Nothing Strange In Acceptance Method

There is nothing strange in the acceptance method-nothing in any way that differs from usual business customs. The users of the acceptance method forfeit no rights which they otherwise have under the open account system. It is not intended to supersede all other existing methods of transacting business. It is simply a system designed to create better credit conditions and sounder business methods.

Acceptance A Class Of Standardized Commercial Paper

In the preceding chapter, there was explained the use of the acceptance in this country up to the Civil War period, and the causes which contributed to its decline. Though used in a small way following the Civil War up to a very recent date, the acceptance method, however, has always existed in one form or another, but its standardization and recognition was not made a fact until the adoption of the Federal Reserve System.

Earlier Substitutes Of The Acceptance

The nearest comparison to the acceptance as used today and as approved by the leading organizations of the country, was the two name paper of the class generally denominated as "drafts." These "drafts" were generally drawn by sellers of goods upon buyers and accepted by them, but their handling was not made a systematic and uniform method of procedure.

The "draft," as commercial paper, may have arisen in various ways, -not exclusively from merchandise transactions. "Drafts," furthermore, as used before the general adoption of the trade acceptance method in this country, were made payable to third parties or to the order of the drawer and could be realized upon for the purposes of discount, by indorsement of the drawer. They were not payable at any bank specified by the buyer, and contrary to the legal distinction of the modern trade acceptance, the bank of the buyer was completely out of the transaction, and was not obligated to pay the amount of the instrument on behalf of the buyer.

The fact that drafts could originate both from trade purposes and from past due obligations, or dealings not involving the sale and purchase of merchandise, made them an uncertainty as to commercial standing and questionable as to the security behind them. In this connection, they were no better than the seller's own promissory notes and together with the latter were the predominating class of commercial paper in this country. Even today single name paper exists to a greater extent than all other forms, followed by the acceptance.