LESSON XII. CREDIT IN GENERAL. Nature of Credit-Instruments of Credit-Banks-Stocks and Shares. § 84. CREDIT,1 as affecting traders in distinction from consumers, is, in the words of Mill, the "permission to use the capital of another person" to one who will "employ it efficiently in production."2 To some of our readers this may be quite a new meaning for the word. "The mother says to her son: Buy nothing except for money, credit is ruinous. The father tells him, Credit is the soul of industry, it is the refusal of it that ruins. Both are right."3 The enormous volume of wholesale trade done by this country through employment of credit, which a few years ago was estimated at nine-tenths of the whole, sufficiently indicates its importance as a vehicle of production. The same person will equally buy and sell on credit.5 4 1 Kredit; crédit. Each form of the word of course comes from the Latin credere. The jurist Ulpian (following Celsus) says, "Credendi generalis appellatio est nam cuicumque rei assentiamur alienam fidem secuti, mox recepturi quid ex hoc contractu credere dicamus." (Dig., xii. i. I.) 2 See his Principles, bk. iii. ch. xi., comparing ROSCHER, pp. 245 ff., or the elementary work of WALKER, cp. xiii., LAVELEYE, pp. 216 ff. 3 LAVELEYE, pt. ii. ch. iv. § 3. 4 The tendency, however, now is towards curtailment of credit, more wholesale transactions being for 'cash.' 5 BAGEHOT, Lombard Street, pp. 58 f. § 85. We may at once enter upon the consideration of the instruments of credit, the chief of which are 'negotiable instruments,' relating to money or goods the property in which passes by transfer of the instrument, either as made out to 'bearer,' to 'order,' to the payee and his assigns,' or containing such other words importing a transfer.1 These are Bills of Exchange, Promissory Notes (including Bank Notes), Cheques, Letters of Credit, Bills of Lading, Dock Warrants, &c. 3 § 86. First, of a Bill of Exchange (B/E). This is a form of "security originally invented among merchants in different countries, for the more easy remittance of money from the one to the other, which has since spread itself into almost all pecuniary transactions. It is an open letter of request1 from one man to another desiring him to pay a sum named therein to a third person on his account, by which means a person at the most distant part of the world may have money remitted to him from any trading country. The person who writes this letter is called the drawer,5 and he to whom it is written the drawee, and the third party or negotiator, to whom it is payable (whether specially named, or the bearer generally), is called the payee.8 These bills are either foreign or inland; foreign when drawn by a merchant residing abroad upon his correspondent in England, or vice versâ, and inland when 6 ... 1 See remarks of Mr. Justice (now Lord) Blackburn in Crowley v. Crédit Foncier, cited by CHALMERS in his Digest of the Law of Bills of Exchange, pp. 312 f., and other cases there referred to. 2 'Bill of Exchange' is in German Wechsel (ROTHSCHILD, i. pp. 369 ff., ii. 69); in French, Lettre de Change (MERTEN, pp. 50 f., Reader, § 62). The latter designation closely follows the Italian Lettera Di Cambio. 3 See further as to this below. Bills of Exchange Act (1882) as There must be no contingency. 4 Defined by the order in writing," &c. 5 Aussteller; tireur. 66 an unconditional 6 Bezogener; tiré. 7 Inhaber; porteur. He may be the same person as the drawer. there is no payee named, the bill is said to be drawn in blank, • These of course effect payment of international debts. If both the drawer and the drawee reside within the kingdom.”1 A bill not actually representing indebtedness on the part of the drawee, but acknowledged by him in order to enable the drawer to raise money upon it, is called an 'accommodation bill.'2 A bill of exchange falls under the head of 'simple contracts.'3 $87. The following is a form of inland bill: £200. London, 1st January, 1892. Two months after date pay (the Bill of Exchange) to Mr. Thomas Jones, or one the sum of Two Hundred Pounds for value received), and charge the same to my (our) asort To Messrs. Smith Birmingham. Clark & Co. Here Clark & Co. are the drawers, Smith and Brown the drawees, Thomas Jones the payee. If the drawers are also to be payees, the words "to Mr. Thomas Jones or his order" will be replaced by "to our order," and the words "and charge etc." will be omitted. The addition of "for value received" is not necessary by our law, which presumes consideration in regard to bills of exchange. Signing by the drawer is not absolutely necessary to an English bill.7 If Clark & Co. can rely upon Smith and Brown's 1 BLACKSTONE, pp. 466 f. 'England' here stands for the British Isles. 