USA > Michigan > Kent County > Standard atlas of Kent County, Michigan : including a plat book of the cities, villages and township. . . reference business directory, 1907 > Part 31
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to give the bank time to give an abundant notice to the parties. If the custo- mer desires to make a "sight" or "time draft" upon a debtor, upon appli- cation the bank will furnish him with blank drafts.
STATEMENTS AND BALANCES.
A FEW words concerning statements and balances will not be inappropri- ate in this connection. Every customer of a bank should always and without fail, once in each month, have his "Pass Book " balanced by the banker. This rule should always be observed to correct any error that might occur and avoid loss and complications. The amount of deposits is added up and a balance is struck by deducting the total amount of the cus- tomer's checks which the bank has either paid or "accepted" (certified) during the month. The cancelled checks are returned to the customer. If any error is discovered it should be reported immediately to th. bank so that it may be investigated and rectified.
NEGOTIABLE PAPER.
ROBABLY the greatest factor in the business world of to-day is "Negoti- able Paper," without which it is not probable that business development could have assumed the vast proportions that it has reached in America; and without which the business of the civilized world could not be carried on. This term includes a variety of instruments, such as promissory notes, checks, drafts and bills of exchange. The bill of exchange is one of the oldest forms of negotiable paper, and has been in use for a number of centuries. The draft and check came into use at a much later day, and the promissory note is a comparatively recent invention, and has very largely taken the place of the bill of exchange as it was used in former times. The most important attribute of promissory notes, bills of exchange, and other instruments of the same class, which distinguish them from all other con- tracts, is their negotiability. This consists of two entirely distinct elements or branches-first, the power of transferring the paper from one owner to another, so that the assignee shall assume a complete title, and be able to sue on it; second, the effect upon the rights of the parties produced by such a transfer when made before maturity, in the regular course of business, for a consideration to a purchaser in good faith, and without notice of any defect or defense, whereby all defenses of the maker (with few exceptions) are cut off, and the holder becomes absolutely entitled to recover.
A written order or promise may be perfectly valid as a contract; but it will not be negotiable unless certain requisites are complied with. The following requisites are indispensable: It must be written; must be signed; it must be absolute, not depending upon any contingency; it must be to pay money in a certain amount or in an amount capable of being certain by computation; the time of payment must be certain or such as will become certain; but when no t' He is expressed the law implies that payment is due immediately; and lastly, the order or promise must be accompanied by words of negotiability-that is payable to a certain payee's order or to bearer.
PROMISSORY NOTES.
CCORDING to the general "law merchant," unaffected by statute, a promissory note is the written promise of a person, called the "maker" to pay a certain sum of money at a certain time to a designated person termed the " payee " or to his order or bearer.' It must have all the requisites that have been mentioned for negotiable paper, otherwise, if it fails in any of these matters it becomes a contract, as it thus loses the element of negotia- bility. Contracts may be perfectly valid without all of these requisites, but they do not possess the peculiar qualities which belong to promissory notes. It is customary in all promissory notes to write the words "value re- ceived " but this is not absolutely essential, as a consideration and value is implied in every note, draft, check, bill of exchange or endorsement. It is the common law of both England and this country that no promise can be nforced unless made for a consideration or sealed, but negotiable instru- ments as a rule are an exception to this. Between the original parties a want of consideration can be pleaded defense and would operate to de- feat a recovery. It would have the san : "ffect as between an endorser and his endorsee, but this only applies to immediate parties or to those who had notice of the defense or became holders of the paper after maturity. It may be stated as an almost invariable rule that no defense will operate to defeat the recovery if the paper has been negotiated and passed into the hands of an innocent purchaser, in the regular course of business, before maturity and for value. The absence of any of these elements, however, will allow a defense to be set up and will defeat recovery even in the hands of third parties if it can be shown that there was either: a want of considera- tion, that it was obtained by duress, or fraud or circumvention, or larceny; or that the consideration was illegal. In order to cut off these defenses and give the holder the absolute right to recover, all of the conditions named must be fulfilled. If he purchases the note even one day after it becomes due it is then subject to any defense or set off which the maker may have against the original payee.
