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Geo. A. Ogle and Co. / Standard atlas of Manitowoc County, Wisconsin

General information on banking and business methods,   pp. VII-VIII PDF (2.8 MB)

Page VII

 Banking and Business Methods.
 N business life there is no more  complex or important rela-
        tion than that which exists between the business men gen-
        erally and the banks, and it should be guarded with jealous
        care, so that both may retain the full confidence of the other.
Business development in the United States has progressed with
such gigantic strides that it has long since passed the stage where
it is even possible to carry on business without the agency of banks.
They are today a necessity in the transaction of nusiness and mak-
ing exchanges. It has been said, and with a great deal of truth,
that in the present day the entire and sole object and result of
business is the transfer of credits on the books of the banking
houses; and that about the only use to which money is put is in
making small change or paying balances. Business, in the most
general and comprehensive sense, is almost wholly carried on by
the aid of banks with checks, drafts and exchange. And it will
be seen what a very important part the element of confidence plays
in business life, when it is remembered that every check or draft
that changes hands, implies the confidence on the part of the party
receiving and accepting it, that it will be honored at the bank
when presented.
                OPENING AN ACCOUNT
 THE first step in the matter of becoming a depositor and cus-
        tomer of a bank is the interview with the banker, either
        the President, or Cashier, as the case may be.  If un-
        known to the banker it is necessary for some one who
is known to identfy and vouch for the applicant as being hon-
orable and straightforward, for banks are compelled to be care-
ful in this matter as they subsequently must handle all the
checks, drafts and exchanges that the prospective customer em-
ploys in his business, so that while the business of an honest man
is valuable to them and is appreciated, that of a dishonest man
is shunned by them as an element of risk and danger-the same
to them as to every one else with whom he deals.
   The identification and reference, however, being satisfactory
the prospective customer is given a pass book or account book,
writes his signature in a book kept for that purpose, is made
known to the receiving and paying tellers, makes his first deposit
and Is then a full fledged customer and depositor of the bank.
EPOSITS are made in the following manner: A "Deposit Ticket"
        or "Deposit Blank" is furnished the customer, and he enters
        upon this a full description of all the items which he desires
        entered to his credit, stating whether it is gold. silver or
currency and making a separate entry for each draft or check
that he deposits. In entering such items as drafts and checks
some banks require a separate entry for each item which will
show upon what bank or at least what city or town each draft
or check is drawn. After having endorsed his name on the back
of all checks and drafts he hands the "Deposit Ticket," together
with all the items named upon it, and his Pass Book, to the re-
ceiving teller, who examines it, checks off the various items to
see that they are all there, and enters the total amount to the
customer's credit in the "Pass Book;" and it is also carried to
credit from the Deposit Ticket onto the books of the bank.  The
"Deposit Ticket" is an important feature of the transaction, and
the customer is required to fill this out with ink. It bears his name
and the date and is carefully preserved for future reference by the
bank to settle any dispute or difference that may arise. As all
men are liable to error the depositor, to prevent mistakes, should
always see that the amount of the deposit is correctly entered in
his book before leaving the bank. If a deposit is made when a
customer has not his "Pass Book" a duplicate ticket should be
taken, and the amount entered properly when next at the bank.
   It will be seen from the above that all checks and drafts are
entered to the credit of the customer at the time he deposits them,
the same as cash items. The depositor, however, is held responsi-
ble for the non-payment of all checks, drafts and other items de-
posited as cash until payment has been ascertained by the bank.
The bank, however, must use due diligence in attending to them
within a reasonable time. If a check or draft is held beyond a
reasonable time and, meanwhile, the bank upon which it is drawn
fails, the receiving bank would be compelled to lose it. What is
a reasonable time, according to decisions of the courts, depends
upon the circumstances and varies in different cases. In cities,
where they have a Clearing House, checks on other city banks are
expected to reach the Clearing House on the next day succeeding
the time of the deposit; but as to checks and drafts drawn upon
other or distant cities, a reasonable time must be allowed fort e'n
to be presented for payment. If the banker, however, is n'gli-
gent concerning it, he must stand the loss. Such cases very 71"ely,
if ever, occur, and it may safely be stated that in the absence of
any special or unusual conditions for all items such as checks,
drafts, etc.. the banker only receives them for collection for fhe
account of the depositor and therefore acts only as his agent and
as such is charged with using only due diligence in attending to
the business.
               DISCOUNTS, LOANS, ETC.
  HE word "Discount" is applied to interest when it is de-
        ducted from the amount at the time a loan is made-in
  other words, interest that is paid in advance.     It is the
        general rule of banks in making "short time" loans to cus-
tomers to give credit for the amount of the loan, less the interest.
   Many business men fail to obtain the full benefit that a bank
can give them, through hesitancy or diffidence in asking for a
loan; and in many instances will borrow of a neighboring busi-
ness man and thus, frequently embarrass him, rather than go to
the banker, whose business it is to help him through such times
of need, when possible. This is what banks are established for,
largely, and they are always glad to "get their money out and keep
it out" provided they can be reasonably sure of its return. If an
applicant is unable to furnish reasonable security, or is irrespon-
sible or unworthy he must necessarily be refused, but in secur-
ing money which be cannot guarantee the return of. whether it
be from a banker or another business man he does an injustice to
the interests of business generally. However, every business man
in need of financial help, whether his needs be great or little,
should go to the banker first and submit the situation, securities,
etc., to him, as of all men he is by training the best judge and
advisor in such matters. He may be compelled to decline to give
the required aid, but this refusal should never be taken as a per-
sonal matter, as it must be remembered that he has other inter-
ests to serve and depositors, stockholders and directors to protect
before following his own personal desires.
      N leaving notes or other items for collection the customer
      writes on the back of each the words: "For Collection for
        Account of." and places his signature below It. Upon re-
        ceipt of this, tile proper officer or clerk of the bank, will
enter the items either in the back of the customer's "pass book"
or give a separate receipt as the case may be. When the bank
receives paymentt on the items the customer is notified and the
amount is entered to his credit both on his Pass Book and on the
books of the bank the same as any other deposit. A bank in re-
ceiving paper for collection ac.ts only as the agent of the customer
and does iot assume any responsibility beyond due diligence on its
part. Aul banks make collections either in or out of the city
