transferred from hand to hand by half a dozen individuals before it is finally passed out of use. This is particularly true in the case of communities where certain names are well known. The practice of endorsement, therefore, raises this credit instrument of limited acceptability to a position of general acceptability. If the maker proves to have insufficient funds, the check becomes a direct promise of the endorser, or, if there is no en dorser, it becomes the promise of the maker and the holder can have direct recourse. In some cases it is necessary for the maker of the check to establish beyond the question of a doubt that he has funds in the bank upon which he has drawn his check. He does this by asking the bank's cashier or teller to stamp the word "certified" across the face of the check and initial the certification. This, as the bank's promise to pay, adds to the security of the check. The use of certified checks is often desirable in the case of C. O. D. shipments where the buyer is unknown to the seller and little time is available for investigation of his credit standing. Sometimes the object is attained by the deposit of the check of the maker with the bank, in return for which he receives a cashier's check, which becomes the promise of the bank to pay. An illustration of a check is shown in Figure 2. A certified check is shown in Figure 3. Orders to Pay-Drafts or Bills of Exchange.-Another form of the order to pay is the draft or bill of exchange involving three parties, none of which need be a bank though banks are often parties to the arrangement. Stanley F. Brewster in "Legal Aspects of Credit" has defined a draft as "an unconditional order in writing by one person to a second person directing the payment to another of a sum of money absolutely and at all events." Drafts, or bills of exchange, have been classified in several ways. According to place they are domestic or foreign. The domestic order, generally called the draft, is used when the point upon which the order is drawn is outside of the United States. According to time they are "sight," "demand," or "time." The question of time is merely the date at which payment is to be made. Some are payable so many days "after sight," while others are payable a certain number of days after arrival of the goods. Presentation to the drawee sets the date for measuring time in a bill drawn "at sight" or a certain number of days "after sight." Such presentation also marks the point from which time is to be measured after the arrival of goods. According to party they are "trade" or "banker." This involves a distinction between persons, firms, or corporations, and trade organizations. If a bill is drawn on any organization other than a bank, it is called a trade bill, even though the payee may be a bank. When the drawer is a bank, a bank check is used. According to purpose they are "commercial" or "finance." When it becomes necessary to transfer balances or borrow funds from other institutions, financial bills are used, while commercial bills are those which are secured by the goods involved and which arise out of actual commercial transactions. To put a time draft or bill of exchange into final form the drawee (or person who owes the money) is asked to write his acceptance across the face of the instrument, thus acknowledging the order addressed to him and by his signature completing an agreement to pay it on maturity. Orders to Pay-Letters of Credit.-Letters of credit are of two general kinds,-the letter of credit issued for the convenience of travelers, and letters of credit used in opening credits with banks against which shipments are made to foreign countries, or distant points within the same country. The letter of credit serves as evidence to those interested, either banks in general or a particular correspondent that a certain bank has committed itself to a certain line of credit. The letter of credit is the written instrument by means of which approval is given to this type of operation. The traveler's form of letter of credit is the request of a bank or firm selling the credit to another bank to advance money, or release goods, to the person named. These letters of credit are then presented to the bank or firm addressed, where funds or goods may be obtained. The bank or firm on which credit is issued is repaid by the house issuing the credit. Such a letter of credit is usually issued in the form of a circular letter to its correspondents in specified places throughout the world authorizing sight drafts up to a certain amount payable to the beneficiary. This Credit is issued under our protection and for our account THE NATIONAL CITY BANK OF NEW YORK THE NATIONAL CITY BANK OF NEW YORK NEW YORK CITY CIRCULAR LETTER OF CREDIT LETTER OF CREDIT No. 00000 Gentlemen 19 We beg leave to introduce to you and le commend to your courtesies a specimen of whose signature appears, in the accompanying list of correspondents against drafton goghton United States Dollars en THE NATO SALLEY BANK OF NEW YORK Hredit We engage mit negotiated by you before the first day of will be duly honored. The amount paid must be endorsed upon the Letter of and the drafts must state that they are drawn under N.C.B. Letter of Credit No. 00000 dated 19 Your charges of any are to be pund by the beneficiary attached to the final draft To Messieurs The Bankers mentioned in the accompanying list of correspondents. Figure 4a. Traveler's Letter of Credit (face) |