Demand of payment for a note must be made at the place where it is payable at the time of maturity; if not paid notice must immediately be given to the endorsers, otherwise, in a majority of the States, all endorse- ments that are not qualified will be released. If a note is not dated it will not defeat it, but will be considered as dated when it was made; but a writ- ten date is prima facie evidence of the time of making. When a note falls due on Sunday, or a legal holiday, it becomes payable the day previous. If a sum is written at length in the body and also in figures at the corner the written words control it. It destroys the negotiability of a note to write in the body of it any conditions or contingencies. A valuable consideration is not always' money. It may be either any gain or advantage to the prom- isor, or injury sustained by the promisee at the promisor's request. A pre- vious debt, or a fluctuating balance, or a debt due from a third person, might be a valuable consideration, So is a moral consideration, if founded upon a previous legal consideration; as, where one promises to pay a debt that is barred by limitation or by infancy. But a merely moral consideration as one founded upon natural love and affection is no legal consideration, No consideration is sufficient in law if it be illegal in its nature, or if dis- tinctly opposed to public policy. If a note is payable at a bank it is only necessary to have the note at the bank at the stipulated time to constitute a sufficient demand; and if there are no funds there to meet it, this is suf- ficient refusal.
DAYS OF GRACE,-In a great many States three "Days of Grace, " as they are termed, are allowed on negotiable instruments beyond the date set for payment. This is not the universal rule, however, as the tendency of late years has been toward doing away with this custom, and a number of States have already passed laws abolishing the "Days of Grace." Where the rule is in effect, however, and it is not specifically waived in the instru- ment the payor is entitled to the three days as fully as though it were so stipulated, and the holder cannot enforce collection until the expiration of three days after the date set for payment.
BILLS OF EXCHANGE.
"HE "bill of exchange" is an open letter or order whereby one person re- quests another to pay a third party (or order or bearer) a certain fixed. sum of money. They are of two kinds, the Inland and Foreign bills, the names of which imply the difference between them. The three parties to the bill are called the Drawer, Drawee and Payee. The bill must be pre- sented to the Drawee and if he agrees to obey the order he "accepts" the bill by writing the word "accepted" across its face and signs his name be- low it-and thus becomes the "Acceptor." The instrument is usually made negotiable and the payee can transfer it to others by endorsement, which method of transfer may go on indefinitely.
The following is a common form of an inlan? ?: '11 of exchange:
BILL OF EXCHANGE.
CHICAGO, Iz7., June 1, 1894.
$600 Sixty days after sight pay to John Sims, or order, Six Hundred Dollars, and charge same to my account. To HENRY HOLT & Co. JOHN DOE. Boston, Mass.
CHECKS.
A CHECK on a bank is one form of an "Inland Bill of Exchange," but there is some slight difference in the liability of the parties to it. A check requires no acceptance, as a bank is bound to pay the checks of its deposi- tors while still in possession of their funds, and the drawer of a check having funds on deposit has an action for damage for refusal to honor his check, under such circumstances, on the ground of an implied obligation to pay checks according to the usual course of business. Checks are usually drawn payable immediately, but they may be made payable at a future day, and in this case their resemblance to a bill of exchange is very close. As stated, a check requires no acceptance, sofar as payment or liability of the drawer is concerned, but it creates no obligation against a bank in favor of the holder until acceptance. When accepted by the bank the word "Accepted" is stamped on its face with the signature of the banker. It is then said to be certified and thereafter the bank is liable to the holder. As soon as the check is "certified" the amount is charged against the account of the "drawer" the same as if paid, and it is considered paid so far as the "drawer" is concerned.
