CHAPTER XV. DRAFTS. 150. Introduction. -Having learned the definition of negotiable paper, and noticed in detail the necessary elements which make this a favored class of contracts, it will be well to study and describe individually the papers composing the class. The most common kinds are draft, or bill of exchange, note and check. The oldest of these is the draft. It was early recognized as negotiable by the Law Merchant of England, and in this way became a part of our common law. It is, in fact, the only instrument that is negotiable by the common law. All other papers, if negotiable at all, are made so by statutes, prescribing the conditions of negotiability. 151. Necessity of Drafts.-As we have said, the bill of exchange is the oldest negotiable paper. Its name, from the French billet de change, indicates quite clearly the use which it subserves. Thus, if A and B are in Chicago, and C, in Havana, be indebted to A five thousand dollars, and B be going to Havana, B may pay A his five thousand dollars and take a bill of exchange drawn by A in Chicago upon C in Havana, and collect the amount from C when he arrives there. All parties are by this arrangement accommodated, for A receives his debt, due at a distance, by transferring it to B, who receives back his money at the end of his journey. All parties have avoided the dangers of loss by robbery and the perils of the sea, to say nothing of the expense attending the transportation. From this primitive use, the functions of the bill of exchange have increased until now it is in a great measure the equivalent of money itself. As an evidence of indebtedness it facilitates the exchange of credit and thereby adds to the sum total of the circulating medium. The buying, selling and handling of credits, evidenced by the bill of exchange, forms a great part of the business of banking. A, of New York, owes B, of Chicago. B, needing the money at once, draws a draft on A, and sells it to his bank for cash. The credit has now passed from B to the bank. The Chicago bank will then forward the draft to some New York bank, who will present the draft to A and get the cash for it. Instead of remitting this cash to the Chicago bank, as its agent, it will be passed to its credit. The result of all this exchanging is that the Chicago bank paid out money in Chicago, and without the transporting of any money, secured a credit on the books of the New York bank. A has paid his debt and B has secured his money. 152. Definition of Draft.-It is said that negotiable instruments are either promises or orders to pay money. A draft is an order. It may be defined as an unconditional order in writing signed by the person giving it, directing a second person to pay a third person, or order or to bearer, a certain sum of money on demand or at a fixed future time. A draft drawn on a person in another country or State is called a foreign bill of exchange-if drawn on a person in the same State it is an inland bill of exchange. The term draft is now almost always used instead of bill of exchange. 153. Parties to a Draft.-It will be observed from the above definition that there are three original parties to a draft, and that there may be an indefinite number of subsequent parties. The person who signs the draft is called the drawer, the one to whom it is addressed and who is to pay it, is called the drawee, and the one to whom it is made payable is called the payee. In the above form Robbins is the drawer, Young the drawee and Smith the payee. person. Sometimes the drawer and the payee are the same The subsequent parties are the ones designated by the payee to whom payment should be made. They are endorsees, but may in turn become endorsers. 154. Time Draft.-The above draft is drawn at ten days' sight, and is called a time draft. If payable "at sight" it would be a sight draft, because payable as soon as the drawee sees it, which would be when it is presented to him. Some States allow days of grace on sight drafts, in which case this draft would be due three days after presentation to Young and his acceptance thereof. If the draft be drawn "fifteen days from date," it is a time draft. If payable "on demand" it is due immediately upon presentation without grace. The various States have statutes fixing the date when the statute of limitations begins to run on demand paper. The time differs from one day to four months from date. (See sec. 107.) 155. Acceptance of a Draft.-All drafts payable a certain number of days after sight, and also sight drafts, when allowed days of grace, should be presented for acceptance. The conditions of a proper presentation will be explained in a later chapter. If in the above draft we suppose that Smith, instead of transferring the draft, retains it, he should at an early date present it to Young for his acceptance. It will be noticed that the draft itself contains no promise on the part of Young to pay; in fact, until presented to him, he may not even know of its existence, although it is customary for the drawer to notify the drawee that he will draw upon him. If Young consents to pay the draft according to its terms, he is said to accept it. This he does by writing across the face of the draft, "Accepted August 17, 1894, L. H. Young.' The word "accepted" evidences his agreement to pay it, and the date is the date from which we begin to count the ten days and the three days of grace, if such be allowed. By this means we are able to fix the day of maturity. If on presentation Young does not wish to accept the draft, he should return it to Smith. The draft is then said to be dishonored. 156. How to Transfer a Draft. The payee of a paper is always its first holder. The meaning of the language used in negotiable paper, whether it be a promise or a direction, is to pay to the person named in the paper, or to any one whom he may designate. When, therefore, he disposes of the paper he names the buyer as the one to whom payment should be made. This he does by endorsement. Thus, suppose in the form we have given, Smith, after having the draft accepted, disposes of it to C. W. Benton. This he does by writing across the back of the paper, "Pay to C. W. Benton or order," signing his own name beneath and handing it over to Benton. In like manner Benton may dispose of it to another by the same kind of an endorsement, or he may simply write his own name on the back of the paper. This is called an endorsement in blank, and has the effect of making the paper payable to bearer. $200.00 Cincinnati, Dec. 16, 1893. At sight pay to the order of Andrew Wilson, Two Hundred Dollars, value received, and charge to account of To AJ Cooper & Co. James J. Cameron & Co. & SIGHT DRAFT. 157. A Foreign Bill of Exchange is one that is drawn by a resident of one State or country upon a resident of another. On account of the great danger of loss in sending these by sea, it early became customary to draw them in sets of three, each essentially a duplicate of the other two. These were sent by separate routes, and the first to arrive and be paid made the others void. They are in substantially the same form as inland bills, but are always drawn in the currency of the drawee's country. CHAPTER XVI. NOTES. 158. Definition. As we have previously remarked, notes are not negotiable by the common law, but have been made so by statute. A negotiable promissory note may be defined as an unconditional written promise made by one person to another engaging to pay on demand or at a fixed future time a certain sum of money to order or to bearer. To be negotiable a note must of course possess all the essential elements of negotiable paper. 160. Parties to a Note.-There are two original parties to a note. The maker is the one who signs it and agrees to pay it. The payee is the one to whom, or to whose order, it is made payable. 161. Joint and Several Notes.-If the note be drawn "We promise to pay, etc.," and is signed by two or more parties it is a joint note. A note signed by more than one person and beginning "I promise" is several as well as joint, and so is one by two makers running "we or either of us. In case of a joint and several note, the holder can sue the makers all together or he may sue them separately, for each assumes the entire responsibility of paying the whole sum. If the note be joint only, all the makers must be joined in the suit. At common law it is settled that in case of a joint obli |