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 ,;.««. .^.^«L 
 
 HICWSOR^ NOTES 
 
 WHAT A 
 
 ■\^< ' 
 
 MAN SHOULD KNOW 
 REGAIIDJNG T^Blft 
 
 -BY^ 
 
 j; W. JOHI^ON, R C. A., 
 
 ExAMmHRS ,OR THE I.ST,Tt;TE OK 0,,,^^^ 
 
 Accountants op ONTA^ua 
 
 1 
 
 
 1'' I 
 
 
 POBUSHffi BY OSTARIO BUSulESS e0tU6£ 
 
 / 
 
 BELLEVJLLE. 
 
 ^COND EDIT70N 
 
 P 
 
 651 
 J 61 
 
 ftBLLEVlLLE: 
 
 ftMITTK) W* m P0»Lisitlw, 
 
 
 
 -iags:^ 
 
f ->■' ■■) • 
 
 •i ' * 
 
 A\ 
 
» .. I 
 
 T .- 
 
 PROMISSORY NOTES m DRAFTS. 
 
 WHAT A BUSINF:SS MAN SHOUM) KNOW 
 REdARDINC; THRM. 
 
 —BY- 
 
 J. W. JOHNSON, F. C.A., 
 
 Author of "Johnson's Joint Stock Company Book-Keepino," 
 
 Joint Author of "Thf, Canadian Accountant," Principal 
 
 Ontario Business College, and one of the 
 
 Examiners for the Institute of Chartered 
 
 Accountants of Ontario. 
 
 PUBLISHED BY ONTARIO BUSINESS COLLEGE. 
 
 BELLEVILLE, 
 
 SECOND EDITION. 
 
 BELLEVILLE : 
 
 Printed for the PuuLisHiiUb. 
 
 1889. 
 
? 
 
 hi'7 
 
 PRKFACK. 
 
 In the "Business Pnpcr Class" of the Ontario Business ColieRe the Author 
 has for the last twelve years been Lciurin^ unon an<l teaching such suhjects as this 
 pamphlet treats „f ; an.l as a I'raetical Accountant and Business Man has heen 
 for nore than twenty years in .laily association with them The pamphlet was 
 prmiar.ly prepare,! for the Stu.lenis of the class, ami is one 'of a series covering 
 the whole ground of Commercial Papers. The faithful slu.ly of its e<,ntenls even 
 by those not having the advantages of theiectures and l.lack-l,oard nork in the 
 class voom. and the practical work in the College, will prove helpful in doing 
 business. ' t" 
 
 Before being printed in its present form, the matter contained herein was 
 published .n the Septen.ber and October numbers of the Iu{,.a,tio„al Journal 
 ■loronto, 1 605. ' 
 
 Ontar.o Bus,n.ss Co,.,.r.aK. - ^^ ''' JO"NSON. 
 
 Belleville, October, i88S. 
 
 
PROMISSORY NOTES AND DRAFTS. 
 
 \ person has l)ecome indebted to yon either for goods sold or 
 work done, nnd you linve (hily iilaced tiie ainonnt to his debit in 
 your ledger, but you find that it will l)e much more advantageous to 
 you to have this resource or asset of your business in another form, 
 so you obtain fr'^a your debtor his promissory note, or get him to 
 accejjt your diaft. Should you desire that the amount owing to you 
 be paid to some one to whom you are inde!)le(l, then you will draw 
 the draft payab'e to his order. Your object in obtaining the written 
 obligation is three-fold ;— 
 
 I St. It is in itself an evidence of the debt, requiring no confir- 
 mation (unless the signature be challenged) nor , .oof of the con- 
 sideration given for it, nor the production of the original entry. 
 
 2nd. It fixes a defini*^e time, and usually a stated place, for the 
 l)ayment, so that the holder, when it falls due, will not have the 
 trouble of hunting up the maker,nor the maker of finding the holder. 
 The former having provided the funds at the ])lace where he 
 promised to i)ay it, the holder has simply to present it there and 
 obtain them, a matter of much convenience to both ])arties. 
 