The drawer of a check is not a surety in the same sense as is the drawer of a bill of exchange, but is the principal debtor like the maker of a note. He cannot complain of any delay in the presentment, for it is an absolute ap- propriation to the holder of so much money, in the hands of the bank, and there it may lie at the holder's pleasure. The delay, however, is at the holder's risk, and if the bank should fall after he could have got his money the loss is his, If, before he presents the check, the bank pays out all the money of the drawer, then he may look to the drawer for payment. If the holder of a check transfers it to another he has the right to expect that it will be presented for payment within a reasonable time. He has the right to expect that it will either be presented the next day or started to the point on which it is drawn. If it is held beyond a reasonable time and a loss is occasioned thereby, the party responsible for the delay must bear the loss, If a bank pays a forged check it is so far its own loss that it can- not charge the money to the depositor whose name was forged. But it is entitled to recover the money from the party who presented it. If it pay a check of which the amount has been falsely and fraudulently increased, it can charge the drawer only with the original amount, provided the drawer himself has not caused or facilitated the forgery by carelessly writing it or leaving it in such hands as to make the forgery or alteration easy. In some of the States the Supreme Court has decided in cases where checks were "raised" that the drawer must bear the loss as they had failed to take reason- able precaution to prevent it. Perforating and cutting machines are on the market which make it almost impossible to raise or alter the amounts so as to avoid detection, and the tendency of the decisions is to regard the use of these as only a reasonable precaution on the part ofcheck drawers to save their bank from trouble and loss. Some, however, adopt the plan of writing the amount in red ink across their signature.
If many persons, not partners, join in a deposit they must join in a check, If a payee's name is misspelled or wrong in a check, the usual plan is to endorse it firstexactly as it appears and then sign the name correctly. There is no settled rule as to how checks should be drawn. In nearly all the cities it is an almost invariable rule to make them payable "to order" so as to require the endorsement of the payee; butin smaller towns many check drawers make them payable "tc bearer," in which case they require no endorsement, and if lost or st. .. c may cause loss-as whoever presents such a check at the bank is er od to payment.
DRAFTS.
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A DRAFT is a form of an "inland bill of exchange." The two forms of bills of exchange usually called " drafts" are the bank draft (or exchange) and the "sight or time draft." The bank draft is, to all intents and pur- poses, the same as a check, but the term is usually applied to "checks" drawn by one bank upon funds which it may have in some other bank, termed its "correspondent." A draft is but very seldom made payable to bearer, it being almost an invariable rule to make them payable to a cer- tain payee or order. They are negotiable and can be transferred indefi- nitely by endorsement. If a draft is lost or stolen, by applying to the bank that issued it, the payment can be stopped, and after the expiration of thirty days a duplicate will be issued.
The "Sight Draft" or "Time Draft," in which case it reads to pay after a certain number of days, is a very common method of making collections to-day by creditors, and it serves the double purpose of being an order to pay to a bank or third party, and is also a receipt to the debtor. It is sim- ple in its wording, the following being a general form:
81000 CHICAGO, JUNE 1, 1894.
At sight (or so wany days after sight as the case may be) pay to the
order of - - Bank One Thousand Dollars and charge to my account. To Gre. Stus, NEW YORK, N. Y. Jeux Sixa.
ENDORSEMENTS.
THE signature of any payee or holder on the back of any check, draft, note, bill o exchange or other negotiable instrument is termed his "en- dorsement." it simply means the placing of the name of the holder, or payee, on the back of the instrument, thus indicating that, for = consider- ation, he has relinquished his title to it, and in the absence of any condi- tion or qualification expressed in the endorsement, it implies that the en- dorser will see that the instrument is paid in case it is not taken up by the maker or payor. Where the instrument is made payable to "bearer," asto "John Sims or bearer," no endorsement is necessary to pass the title-it passes with delivery and any holder may collect or sue upon it the same as If he were the payee named therein. In a case of this kind if any holder en- dorses the instrument, the law is construed strictly against him, and, as it was not necessary for him to endorse to pass title, the law presumes in the absence of a positive qualification that his endorsement was made for the purpose of indicating that he would pay it if the payor failed to do so. Where several payees are named in the instrument it must bear the en- dorsement of all of them to pass the title and make one transfer of it. In this case, however, their liability as endorsers is joint, not several, But where two or more holders endorse one after the other in making a transfer from one to the other their liability is several, not joint.
