By EDWARD C. REYNOLDS, Esq.

II.—NOTES AND BILLS.

Although unpleasant papers to have outstanding with one’s name attached to them, at all events when that indicates, by its position, personal liability, yet a knowledge of their leading characteristics is so convenient in a time of a necessity which forces us, or some with whom we may have mercantile engagements, to have recourse to them, that we think best to insert proper forms here.

If John Roe accepts of the conditions of the bill he will write his name across its face together with the date on which it is done, prefixing same with the word “accepted.”

In the outline analysis given below our readers will readily discover all the essential elements of a contract, which is of course the foundation principle of commercial paper.

ANALYSIS.

After acceptance of the bill by John Roe, the drawee, he is placed in the same position, as regards it, that John J. Roe is in, as regards the note, that is, each becomes primarily liable for its payment.

Now, in actual business, notes and bills similar to those here given become important factors as a medium of exchange, being recognized as such by virtue of their negotiability, and proving acceptable as such when the parties thereto are of unquestioned financial ability.

What is the ear-mark of negotiability?

A note or bill payable to John Ray, “simply this and nothing more,” is not negotiable, but payable to a certain person, with no power to transfer the same, at least not to make it negotiable. To make it a negotiable instrument we should place after John Ray’s name the words (as found included in parenthesis in forms given), either “or bearer” or “or order.” This done, the note or bill would be of transferable quality, or negotiable, that is, would be payable to John Ray, or to him who should by chance gain its possession, if the words used be “or bearer:” if “or order” then payable to John Ray or to any holder, providing John Ray had so ordered it paid, by indorsement. Thus it is clearly evident that these evidences of debt, which is really the significance of commercial paper, answer the requirements, in a restricted sense, of money, and serve as the consideration for settlement in a great many of the transactions involving sale and exchange, incident to business enterprises. We must utter here a word of caution in regard to receiving negotiable paper; which is, not to accept of it after maturity, since notes and bills are presumably paid at the time when they become due, and one taking them after that time, must remember he takes them subject to this possibility, or possible existing equities between or among the original parties.

Negotiability, the outgrowth of indorsement, makes it necessary to give some explanation regarding the character of an indorser, or what his position and liabilities are.

An indorser is one who writes his name on the back of a note or bill, either for the purpose of transfer, or of assuming liability thereon, and frequently for both.

We shall mention three kinds of indorsement. Special indorsement, indorsement in blank, and, as applicable to both, indorsement without assuming liability, or without recourse. And first, if John Ray, payee named in bill or note, delivers possession of the same to John Smith, at the same time writing on the back of it, “Pay to John Smith or order, John Ray,” he thereby transfers by special indorsement. After transfer made in this manner, John Smith, or any one to whom he may give the power by indorsement, may collect of the original promisor, i. e., the maker of note or acceptor of bill, the amount due by clear evidence of the paper itself. Not only does this indorsement secure transfer of ownership, but also creates liability, for John Ray by it, without the addition of a restricting or denying clause (which we shall refer to later), agrees to personally attend to the payment, if the parties primarily liable fail to do so.

Again, an indorsement in blank is the simple writing of the name, in this instance, John Ray’s, by him of course, on the back of the note or bill, which, there being deducible from such indorsement no special directions, would make it payable to any one into whose possession it might come. Either of these indorsements accomplishes a transfer, and at the same time attaches to John Ray the liability of an indorser. Now, if John Ray sought to avoid such liability, he would write over his signature, “Without recourse to me.” This would secure transfer simply. An indorsement made by one not mentioned in the note or bill would be for additional security of payee, and would generally be in blank, placing the indorser in same responsibilities as assumed by John Ray in the two instances above mentioned and grouped. So much for the parties, which we now leave to consider briefly the time element, which is the hope of the payee, the specter, ever the cause of unpleasant forebodings to the promisor.

In computing time it should be remembered that the words of the note or bill are to be strictly followed; as, when it reads a certain number of months, then the time is to be computed in months; for example, omitting days of grace, a note bearing date July 1st, on two months’ time, will be due September 1st. To say that two months are equivalent to sixty days, and then add sixty days to July 1st, we shall have our note due August 30th, which would be erroneous. The same would be true of the reverse of the proposition stated; that is, if time be stated days, it would as certainly lead to error, to compute by months.