 3rd. It is an instrument upon which, atter endorsing it, you may 
 borrow money from a ba..i< or jmvate lender, '{"his is called dis- 
 counting. In other words, by the medium of the bill or note as 
 security, you obtain the use of other people's cajjilal, i)aying therefor 
 a discount fron the face of the instrument, which is the simple 
 interest, in advance, upon the whole amount for the time it has to 
 
 run. 
 
 ^ promissory note is awtitten promise to pay, without any conditions^ 
 
 a specified sum of money on demand, or at a Jived or detetminalde future 
 time. The peison who gives a note is called the drawer, jiromissor, 
 or maker ; the person in whose favor it is drawn is called the i)ayee ; 
 if he signs his name u])on the back for the purpose of transferring or 
 guaranteeing it, he becomes the endorser, and if he names the person 
 
 I '^447.1 
 
to whom he transfers it the latter is called the endorsee ; either of 
 these, or anyone in possession of a note, may be called the holder- 
 
 Forms of IVolfs, 
 
 Notes may be made (i) non-negotiable, (2) negotiable by endorse- 
 ment, (3) negotiable without endorsement. The first is made payable 
 to the individual only, and can only be transferred by assignment, 
 which carries with it all offsets and legal defences that may exist 
 between the original parties ; the second is transferred by endorsing, 
 which makes the endorser liable for ])ayment in the event of the 
 maker failing to pay ; the third is transferred by sim[)ly handing it 
 over, just as a bank note is passed from hand to hand. A note may 
 be transferred either before or after it is due. When taken before 
 maturity the assignee is not affected by any circumstances, of which 
 he had no notice, existing between the antecedent parties to the 
 note. When received after maturity, the assignee takes the note 
 su*^'' to all the equit.ible rights existing i)et\veen the parties. 
 
 A Noii-\€;$oliiihk \oW, 
 
 $100.00 Hm.i.kvii.m;, October 26, 18S6. 
 
 Three months after date I promise to \)ci\ to William .\IcCabe, at 
 the Bank of Montreal here, the sum of (3ne Hundred Dollars, for 
 
 value received. , 
 
 John Smith. 
 
 \ Note Nc^oliahle hy Eiidorsemriit. 
 
 $387.80 Toronto, October, 26, 1886. 
 
 Five months after date I ])romise to pay to the order of E. A. 
 Wills the sum of Three Hundred and Eighty-Seven *^ Dollars, at 
 the Canadian Bank of Commerce in Toronto, for value received. 
 
 John S.mith. 
 A Note Keiifotiable Without Eiulorsrmciit. 
 
 $SO-oo H.NMiLTON, October 26, 1886. 
 
 Thirty days after date I promise to pay William Green or bearer, 
 at my office in Hamilton, the sum of Fifty Dollars for value received. 
 
 loHN Smith. 
 A Kote Payable 011 Demand. 
 
 $3.5-00 Montreal, Oct. 26th, 1886. 
 
 On demand, for value received, I promise to pay to the order of 
 W. B Robinson, the sum of Thirty-Five Dollars. 
 
 John Smith. 
 
[itiier of 
 holder- 
 
 i'MdorsL'- 
 payaljlf 
 L'nnicnt, 
 [ly exist 
 lorsing, 
 of the 
 luiiny it 
 I'to may 
 before 
 which 
 to the 
 e note 
 
 A Joint anil Several Note. 
 
 $7S-oo Hki,i,f.vim,e, October 26th, 1888. 
 
 Six months after date we jointly and severally promise to pay to 
 llie order of S. f'l. Beatty the sum of Seventy-Five Dollars, at the 
 offic e of the |)f)minion l?ank in Belleville, for value received. 
 
 Henry Brown, 
 John Smith, 
 James G. Leonard. 
 
 The holder of a joint and several note has recourse against all the 
 makers, individually and collectively. Should he be obliged to sue, 
 and recover the amount from one of the parties, /te would have re- 
 course .igainst the others for their proportions. 
 