Every check, draft, bill of exchange, note or other negotiable instru- ment which is made payable to a certain "payee or order" must bear the endorsement of the party named, to pass the title, and even in cases where they are made payable to "bearer" it is generally customary for the party to whom a transfer is made to require the person from whom he secures it to place his endorsement thereon.
There are several kinds of endorsement which should be mentioned in this connection. The first is the "blank endorsement," or "endorsement in blank," in making which the payee simply places his signature on the back of the instrument, without condition or qualification of any kind. This ' passes the title to the instrument, and, from that time on, it becomes pay- able to bearer, and the title passes with delivery, until some subsequent holder sees fit to limit it by making it payable to some other payee, or places some other qualification or condition in the endorsement. When a negotiable instrument bearing a " blank endorsement," has once been put into circulation, any subsequent holder of it has the right to limit or restrict it by writing the conditions over his own endorsement, or, by writing over the endorsement of the original payee, words making it payable to himself or some other party, " or order." This point has been decided by the supreme courts of several of the States. .
The endorsement may be restricted or qualified in a number of ways. One, which is called a "full endorsement," is very common in the business world. It is simply the act of the payee named making it payable to some other certain payee or order. To do this, the endorser writes on the back of the instrument, the directions, as: " Pay to John Sims, or order," and places his signature below it. This does not limit his liability as an endorser, but the title to the instrument must thereafter pass through John Sims, and it must bear his endorsement before it will be paid or honored.
Entered according to Act of Congress, in the year 1905, by GEn. A. OGnn & Co., in the office of the Librarian of Congress, at Washington, D. O.
SUPPLEMENT VILL
GENERAL INFORMATION ON BANKING AND BUSINESS ,METHODS.
Another common form of limiting the endorsement is to enable the payee (when it is made payable to his order) to transfer his title to the instrument without becoming responsible for its payment, and making the party to whom it is transferred assume all responsibility concerning pay- ment, 'To do this theendorser writes the words "Without Recourse" over his signature, which has the effect of relinquishing his title without mak- ing him liable to the holder in case the payor fails to take it up.
Another method of limiting the endorsement is to make it conditional, a good illustration of which is the following: "Pay to John Sims or order upon his delivering to the First National Bank a warranty deed to lot 5, block 4, etc.," below which the endorser places his signature. He can also make it payable to "A. B. only," or in equivalent words, in which case "A. B." cannot endorse it over.
In fact, the endorser has the powerto limit his endorsement as he sees fit, and either to lessen or increase his liability, such as either "waiving no- tice of demand;" making his endorsement a "general and special guaranty of payment " toall future holders, etc., but he cannot, by his endorsement, either increase or lessen the liability of any other endorser on the Instrument
An endorser, as a rule, is entitled to immediate notice in case the payor fails to pay it. This is the case in nearly all of the United States, as it has been a rule of the "law merchant" for many years. A few modifications, however, of the general "law merchant" have been made by statute'in sev- eral of the States, relating to negotiable paper, in changing the endorser's Hability by rendering his contract absolute instead of conditional, making notlee unnecessary unless he suffers damage through want of it, or requir- ing a judgment to be first recovered before he can be held. In the absence, however, ofstatutory provisions of this kind, and they only exist in a few of the States, it may be said that to hold endorsers they must have prompt notice of non-payment, and it may be said to be a general rule of the "law merchant" that all parties to negotiable paper as endorsers who are en- titled to notice are discharged by want of notice The demand, notice and protest must be made according to the laws of the place where payable. ">
The term Protest is applied to the official act by an authorized person (usually a Notary Public), whereby he affirms in a formal or prescribed manner in writing that a certain bill, draft, check or other negotiable paper has been presented for acceptance or payment, as the case may be, and been refused. This, and the notice of the "Protest," which must be sent to all endorsers and parties to the paper is to notify them officially of its failure.