where they are located for their customers at very moderate rates.
These items should always be left at the bank before they become
due. so as to give the bank time to give an abundant notice to the
parties. If the customer desires to make a "sight" or "timedraft"
upon a debtor, upon application the bank will furnish him wlth
blank drafts.
  A FEW words concerning statements and balances will not
        be inappropriate 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
customer'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 the bank so that it may be investigated and rec-
                  NEGOTIABLE PAPER.
  ROBABLY the greatest factor in the business world of to-
        day is "Negotiable Paper," without which it is not prob-
        able that business development could have assumed the
        vast proportions that it has reached in America; and with-
out which the business of the civilized world could not be carried
on. This term includes a variety of instruments, such as promis-
sory notes, checks, drafts and bills of exchange. The bill of ex-
change 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 com-
paratively 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 contracts, is their negotiability. This consists of two en-
tirely 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 ef-
fect 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 con-
tract; 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 depend-
ing upon any contingency; it must be to pay money in a certain
amount capable of being certain by computation; the time of pay-
ment must be certain or such as will become certain; but when
no time is expressed the law implies that payment is due imme-
diately; and lastly, the order or promise must be accompanied by
words of negotiability -that is, payable to a certain payee's C -der
or to bearer.
                  PROMISSORY NOTES.
  CCORDING to the general "law merchant," unaffected by
        statute, a promissory note is the written promise of a per-
 son, 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 ele-
ment of negotiability. 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 received" but this is not absolutely essential, as a consid-
eration and value is implied in every note, draft, check, bill of ex-
change or endorsement. It is the common law of both England
and this country that no promise can be enforced unless made for
a consideration or sealed, but negotiable instruments as a rule are
an exception to this. Between the original parties a want of con-
sideration can be pleaded a defense and would operate to defeat a
recovery. It would have the same effect 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 inno-
cent 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 consideration, 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 ma-
jority of the States, all endorsements 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 written date is
primna facio 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 promisor, or injury
sustained by the promisee at the promisor's request. A previous
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 affec-
tion is no legal consideration. No consideration is sufficient in law
if it be illegal in its nature, or if distinctly 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 de-
mand; 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 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.
  THE "bill of exchange" is an open letter or order whereby
        one person requests another to pay a third party (or order
  or bearer) a certain fixed sumn of money. They are of two
        kinds, the Inland and Foreign bills, the names of which im-
ply the difference between them. The three parties to the bill are
called the Drawer, Drawee and Payee. The bill must be presented
to the Drawee and if he agrees to obey the order, he "accepts"
bill by writing the word "accepted" across its face and signs his
name below 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 inland bill of exchange:
                        BILL OF EXCHI-ANGE.
$600                                CHICAGO. ILL., June 1, 1844.
    Sixty days after sight pay to John Sims, or order, Six Hun-
dred Dollars, and charge same to my account.
    To HENRY HOLT & CO.,                              JOHN DOE.
       Boston, Mass.
Copyright, 1917, by Geo. A. Ogle & Co.
        bank Is pay the cecksvaofnIts epol rse..
Atll 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 ob-
ligation 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, so far as payment or liability of the drawer is con-
cerned, 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 fact with the signature of the banker.
It is then said to be certifleC nd thereafter the bank is liable to
the holder. As soon as the cAeck is "certified"     the amount
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 pre-
sentmenft, for it is an absolute appropriation 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, howevei, is at the holder's risk,
and if the bank should fail 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 drawee, then he may look to the drawer for
payment. If the bolder of a check transfers it to another he
has the right to expect that it will be presented for payment with-
in 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 cannot 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 reasonable precaution to prevent it. Perforat-
ing 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 of check 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 first exactly 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;
but in smaller towns many check drawers make them payable "to
bearer," in which case they require no endorsement, and if lost or
stolen may cause loss--as whoever presents such a check at the
bank is entitled to payment.
 A DRAFT is a form cf an "inland bill of exchange," The two
        forms of bills of exchange called "drafts" are the bank
        draft (or exchange) and the "sight or time draft." The
        bank draft is, to all intents and purposes, 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 certain payee or order. They      are negotiable and can be
transferred indefinitely 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 simple in its wording, the fol-
lowing being a general form:
$1000                                     CHtCAOO, June 1, 1894.
   At sight (or so many days after sight as the case may be) pay
to the order of            Bank One Thousand Dollars and charge
to my account.                                       JOHN SIMS.
      To GEo. SIMS, NEW YORK, N. Y.
 HE signature of any payee or holder on the back of any
       check, draft, note, bill of exchange or other negotiable in-
       strument is termed his "endorsement." It simply means the
       placing of the name of the holder, or payee, on the back
of the instrument, thus indicating that, for a consideration, 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 endorser 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," as to "John Sims or bearer," no
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 en-
dorsement 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 endorsement 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
instrument 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 endorse-
ment thereon.
   There are several kinds of endorsement which should be men-
tioned 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 condi-
tion or qualification of any kind. This passes the title to the in-
strument, and, from   that time on, it becomes payable to bearer.
and the title passes with delivery, until some subsequent holder
sees fit to limit 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 di-
 rections, as: "Pay to John Sims, or order," and places his sig-
 nature 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
of the ps

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