DEPOSITS FOR COLLECTION

73

non-acceptance, or non-payment. Banks regularly protest all negotiable paper unless requested to do otherwise (see 25-27). Protest fees are expensive to whoever must pay them, but a notice of dishonor or protest is necessary to hold an indorser, or a drawer, unless it has been waived. When the drawer of a bill, or the payee of a note, sends

A sight draft (bill of exchange). To be negotiated this draft must be indorsed by "The Andrew Windsor Co." At the left end is a request not to protest.

it for collection, there are no indorsers to hold and the protest fees would fall on the depositor. It is therefore a good practice to use a draft blank which reads crosswise at the left end, "No protest. Tear off before presenting," or to pin a slip with a similar instruction to each note. This preserves to the collector any good effect which fear of protest may have upon the debtor.

If it is necessary to recall an item, it can be followed and brought back in the same way that it went.

The proper indorsement on all paper deposited for collection (not for cash credit) is the restrictive indorsement (see 22). The bank acts as the depositor's agent; it is not responsible if it uses due care and the depositor should use the restrictive indorsement to protect himself. When paper is indorsed in blank, or in full, and a letter is filed. with it, describing it as "for collection," the two go

together as far as the first bank is concerned, but all other holders are innocent of such agency. Should the depositor's bank fail while another bank, its agent, is collecting the paper, the depositor is in a better position, if he has indorsed" for collection." All holders have been given notice of the true character of the paper. The depositor gets the paper back even if the failing bank owes the correspondent who is holding the paper, nor can the proceeds be held against the true owner. Indorsement for collection, according to the Negotiable Instruments Law, warrants the genuineness of the instrument and each holder is now liable to each succeeding holder in a way which once was not true.10

When the bank has completed collection, the depositor is notified. The depositor takes the notice with his pass book to the bookkeeper and has the amount entered as a cash deposit.

9 John J. Crawford's Annotated Negotiable Instruments Law. Sec. 66.

10 Ibid., Sec. 116.

CHAPTER V

CHECKING ACCOUNTS-WITHDRAWALS

AND BALANCES

60. Making payments. The most convenient way to pay for a purchase, or to settle an account, is to send a personal check. It is not always satisfactory. If the buyer is not favorably known to the seller, the latter may hold back the order until the check is collected. The creditor may do business in a city where all checks on out-of-town banks are assessed according to a scale something near the costs of collection. This may vary from a small service charge per item assessed by the receiving bank to a commission charged by the paying bank. The seller may insist upon New York exchange, or he may demand that ten cents, or more, be added to the face of all checks that are collectible at less than par. In such cases a small business house that has only a local account secures from its bank the New York, or other, drafts, which are required. The bank furnishes blanks upon which the customer indicates to whom, upon what city, and for how much, he wishes each draft payable. They can be made payable to whomever desired, but if it is desired to have each draft show a record of the transaction, they should always be drawn payable to the order of the customer. They are then indorsed to the order of the seller, or the creditor. If a certified check is asked for, the paying teller, or the cashier, will make the certification (see 62). A large house that has many out-oftown payments may find it profitable, as well as convenient, to have a New York account and possibly a

middle-west or southwestern account against which it can write the appropriate checks. Sometimes a depositor arranges with his local bank to contract with its New York correspondent to charge to it all checks which the depositor draws against the New York bank. The Bituminous Coal Co. has an account with the Cleveland Bank. The latter instructs the bank of New York to pay all checks which the Coal Co. may draw against the bank of New York and to charge them to its (the Cleveland Bank's) account.

If it is desired to make a payment to some person in a foreign country a draft can be bought on any large bank that is chosen. This is possible because many banks carry balances in foreign banks and those which do not are able to avail themselves of such arrangements as the following:

A large New York bank may allow any bank in the United States that has an account with it to draw a sight draft chargeable to it on any large bank in the world. Upon notice from the drawing bank the New York bank notifies the foreign bank that the draft has been drawn and requests that it be paid. If the New York bank does not have an account with the bank upon which the draft is drawn, it informs the drawee bank of the bank, usually a correspondent of the New York bank, which will reimburse the drawee bank. In the meantime that particular bank has been notified and it in turn informs the drawee bank that it will honor the draft that has been written.

Other ways for the depositor to pay accounts are (1) to give a note payable at his bank, which the bank will charge to his account as if it were a check, unless the depositor prefers to write a check in payment; (2) to pay, or accept for future payment, a draft drawn by a creditor. Such a draft, when accepted, is equivalent to a note, and, if marked payable at one's bank, can be charged as a check. Checks given in payment for notes, or drafts, are

MAKING PAYMENTS

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handed to the note, or collection teller, unless this work is done by the cashier, or treasurer.

Banks, as well as express and telegraph companies, will transfer funds by telegraph. To send funds to Morris in San Francisco, Stuart in Richmond gets a Richmond bank to wire a San Francisco bank to cash a draft of Morris' for a certain amount on the Richmond bank. Morris also gets a telegram. Stuart pays the cost of the messages. Morris himself might have wired the Richmond bank to establish the credit in San Francisco.

A few banks are advising their customers to pay their local accounts by what is known as the budget system. The depositor writes his bank a check for the total of all his payments, designating what amount is for each creditor. The bank makes the individual payments, gets receipts, and sends them to the depositor. The bank may charge ten cents for each budget check, but the depositor profits, if it includes more than five accounts. The bank profits because it lumps the payments to one firm from a hundred or more depositors.

Some banks have solicited the task of making up the pay rolls for corporations and putting each employee's money into a separate envelope. This is a big task and every bank is not to be expected to do it. All banks, however, supply the change needed, and furnish blanks upon which to list the amount of each denomination desired. Pay-roll requests should be made early in the day, or the day before, so that the money will be ready when the check is presented. The customer thus does himself and all others who stand in line a favor.

Large corporations and wealthy individuals frequently have large balances in small banks. Whenever an unusually large amount that may tax the bank's reserve is to be withdrawn, it is a courtesy to inform the bank in advance.