When does the time commence to run? If a note, from its date; if a bill, from its date, if it read payable a certain length of time “from date;” but if it reads, as for instance, “at thirty days’ sight,” then it commences on the date of its acceptance by the drawee.

Days of grace, the use of which has sprung from custom into full fledged law in the course of time, must not be forgotten.

Notes and bills, unless in the body thereof it is expressly stated to the contrary, have, added to the time for which they are written, three days, known as days of grace; so that a note given for one month, and dated July 1st, would not fall due August 1st, but August 4th.

Originally these days were intended to inure to the benefit of the maker of the note, but such is not the practice or law now; and that period of three days constitutes a part of the time for which all interests and discounts are computed, the same as the time expressly mentioned. This is one of the characteristics of bills and notes, which commercial students and business apprentices are more apt to carelessly forget than any other in the category.

We have thus far omitted mention of bank checks, a very important business medium. The element of time thrown aside, and the most that we have said regarding notes and bills, may be applied to checks, which in reality are bills or drafts payable at sight without grace.

In case of non-acceptance of a bill when presented, or non-payment of the same, or of note, when due, that the drawer in the first instance and indorsers, if any, in the latter may be holden to its payment, resort is ordinarily had to “protest,” which signifies that acceptance or payment having been legally demanded of parties primarily liable, and refused, notice is given the other parties to the paper, of such refusal, by a notary public, who attaches a certificate to the bill or note, stating fact of such demand and refusal.

This may be avoided in the case of indorsers by their “waiving demand and notice” at the time of indorsement.

In writing commercial paper remember:

That the three days of grace allowed are not included in the time written;

That, unless otherwise specified, tender of payment must be made at payee’s place of business;

That interest is not collectible, unless specified, until after maturity;

That the amount written and in figures should be the same;

That commercial paper without a date falls due never.

Interest.

A common and very acceptable definition of interest is, “a compensation paid for the use of money.” Like other transactions this may be subject to contract agreement, to an extent however, varying in the different states. In most of the states the ability of parties to contract in the matter of interest rates, has been placed under some restraint; that is, most of the states have adopted a “legal rate,” declaring thereby what amount of money shall be paid for the use of money. The reason why the states have assumed to dictate to parties the conditions of their interest contracts is to relieve the borrowers of the hardship of excessive rates, which, sometimes by reason of pecuniary embarrassments they would be, and are, notwithstanding inhibitions on statute books, forced to pay; and further to have a recognized standard rate for contracts where there is no agreement, which last is a very salutary provision.

Upon what is interest payable? It is payable on loans, secured or unsecured, as per individual contracts, secured as loans on mortgage security; unsecured, represented partly by notes. Again, running accounts between merchants are adjusted on the basis of an interest account, he paying interest against whom the balance is found; simple indebtedness, past due, creates a legitimate interest claim; sales of merchandise, from time of sale, if no credits are given, if there are credits then from time of their expiration; also debts on which court judgment has been secured.

Time notes, as has been already observed, do not begin to draw interest until maturity, unless it be especially mentioned; demand notes not until after demand.

Interest when exacted in excess of legal rates becomes usury, which, as already hinted, is, in the states generally, a statutory offence.

We indicate here some of the statute provisions in relation to this matter, viz: “Permissible by agreement subjects the lender to a penalty of from three to six times the amount of usury taken; subject simply to have excess recovered; to lose the whole interest; an avoidance of whole contract; forfeiture of the whole debt,” etc.

These provisions are of little avail really, for they are continually in conflict with the law of supply and demand; and the ingenuity of man settles this conflict in individual cases by cunningly conceived and evasive conditions.

Where partial payments have been made, interest may be computed in the following manner, which has received the sanction of recognized authority: “Compute interest due on principal sum to the time when a payment, either alone or in conjunction with preceding payments, with interest cast on them, shall equal or exceed interest due on the principal. Deduct this sum, and upon the balance cast interest as before, until a payment or payments equal the interest due; then deduct again, and so on.”