2 Kellerwechsel; effet fictif. A 'blank credit' (blancokredit; crédit à découvert), a power given by one merchant to another to draw upon the former up to a certain amount without cover, is similar. (cp. § 219.) 5 Or the alternative "to the order of Mr. Thomas Jones." The words "to order," which are optional according to English, are required by French law. In this, again, French law gives no option. 7 It is otherwise with bills governed by the German code. acceptance1 of the draft,2 that is, their firm's signature across the face of the bill,3 which fixes the drawee's liability upon the bill, it is unnecessary for the drawers to send it to them direct for acceptance: Clark & Co. may transmit it at once to Jones for 'presentment,'4 and should in that case at the same time advise (inform) Smith and Brown of having 'valued' upon them, requesting them to honour' the draft. We have assumed that Smith and Brown comply with such request. Their acceptance, however, may be 'qualified,' that is, for a part only of the amount drawn for. § 87a. The draft, which now acquires the further name of an 'acceptance,' will pass by negotiation from Jones, the first holder, to his bankers, if submitted to them for discount. The procedure in the discounting of bills we must hold over for Part II., discussing it then in connection with Banking." Indorsement of the bill will be required by the first holder if it is made payable to his order, and each successive holder will do the same, as long as it remains negotiable by like indorsements. 66 If the bill in the hands of any one transferring it requires no indorsement, he is said to be a 'transferor by delivery.' An indorsement may be general, as simply "Thomas Jones," or special, as Pay to the order of William White.-Thos. Jones." Again, the bill may bear a restrictive indorsement, as "Pay to A.B., for my use only," whereby its negotiability is ended; or, as done by executors, "Without recourse to me," 1 Accept (Annahme); acceptation. But 2 A bill is commonly called a 'draft' (dft.) before acceptance. drafts strictly so called have legal qualities distinct from those of bills: see below. 3 Such words as those preceding it are discretionary, but customary. 5 6 The various classes of bills in regard to their rank in credit, for example those of the highest reputation, 'bank bills' or bankers' acceptances, will then come under consideration. 7 Indossament (Giro); endossament. As to 'made bills,' see BITHELL, S.V. 8 Ohne obligo (Regress); sans recours. which protects the indorser from liability upon the bill. Every one else who has indorsed any bill is liable in the event of its being ultimately dishonoured, subject only as hereafter mentioned.1 § 876. A bill of exchange is vitiated by material alteration, such as that of the date, time, or place of payment, and amount. 2 Bills drawn payable 'on demand' (o/d), or ‘at sight' (a/s), are described as 'short bills'; so also those that have less than thirty days to run. Except as regards this class, bills payable in England, whether inland or foreign, mature or fall due after three days of grace.' The bill here given by way of illustration would accordingly be payable on the 4th March, 1892. If then 'met,' on presentment by the holder for the time being, it would of course be discharged. But presentment must be made at the proper time; otherwise the liability of the drawer and indorsers will cease if the bill is dishonoured. 1 A bill will sometimes, as in Lancashire, bear a very large number of indorsements; and when necessary, 'riders' are employed, technically called 'allonges.' 2 Represented indifferently by auf Sicht; à vue. 3 Kurze Papiere; papier court. 4 BITHELL says, less than ten; but the expression seems to be now more elastic. Short sight often appears in reports as 's.s.' 5 And so of bills payable in the United States. But the statement of the Rev. J. B. LOCK that "three days of grace are allowed all over the world" (Commercial Arithmetic, p. 141) is strangely inaccurate. The Napoleonic Code de Commerce abolished days of grace for all traders governed by it; so too the German Wechselordnung in its range of influence. The rule does not apply to bills at short sight, but they are left with the drawee one clear day for sighting. The custom is likely to die out altogether. Respekttage; jours de faveur. 6 7 A bill withdrawn from circulation before it is due, as when bought up by any one, is said to be 'retired,' from the French retiré, which in German is eingelöst. Thus a person 'taking up' a bill in the hands of a discounter, who allows him a rebate for the unexpired time, retires the bill. Bills may also be noted for non-acceptance, but this is often dispensed with. 8 Presentment may be made at the Bankers' Clearing House (§ 216). |