 The Riarhts of u Third Party in a Neji^otiable Note. 
 
 No arrangement between the maker and payee of a negotiable 
 note ran affect the right to ( ollect of a third party who acquired the 
 instrument in good faith, before maturity, for valuable consideration. 
 
 The Riarhts or an Assignee or a IVon-Ne^otiable Note. 
 
 In transferring by assignment a non-negotiable note the assignor 
 cannot transfer to the assignee more than he himself possesses, — for 
 exam|)le. Henry F211is gave John Wilson a non-negotiable note for 
 $300. Wilson assigned it to Alex. Thomson. After it was given, 
 and before it was assigned, Wilson became indebted to Ellis in 
 the sum of $roo, and this nioount he has the right to set off against 
 the note when the assignee, Thomson, presents it for payment. Had 
 it been a negotiable instrument, payable to bearer or order, the maker 
 would have been bound to pay the third |)arty the full amount, 
 irrespective of the debt which the payee owed him. This example 
 illustrates the difference between a negotiable and a non-negotiable 
 note. 
 
 *An Accommodation Note. 
 
 is one on which a person lends his name as an endorser to enable 
 the maker to borrow money upon it. It flatters some m. V vanity 
 to be told that such and such a bank would discount a note if they 
 would put their name on the back of it, and in a moment of weak- 
 ness they assume a liability for another which, very often, they can 
 
 'See " Accommodation Draft '' page 17. 
 
only be frcod fnnii by pajing. 'I'd endorse and borrow money upon 
 a note that one holds against a debtor is a totally different matter, 
 and is assunung no risk beyond what was incurred when the debt 
 was contracted. 
 
 Form of an iocommoilatioii Kulc. 
 
 William Iv Urown Ins ol-tained -lohii Smith's consent to endorse 
 a note on which he propijses to borrow money, or intends to give a 
 creditor wiio is jiressing him for security for a ilebt. Such a note is 
 not drawn h> the order of the lender or creditor, but to that of the 
 endorser, that he may l)e huld as first security after the maker. 
 
 Hkli.evi 1,1, K, October 26th, iHiSG. 
 $150.00 
 
 Three months after date I promise to pay to the order of John 
 Smith, at the l!ank of C'ommerce here, the sum of One Hundred 
 and I'fty DcjJlars, for value received. 
 
 WlLllAM K. liROWN. 
 
 liicii Notrs. 
 
 Lien Notes are now frequently given by jjcople purchasing agri- 
 cultural implements, jjianos, organs, sewing machines, etc. 
 
 Ui 
 "Z 
 
 Oh 
 
 U 
 <; 
 
 o 
 
 '2 
 
 A <'umQioii Form or lAi'W iN'oICi 
 
 $ 
 
 Bki,i evii.i.k 18S 
 
 One year afier date, I jironiise to pay TiiK 
 liROUN M'i'd Co., LiMllKl), or Order, at tiieir Oflke in 
 
 Hellevillc, for value received Dollars, with 
 
 interest at seven per cent, per annum till paid. Should I sell or 
 otherwise (lis|)ose o! the land hereinafter described, or the 
 personal property I am now possessed of, then this note is to 
 iieconie due and payable forthwith. The title and ownership 
 and ri;;hi to the possession of the property for which this noU- 
 is i;iven, sh.ill rem.iin vested in TiiK Bu(jWN M'f(; Co., Limitkh 
 until this note is paid. 
 Lot . Con Township 
 
 r. 0. .\, 
 Witness 
 
 die-. 
 
 SiKnaturc. 
 
 .\n .Vet of the Ontario Legislature respecting conditional sales of 
 chattels came into fort on the first of January, 1889. 
 
 It provides that such an instrument as the above is valid as against 
 subsequent jiuMh.iscrs of ihc article for which it was given, if at the 
 time possession was givi.n lo the bailee, it had the name and address 
 
7 upon 
 iiKittcr, 
 lie debt 
 
 -iidorsc 
 ,^ive a 
 
 note is 
 of the 
 
 1^86. 
 
