the maker of the notes, assuming that the man who offers the notes for discount has investigated the makers with care, but may base its real security on the fact that it is acquainted with the affairs of the man who presents the notes for discount and re quire him to indorse them before granting him the accommoda tion desired. Although payment at maturity will primarily be sought from the persons who made the notes, the bank will, if payment be not made promptly, require that the person who obtained the accommodation pay the amount involved. Like the trade acceptance or accepted draft, such notes are two-name paper and rest upon specific trade transactions.
An acceptance is a bill of exchange, drawn to order, having a definite maturity and payable in dollars in the United States, the obligation to pay which has been accepted by an acknowledgment, written or stamped, and signed across the face of the instrument by the company, firm, corporation, or person upon whom it is drawn, it being thereby agreed that the acceptor will pay such bill at maturity, according to its tenor, without qualifying conditions. There are two kinds of acceptances: Where the drawee is a bank or regularly accepting bills drawn under exten sions of credit to customers, the acceptances are called "bank" or "bankers' " acceptances; where the drawee is not a bank or such acceptance house, the acceptances are called " trade " acceptances.
It is also proper to distinguish between a " trade " bill and a "finance" bill. The trade bill arises when a seller of goods draws on the buyer; the buyer accepts the bill and returns it to the seller. But the finance bill may represent exchange transactions; it may be for the purpose of carrying stocks of goods or securities, or in anticipation of public loans; or it may be merely for accommoda tion. The trade bill liquidates a commercial transaction; it may be drawn against a bank or against a buyer of goods, and when accepted it becomes either a bank acceptance or trade acceptance, according to which is the acceptor.
The Trade Acceptance—Nature of Since the prime purpose in the introduction of the acceptance is to provide a first-rate form of commercial paper for the discount market, the regulations of the Federal Reserve Board determining when the acceptance is eligible for rediscount are in practice very important. To be eligible for rediscount, a trade acceptancemust :
I. Be indorsed by a member bank, accompanied by waiver of demand, notice, and protest.
2. Have a maturity at the time of discount of not more than 90 days.
3. Be accepted by the purchaser of goods sold to him by the drawer of the bill, and the bill must have been drawn against indebtedness expressly incurred by the acceptor in the purchase of such goods.
The acceptance must bear on its face, or be accompanied by, evidence in form satisfactory to the federal reserve bank that it was drawn by the seller of the goods on the purchaser of such goods. Such evidence may consist of a certificate on or accom panying the acceptance, to the following effect: "The obligation of the acceptor of this bill arises out of the purchase of goods from the drawer." The federal reserve bank may at its discretion inquire further into the exact nature of the transaction under lying the acceptance, or it may accept this certificate as sufficient evidence.
Depending upon the size of the sales, the seller either sends a separate statement with each shipment, or renders a monthly statement covering the shipments of several small amounts made during the month. He accompanies this invoice or monthly statement with a trade acceptance form duly filled out with the amount due. According to terms of sale the buyer may deduct the 2 per cent in io days and pay cash, or he may accept the trade acceptance, i.e., write across the face of the instrument the words "accepted payable (date) at (such and such bank) (his signature). "; he returns the acceptance to the seller and the transaction is closed. The seller either holds the acceptance in his portfolio until a few days before maturity, when he sends it for collection to the bank at which it is payable, or, in case he finds he needs funds, he dis counts the acceptance along with others at his local bank or through acceptance dealers. The act of acceptance, therefore, consists in writing five things on the face of the bill: viz., "ac cepted, " the date of accepting, the date of payment, the place of payment, and the signature. The instrument is a time bill of exchange and is an order to pay; but its acceptance is equivalent to the unconditional promise to pay that is contained in a promis sory note. Its value is enhanced by the credit of the acceptor and by that of every additional indorser as it circulates in the discount market.