pany is now ready to sell the notes to banks or investors. The company indorses the notes and discounts them to the buyer at a lower rate than was charged the borrower. It is this difference which enables the loan company to pay its expenses and make a profit. Since loan companies indorse their notes they must keep their loans at a safe proportion to their capital and surplus. Cattle loans are liquid. There is always a market, but often it is better for a loan company to renew a cattle loan than to require the grower or feeder to market his product at a loss. In such cases it is necessary for a loan company itself to pay the old notes, supplying the money, until the new notes can be sold.

Banks and investors must carefully investigate the strength and past history of any company from which it is desired to buy notes.

The national agricultural credit corporations in addition to making loans upon warehouse receipts may perform the services of cattle loan companies. Against liens upon live stock that are being fattened for market they may extend credit for nine months; and against liens upon maturing or breeding live stock or dairy herds they may make loans for a period not to exceed three years (see 223).

CHAPTER XIII

DRAFTS AND THE ACCOMPANYING

DOCUMENTS

137. The paradoxical bill of exchange. The bill of exchange is (see 16, 17) used to collect payments and to make payments. It is used to transfer funds, and to avoid the transfer of money.

The creditor draws on his debtor at sight, after sight, or after date. The seller of goods draws a sight draft on the buyer, or instead of opening an account draws a time draft. The borrower draws on the lender for the amount of his loan.

The draft drawn by Miller ordering Hunter to pay Carpenter, or Miller's order, is used by Miller to make payment to Carpenter. In Germany it is the general practice for a merchant, or manufacturer, to draw on his bank under a line of credit. The bank accepts the bill, whereupon the drawer sends it to the house he owes, or from which he wishes to buy. The debtor can purchase a draft, or acceptance, from some one else and remit it to his creditor. The buyer by arrangement can substitute his bank's credit for his own and pay the seller by letting him draw on the bank under a letter of credit, or an authority to draw.

The bill of exchange is similarly used to transfer funds from one place to another. Hayes in New York wishes. to send $10,000 to Paris. With the $10,000 he buys a bill on Paris from some one who has funds in Paris; or he can get his representative in Paris to draw on his New York bank for $10,000, or its equivalent, and put the proceeds of the bill to his credit in Paris.

In Europe bills of exchange are as widely used for the transfer of funds and the offsetting of debts, as checks are in the United States. If the same bill is not used, it is deposited for credit, and a draft against it used to pay the next man. Between sections of the same country and between different countries the use to avoid the actual transfer of money is striking. The sales of England to South Africa give rise to credits in London, which are sold to buyers in all parts of the world to pay for their purchases in England, or almost anywhere else.

66

138. Descriptions of bills of exchange. - Bills of exchange are given many names depending upon the basis of classification: According to the national money in which they are payable, they are known as "dollar exchange," "sterling exchange," "reichsmarks," etc.; according to the place of payment they are known as "New York," "Paris," or "Continental" (payable on the continent of Europe) bills, etc.; according to the time of payment they are known as "sight bills" or "demand bills" (payable upon presentation), "time bills" (payable a certain number of days or months after presentation), " cables" (the transfer to be made by cablegram), or more definitely as 'sixty-day sight" (payable sixty days after presentation), or "ten-day date" (payable ten days after date), and similarly; according to the parties to the bill they are known as "bankers" (drawn by a banker on a banker), "commercials" (drawn by a seller on a banker), and "trade" (drawn by a seller on a buyer); according to security they are clean" if they stand alone upon the credit of the parties, or "documentary" if documents are attached giving title to the property out of the sale of which the bill grew; in the latter case they are more minutely described as "cotton," "grain," or "flour" bills, etc.; documentary bills are further classified as acceptance" or "payment" bills, depending upon whether the

QUALITY OF ACCEPTANCE

201

documents are to be given the drawee when he accepts, or when he pays, the bill; according to the relative localities of the drawer and the drawee of bills they are known at law as "foreign" (the parties living in different states or countries), and "inland" (the parties being in the same state). Custom has given the name "domestic” to bills drawn and payable in the United States and "foreign" to bills drawn in this country and payable elsewhere. The Federal Reserve Board defines "domestic bills " as those payable in the United States and "foreign bills" as those payable in a foreign country. In the United States a distinction is often made in the use of "draft " and "bill of exchange," the former being both drawn and payable in the United States, but in fact the former inIcludes the latter.

139. The quality of acceptance. The drawer of a bill claims (see 19, 20) that the drawee has funds which are payable to him and he is legally responsible if the claim does not pay out, but the bill does not bind the drawee until he accepts it. The drawee must be as careful in this as a bank in certifying a check. Once acceptance is made, the acceptor cannot deny the signature of the drawer. He cannot dispute his authority. He cannot claim that the drawer's act is void, or voidable, due to his being an infant, lunatic, or anything else. Similarly the acceptor cannot deny the existence, or the capacity, of the payee. A stamp may be used in accepting, except that the signature of the person signing must be in his handwriting. If the bill is in duplicate, or triplicate, only one part must be accepted, else the acceptor becomes liable on each part.1

140. Kinds of acceptances. — When a person, firm, company, or corporation, not a bank, trust company, or

1 As to the use of drafts the reader is again referred to the Negotiable Instruments Law.

financial house, accepts a bill drawn upon it, it is known as a "private acceptance." If the transaction is a transaction between a buyer and a seller, it is a "trade acceptance." When a bill is accepted by a banking house, its credit thus being loaned to a customer in favor of the drawer, it is called a "banker's acceptance." When such bankers' bills are drawn not to finance shipments, but to place loans secured by collateral which the borrower deposits, or to borrow money upon the credit of the borrowing banker, they are known as "loan bills" and "finance bills," respectively. In any case the accepting bank does not part with any money. The borrower gets that by selling the bill in the open market. Just before the acceptance is due, the person who borrowed the money in the first case, and the bank which drew the bill in the second case, deposits with the accepting bank the necessary funds to pay the acceptance.

141. The documentary bill of exchange. This kind of bill has attached one or more documents which are necessary to give the holder of the bill adequate security for the money that he has advanced. The bill is issued in duplicate, or in triplicate. The face of the bill or document states the number of copies that have been issued and it is necessary that the original and every copy be obtained. A copy in the hands of another party might cause trouble and loss.

The great value of the documentary bill rests (1) upon the fact that the buyer cannot get the goods until he pays, or obligates himself, to pay for them, (2) it enables the seller of staple, non-perishable, readily marketable goods to sell his draft and recover his funds at the time of shipment, or sale, and (3) it allows the owner of such stored goods to borrow upon their security.

142. The shipper's invoice. This is an itemized statement of the goods shipped, with prices and all charges.