Bills Of Exchange

A bill of exchange has been defined as an unconditional order in writing, addressed by one person (the drawer) to another (the drawee), signed by the drawer, and requiring the drawee to pay on demand or at a determinable future date, a sum certain in money, to the order of a specified person or to bearer.

Bills of exchange; how classified. - Bills of exchange are issued in various varieties of form. They are named and may be classified according to the time they have to run, according to the financial standing of the parties to them, and also according to the purpose for which they are created.

Demand and sight bills; short and long bills. - Demand and sight bills, short and long bills, are included among the first class above mentioned. The former are payable upon presentation to the drawee. Short bills are payable from one to thirty days after sight or acceptance, and long bills at longer intervals, usually not exceeding four months.

Prime bills; ordinary bills. - Bills are also divided into prime bills and ordinary bills, indicating the credit in the business world which the drawer and the acceptor enjoy. The former are drawn by the prominent banking and commercial houses, usually upon banks, and the latter by those and upon those not so well known. Prime bills generally sell at higher rates than ordinary bills.

Grain, cotton and finance bills; documentary bills. - Classified according to the purposes of their issue are grain bills, cotton bills and finance bills. Included also among documentary bills are such bills as may be drawn upon importers or their agents against shipments of grain or other merchandise. They are known as documentary bills, by reason of the papers which are attached evidencing the shipment and carrying title thereto. Such documents generally include a bill of lading, a certificate of insurance, an invoice, and a certificate of hypothecation. The last named certificate recites that the "seller has sold to the bank a bill of exchange drawn for so much currency, against the drawee, against a shipment of goods, as per bill of lading accompanying." Then follows an agreement with the bank or any holder of the bill for the time being, under which the bill of lading is lodged as collateral security against the acceptance and payment of the bill. In the event of non-acceptance or non-payment, it is agreed that the goods may be sold and the proceeds applied towards payment. A certificate of hypothecation may be attached to each and every bill, or a general hypothecation power furnished the banker to cover all transactions.

Drafts and documents are issued in duplicate and sometimes in triplicate sets, one set being forwarded by the first outgoing steamer and the other by steamer sailing later.

When the financial standing of the acceptor of a documentary bill of exchange is unquestioned, documents will generally be surrendered upon acceptance. If the credit standing of the acceptor is not very satisfactory, especially in the case of shipments of perishable merchandise, where it is necessary that possession of the goods be obtained promptly, documents are generally retained by the collecting agent and delivered only upon payment.