GUARANTY.
A "GUARANTOR" is one who is bound to another for the fulfillment of a promise, or of an engagement, made by a third party. This kind of con- tract is very common. According to the "statute of frauds" it must be in writ- ing, and unless it is a sealed instrument there must be a consideration to support it. As a rule it is not negotiable, so as to be enforced by the trans- feree as if it had been given to him by the guarantor, but this depends upon the wording, as, if it contains all the characteristics of a note, payable to order or bearer, it will be held negotiable. A contract of guaranty is con- strued strictly, and, if the liability of the principal be materially varied by the act of the party guaranteed, without the consent of the guarantor, the guarantor is discharged. The guarantor is also discharged if the liability or obligation is renewed, or extended by law or otherwise, unless he in writing renews the contract. In the case of a bank incorporated for twenty years, which was renewed for ten years more without change of officers, the courts held that the original sureties could not be held after the first term.
The guaranty can be enforced even though the original debt cannot, as is the case in becoming surety for the debt of a minor. A guarantor who pays the debt of the principal is entitled to demand from the creditor all the securities he holds, or of the note or bond which declares the debt; and, in some States, the creditor cannot fall back upon the guarantor until he has collected as much as possible from these securities and exhausted legal jremedies against the principal. If the debt or obligation be first incurred and completed before the guaranty is given, there must be a new consider- ation or the guaranty is void.
A guaranty is not binding unless the guarantor has notice of its accept- ance, but the law presumes this acceptance when the offer of guaranty and aets of the party to whom it is given, such as delivery of goodsor extending credit are simultaneous. But an offer to guarantee a future operation does not bind the offerer unless he has such notice of the acceptance as will af- ford him reasonable opportunity to make himself safe. A creditor may give his debtor some indulgence or accommodation without discharging the guarantor, unless it should have the effect of prejudicing the interests of the guarantor, in which case he would be released. Generally a guarantor may, at any time, pay a debt and so, at once, have the right to proceed against the debtor. Where there has been failure on the part of the princi- pal and the guarantor is looked to, he must have reasonable notice-and notice is deemed reasonable if it prevents the guarantor from suffering from the delay.
It is, in many cases, difficult to say-and upon it rests the question of legal liability-whether the promise of one to pay for goods delivered to another is an original promise, as to pay for one's own goods, in which case it need not be in writing; or a promise to pay the debt or guaranty the promise of him to whom the goods are delivered, in which case it must be in writing. The question generally resolves itself into this: To whom did the seller give and wasauthorized to give credit? This is a question of fact and not of law. If the books of seller show that he charged them to the party to whom he delivered them, it is almost impossible for him to hold the other party for it, but if on the other hand it is shown that he regarded the goods as being sold to the party whom it is desired to hold, but deliv- ered them to another party and it is so shown on his books, it is not regarded as a guaranty, but an original or collateral promise, and would make the party liable. In general, a guarantor of a bill or note is not entitled to such strict and exact notice as an endorser is entitled to, but only such notice as shall save him from actual loss, as he can not make the want of notice his defense unless he can show that it was unreasonably withheld and that he suffered thereby. There is a marked difference in the effect of a guaranty of the "payment," or of the "collection" of a debt. In the first case, the creditor can look to the guarantor at any time ; in the latter, the creditor must exhaust his legal remedies for collecting it.
ACCOMMODATION PAPER.
AN accommodation bill or note is one for which the acceptor or maker has received no consideration, but has lent his name and credit to accom- modate the drawer, payee or holder. He is bound to all other parties just as completely as if there were a good consideration, for, if this was not the case, it would be of no value to the party accommodated. He is not allowed to set up want of consideration as a defense as against any holder for value. But he is not bound to the party whom he thus accommodates, no matter how the instrume"" may be drawn.
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