3. Bank checks, which are bills of exchange, drawn on a bank and payable on demand.
4. Drafts, which are bills of exchange, and are subject to the same rules of law as bills of exchange. An able writer has characterized drafts as follows: eA draft is• an order in writing for money, drawn upon the custodian of funds belonging to the drawer, or subject to his order. It does not presuppose any other commercial transaction. A bill of exchange is a similar instrument based usually on a sale or purchase of goods.° In this country the word draft° is commonly applied to all instruments of this sort that are payable within the United States, and the term °bill of exchange° to those payable in foreign countries.
Acceptances.— The term ((acceptance° is defined by the Federal Reserve Board as ea draft or bill of exchange drawn to order, hav ing 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 party on whom it is drawn; such agreement to be to the effect that the acceptor will pay at maturity according to the tenor of such draft or bill of exchange without qualifying conditions.° A bill of exchange is defined by the English Bills of Exchange Act as 'an unconditional order in writing addressed by one person to another, signed by the person giving it, requir ing the person to whom it.is addressed to pay on demand or at a fixed or determinable future time, a sum certain in money to or to order of a specified person or to bearer.° An 'accept ance° is therefore, where A commands B to pay to C, or to his order or to bearer, a sum of money absolutely on demand or at a certain future time. A is the drawer, B the drawee and C the payee. If B agrees to comply with the order, he writes the word eaccepteda across the face of the instrument and signs his name, together with the date of the acceptance, the date that it is payable and the place where it is to be paid. Upon so signing, B becomes the ac ceptor, and the document is an ''cacceptance.° The acceptance makes it essentially the prom issory note of the acceptor.
The time bill of exchange, or acceptance, has a fundamental purpose which neither the promissory note nor the commercial draft pos sesses. That purpose is to facilitate the mutual offsetting of debts between individuals, as well as nations. Acceptances, or tinie bills of ex change, pass frbm hand to hand the same as money. They serve the same purpose as. the transfer of gold itself in the cancellation of debts. Abroad they have long been considered as the easiest and cheapest form of credit instruments.
Economists regard acceptances as a sort of special currency. Such teally has been their use for the last two centuries in the Old World, where acceptances have been employed between business houses in the settlement of accounts. They circulate among banlcs which buy and resell them according to their needs until they are negotiated to the central or government banlc of the country.
Briefly stated, the use of the acceptance Is as follows: The seller of the goods draws a bill of exchange on the buyer, the buyer ac cepts the instrument and returns it to the seller; he negotiates it to a bank or sells it in the open market, thereby receiving payment for his goods soon after they are delivered. The buyer has the time between his acceptance and the date of payment to turn the goods into money to meet the obligation when it is due, and the seller has his funds as soon as the goods are accepted.
Acceptances are a new form of credit in strument in American banking and business circles. Prior to the inauguration of the Fed eral Reserve system they were quite unknown, but the Federal Reserve Act has made specific provision for such instruments, and the Federal Reserve Board has issued detailed regulations concerning the issuance and the purchase of such paper. They are fast coming into popular favor, being a form of instrument which is readily discounted at the Federal Reserve banks. In January 1918 acceptances constituted 25.9 per cent of the total earning assets of the Federal Reserve Banks.
The parties to such instruments are: party who signs or executes the bill of exchange, check or draft.
The party to whom the bill of exchange or draft is addressed, and who is ordered to pay it.
drawee after he has signi fied or promised to pay the bill of exchange or draft. The promise should be in writing and is usually written across the face of the bill or draf t.
party to whom the bill, note, check, draft or other instrument is made payable.
The payee, bearer or other party who writes his name on the back of the instru ment for the purpose of transferring it.
The terms used in connection with commer cial paper are: A technical act of the law merchant, whereby a party writes his name upon a duly executed, negotiable instrument, with or without terrns of contract or liability, according to the law merchant.
The party to whom the endorser transfers the instrument.
party who holds or pos sesses the legal title of the instrument. He may or not be the true (equitable) owner.
By 'refusinig to promise io pay (accept) or to pay the bill or note it is said to be dishonored.
The evidence of dishonor, usu ally made by a notary public, in the shape of a certificate setting forth presentment, refusal and its reason.
Bibliography.—Babson and May, 'Com mercial Paper' (Boston 1912) ; Haggerty, 'Mercantile Credits' (New York 1914) ; Knif fin, W. H., Jr., 'Commercial Paper and Analy sis of Credit Statements' (New York 1918), 'The Practical Work of a Bank> (Chap. XIII, New York 1916) ; Prendergast, 'Credit and Its Uses' (New York 1910).
Wm-1Am H. KNIFFIN, JR., Vice-President Bank of Rockville Centre; Formerly Secretary Savings Bank Section American Bankers' Association.