XIII-C, 1005. Drafts for purchase of electrical goods, including the cost of installation.-A draft drawn for the purchase price of electrical or mechanical goods, which includes the cost of installation, may be treated as a trade acceptance when such drafts are accepted by the purchaser, since it appears that it is customary for the seller of such goods to contract for their installation and to include the cost thereof in the selling price. 1918 Bulletin, p. 310. (See XIII-C, 1010.)

XIII-C, 1006. Trade acceptances for gas sold.-A trade acceptance given by a gas distributing company to a gas producing company in payment of gas sold is a trade acceptance covering "goods sold" within the meaning of the board's regulations and as such may be eligible for rediscount by Federal reserve banks. 1918 Bulletin, p. (See XIII-C, 332.)

435.

XIII-C, 1007. Acceptances in connection with sales on installment plan.-A bill accepted by the purchaser in advance of the delivery of coffee mills, etc., sold on the installment plan, may be treated on the same basis as a bill drawn and accepted after the delivery of such goods. Such a bill therefore may be considered a trade acceptance. 1918 Bulletin, p. 437. (See XIII-D, 201, 203.)

XIII-C, 1008. Form of trade acceptances approved by the Federal Reserve Board. 1918 Bulletin, p. 636; 1917 Bulletin, p. 378.

XIII-C, 1009. A trade acceptance containing the statement that "the obligation of the acceptor hereof arises out of the purchase of goods from the drawer as per invoices, a record of which is given in the subjoined statement" is a valid and desirable acceptance when offered with the "subjoined statement" detached in accordance with directions in the form. An acceptance to pay at a particular place different from the residence of the acceptor is a general acceptance, unless it expressly states that the bill is to be paid there and not elsewhere, and does not render the bill nonnegotiable. 1919 Bulletin, p. 142. (See XIII-C, 706, 802.)

XIII-C, 1010. Trade acceptances covering building operations.-A draft by the manufacturer or material man upon a builder to cover the cost of material sold to the builder is eligible for rediscount as a trade acceptance when accepted by the builder. If, however, under the contract governing the building operations, a contractor does not get title either to the materials furnished or to the building as it is being erected, he can not properly make a trade acceptance of a draft drawn upon him by the subcontractor or builder, since he is not the purchaser of the goods sold within the meaning of the board's regulations. The board is not inclined to extend the scope of its definition of the word "goods" to include labor alone. 1919 Bulletin, p. 565. (See XIII-C, 331.)

XIII-C, 1011. Conditional sales as the basis of trade acceptances. An actual sale of goods and not what is generally termed a conditional sale of goods must be the basis of a trade acceptance, for, to constitute such an acceptance, title must have passed to the drawee at the time of acceptance. 1919 Bulletin, p. 964.

D. LIMITATIONS UPON THE REDISCOUNT POWER OF FEDERAL RESERVE BANKS.

General Discussion of Principles.

XIII-D, 100. A discussion in detail of the amounts and kinds of paper of any one borrower which a Federal reserve bank may discount for its member banks and analysis in tabular form showing amounts which a national bank may lend to one customer under the provisions of section 5200, R. S.

The phrase "bills of exchange drawn against actually existing values" includes "drafts or bills of exchange secured by shipping documents conveying or securing title to goods shipped" and "bankers' acceptances of the kinds described in section 13 of the Federal reserve act." Accepted demand bills, however, on which the drawer is released from liability are not "bills of exchange" within the meaning of section 13.

Federal reserve banks may discount paper offered by a State member bank, secured as required by section 11(m), without regard to the amount the State member bank may already have loaned to this customer under his regular line of credit, provided that the aggregate obligations of any one borrower do not exceed 20 per cent of the member bank's capital and surplus. 1919 Bulletin, p. 1055; 1922 Bulletin, p. 933. (See IX, 604. See also sec. 9.)

XIII-D, 101. Rediscount of actually owned commercial or business paper for a member State bank.-Under the terms of section 13 no Federal reserve bank may properly rediscount for any State member bank the paper of any one borrower in excess of 10 per cent of the capital and surplus of the member bank, and from this limitation only bills of exchange drawn against actually existing values are excepted. This limitation is not broadened by the provisions of section 9 to the effect that in determining whether or not a customer of a State member bank is liable to that bank in an amount in excess of 10 per cent of its capital and surplus, bills of exchange drawn against actually existing values, and commercial or business paper actually owned by the person negotiating it shall not be considered. (NOTE. The limitations of section 9 were broadened by the amendment of July 1, 1922, so as to conform to section 5200 R. S. See IX, 604.) These provisions relate solely to the determination of the fact whether or not the customer is liable to the State bank in excess of 10

per cent and do not authorize a Federal reserve bank to rediscount for a State member bank in excess of the limitation prescribed in section 13.

Query: Whether the discount of commercial or business paper actually owned by the person negotiating it should be considered as a loan to such person so as to make him a borrower? 1919 Bulletin, 1157(1). (See IX, 602; XIII-D, 300.)

Bills Drawn in Good Faith Against Actually Existing Values.

XIII-D, 200. A bill of exchange made payable on the date specified in the bill may be a bill of exchange drawn in good faith against actually existing values within the meaning of section 13, although the bill is not presented for acceptance. 1916 Bulletin, p. 608. (See XIII-C, 802.)

XIII-D, 201. A bill of exchange discounted before acceptance may be said to be drawn against actually existing value, within the meaning of section 13 of the Federal reserve act, when and only when it is accompanied by shipping documents, warehouse receipts, or other papers securing title to the goods sold. An accepted bill of exchange, unaccompanied by shipping documents or other such papers, may be considered as drawn against actually existing value, if drawn against the drawee at the time of, or within a reasonable time after, the shipment or delivery of the goods sold. In this latter case there must be reasonable grounds to believe that the goods are in existence in the hands of the drawee either in their original form or in the shape of the proceeds of their sale. 1917 Bulletin, p. 195.

