This section is from the book "Elementary Banking", by John Franklin Ebersole. Also available from Amazon: Elementary Banking.
Until the drawee of a bill accepts it he is under no liability. Of course, the drawer might sue the drawee for not honoring (accepting) the bill, but the holder of the bill could not make the drawee pay him. An acceptance usually takes the form of writing on the face of the bill "accepted" and the drawee's signature. Only the drawee can accept - he then becomes the "acceptor." His acceptance really means that he says: "I am indebted to the drawer for the sum named in the bill and hereby guarantee that I will pay the bill according to its terms and charge the amount to the drawer's account." In other words, he makes a contract that he will pay the bill according to the terms of his acceptance. The acceptance must be in writing. It need not be on the bill, but may be on a separate piece of paper or even by telegraph. A prospective drawee may make a contract with the drawer to accept a bill to be drawn. Whether oral or in writing this contract is binding. The fact that a bill has been accepted adds, of course, to its negotiability, for people are more willing to take it. When the bill is presented to a drawee for acceptance he is allowed twenty-four hours to decide whether he will accept it or not. His failure to return the bill, or its destruction in that period, causes an "acceptance by conduct," which is legally binding. When a draft for acceptance is accompanied by collateral which is to be delivered on payment or on acceptance as the case may be, the bank must act according to the instructions of the owner of the draft, and in any case should retain the collateral when leaving the bill for acceptance. When a draft is sent "with exchange" the drawee pays the charges when remitting the money collected to the person who has sent the draft to the bank "for collection."
At 30 days' sight - Pay to the order of Federal City Bank of Minneapolis Five hundred and no/100 Dollars.
Value received and charge to account of
To Bruce Ellsworth,
Winona, Minn. Fred W. Baird.
A Sample Acceptance
"Accepted July 10, 1922.
Payable at Flour Exchange Bank.
These words would be written across the face of the bill by
face of the draft and the exchange charges also. Otherwise the collecting clerk of the bank deducts the
A bank acceptance is a bill of exchange drawn on and accepted by a bank or banker. Its real purpose is to use the bank's credit to obtain funds. Acceptances of prime banks are readily salable at a low discount. The bank is given funds by its customer before the acceptance comes due and therefore the bank extends only its credit for a small commission charge. The bank usually has documents giving title to the goods covered by the transaction and runs a very small chance of loss. Bank acceptances are in very high standing as safe and liquid investments.
A "general" acceptance makes no qualification to the order of the drawer; a "qualified" acceptance changes the bill as it was drawn by the drawer. An acceptance is qualified which makes payment depend on any condition, or is only for a part of the amount specified, or changes the time or place of payment. The holder may require an unqualified acceptance or treat the bill as dishonored (dishonor will be considered in the following paragraph). The holder may take a qualified acceptance, but if he does so the drawer and indorsers are discharged from liability on the bill unless they assent to it after becoming aware of it. They will be held to have assented unless within a reasonable time after acquiring knowledge of the circumstances they notify the holder that they have not thus assented. Many business men dislike to have drafts drawn on them. It is best, therefore, not to draw on a person unless you have notified him of your intention to do so.