XIII-D, 202. Only such trade acceptances as are drawn at the time of, or within a reasonable time after, the shipment or delivery of goods sold can be treated as bills of exchange drawn against actually existing values. A bill drawn for a balance due on an open account may be considered as a bill drawn against actually existing value only when drawn contemporaneously with or within such a reasonable time after the shipment of the goods as to justify the assumption that the goods are in existence in the hands of the drawee in their original form or in the form of proceeds of sale. 1917 Bulletin, p. 287. (See XIII-C, 1002.)

XIII-D, 203. A trade acceptance may or may not be classified as a bill of exchange drawn against actually existing values.

The distinction is not important in so far as the limitations of section 5200, R. S., are concerned, since such a trade acceptance negotiated in good faith by the bona fide owner would be exempt. from these limitations as "commercial or business paper actually owned by the person negotiating the same," even if it is not exempt as a "bill of exchange drawn in good faith against actually existing values."

Section 13 of the Federal reserve act, however, limits the amount of paper of any one borrower rediscounted for any one bank to 10 per cent of such bank's capital and surplus, excluding only bills of exchange drawn against actually existing values, and trade acceptances are subject to this limitation, unless they can be classified as "bills of exchange drawn against actually existing values."

Bills drawn by the seller against the purchaser and accepted before the sale or delivery of the goods should not be treated as bills drawn against actually existing values, since such goods are not in the possession of the drawee either in the original form or in the shape of the proceeds of their sale, except where the goods have passed out of the possession of the drawer and have been placed in storage subject to the control or order of the drawee. letin, p. 974. (See XIII-C, 1007; 5200, R. S., 400, 401.)

1918 Bul

XIII-D, 204. Drafts drawn on and accepted by cooperative marketing associations-Summary of rulings dealing with bills of exchange drawn against actually existing values.--Where a member of a cooperative marketing association doing business in the manner described delivers his crop to the association and at substantially the same time draws a draft on the association, which is accepted by it and discounted by the drawer at his own bank, such a draft is a bill of exchange drawn against actually existing values within the meaning of the fourth paragraph of section 13 and is therefore excepted from the limitation prescribed therein on the aggregate amount of paper of any one borrower, which a Federal reserve bank may rediscount for any one member bank.

There follows a summary of prior rulings in which the board has laid down certain general principles dealing with the subject of bills of exchange drawn in good faith against actually existing values.

Distinctions between the provisions of section 5200, R. S., and section 13 with regard to this subject. 1922 Bulletin, p. 1286. (See XIII-C, 216, 217, 336; XIII-D, 100.)

Miscellaneous.

XIII-D, 300. Á national bank may acquire actually owned commercial or business paper from the same person in excess of 10 per cent of its unimpaired capital and surplus. (Sec. 5200, R. S.) Its Federal reserve bank, however, can not rediscount such paper bearing the signature or indorsement of the same person in excess of 10 per cent of its capital and surplus, unless it constitutes bills of exchange drawn against actually existing values. (Sec. 13, Federal reserve act.) Section 13 of the Federal reserve act does not amend section 5200, R. S. 1916 Bulletin, p. 274. (See sec. 5200, R. S. See also IX, 602; XIII-D, 101, 204.)

XIII-D, 301. Rediscount of paper indorsed by nonmember bank.— The limitation on the rediscount of paper bearing the signature or indorsement of any one borrower does not refer to the indorsement of a nonmember bank on paper rediscounted by a member bank, but simply refers to the member bank's customers or borrowers. 1918 Bulletin, p. 520. (See XIII-C, 327; XIX, 702.)

XIII-D, 302. A Federal reserve bank may properly decline to discount for a member bank the paper of any one borrower on the ground that the Federal reserve bank has theretofore discounted for other member banks what it deems to be a sufficient amount of that particular borrower's paper. 1920 Bulletin, p. 278.

Acceptances in General.

E. BANKERS' ACCEPTANCES.

XIII-E, 100. Discount when indorsed by a member bank in another district.-Federal reserve banks may, under the provisions of section 13, discount acceptances based on the importation or exportation of goods, provided that they have a maturity at the time of discount of not more than three months, and provided further, that they are indorsed by at least one member bank. It is immaterial whether this member bank is located in the district of the Federal reserve bank which is making the discount or in any other district, the term "member bank" being broad enough to include member banks wherever located.

Such discounts being made under the provisions of section 13 are eligible as collateral security for Federal reserve notes issued under the provisions of section 16.

But negotiable paper, other than acceptances, to be eligible for discount, must be indorsed by a member bank of the same district. (NOTE. The principles established in this ruling apply equally to domestic acceptances now authorized as well as to foreign acceptances.) 1915 Bulletin, p. 98.

XIII-E, 101. Eligibility of commission-house acceptances, where commission house does some acceptance business.-A commission house must be in the habit of carrying on some acceptance business regularly in order to qualify its acceptances as "bankers' acceptances." 1915 Bulletin, p. 362. (See XIII-E, 108.)

XIII-E, 102. Cattle paper.-In view of the fact that cattle may be considered a readily marketable commodity, a banker's acceptance secured by a chattel mortgage on cattle is eligible for rediscount. 1916 Bulletin, p. 65. (See XIII-E, 103, 105.)

XIII-E, 103. The above ruling (XIII-E, 102) relates simply to the right of a Federal reserve bank to purchase domestic bankers' acceptances secured by chattel mortgages on cattle. National banks