 ,i8S 
 
 of the manufacturer, bailor or vendor of same painted, printed, 
 stami)ed or engraved thereon, or otherwise plainly attached thereto. 
 
 Any proposed i)urchaser of the article can demand and is entitled 
 to receive within five days from the maniifat tiirer, bailor or vendor, 
 claiming ownership, full inform.i'ion respecting the amount due and 
 the terms of payment, and if he refuse to give such information he 
 will be liable to a fine of $50. The inquiry may be made by letter, 
 giving the name and address to which a reply may be sent, .. d it 
 will be sufficient if the reply giving the information be mad; ;<y 
 registered letter within five days. 
 
 If possession be taken of the article for bre.ich of (ondition it may 
 be redeemed withiji twenty days, by full payment of tlie amount due, 
 and the cost of taking possession. If the goods taken were sold or 
 bailed oiiginally for a greater sum than $30.00, they shall not be 
 sold, when seized for breach of condition, without five da)s notice to 
 the bailee or his successor in interest, by personal service of notice, 
 or leaving it at his residence or last known place of abode in Ontario, 
 or sent by registered letter seven days before the time when the said 
 five days will elapse, addressed to the last known post off" e address 
 in Canada of the bailee or his successor in interest. 
 
 A copy of the receipt note must be left with the bailee at the time 
 of the execution of the instrument, or within twenty days thereafter. 
 
 The manufacturer, bailor or vendor miy file a copy of the instru- 
 ment with the Clerk of the County Court of the county in which the 
 bailee resided at the time of the conditional purchase within ten days 
 from its execution and thereby relieve himself from some of the pro- 
 visions of the act. — See Ontario Statutes iSSi\ Cap. ig. 
 
 Le^al Rate or liitiTc^t. 
 
 '['he rate of interest that can be legally collo( ted upon an over- 
 due note, or any debt, on which the rate is not fixed by agreement, 
 is six per cent, per annum. It is important when drawing a note 
 that is to bear a higher rate than six per cent, that the words "as 
 WELL AFTER AS BEFORE MATURITY UNTIL PAio" be inserted. If they, 
 or words to the same effect, are not inserted, the note would bear 
 interest at the higher rate till maturity, but after that only the legal 
 rate. 
 
 There is no usury law in this country, nor is it desirable that there 
 should be. Money, like any other commodity, will bring for its use 
 
to the owner usually just what it is worth, considering the risk run 
 and the demand and the supply. If a lender is content with a fair 
 rate of interest he can readily find borrowers with good security to 
 offer, and the grasping man can find customers too, who will promise 
 a high rate of interest, l)ut offer poor security for the fulfilment. 
 
 Hays or Cirare. 
 
 The custom among merchants has established the practice, which 
 is recognized in law, of allowing three days of grace upon all promis- 
 sory notes, drafts, and bills of exchange not payable on demaiul. No 
 time bill is legally due until the days of grace have expired. In pre- 
 paring to meet your own paper, or in presenting for paymen* that of 
 your customers, bear this fact in mind, and be careful when entering 
 the due dates in your bill bock to add the three days of grace. To 
 illustrate ; A note given at three months from October 26 would not 
 fall due till January 29. A note given at ninety days from October 
 a6 would not fall due till January 27. 
 
 Powpr of Attorney* 
 
 It is customary for firms to grant to their managing accountants 
 the power to draw bills, sign notes, accept drafts, draw cheques, and 
 generally transact their financial business. This authority is conveyed 
 and exercised under a do(ument called a Power of Attorney. It may 
 be special or general special in confining the exercise of it to a 
 limited number of arts, general by the conveyance of the authority 
 to act for the firm in carrying on its ordinary financial operations. 
 The usual way for a person who is ading under a power of attorney 
 to sign business jjupers i^ to sign the firm name and place his own 
 underneath with the words "per pro" or letters " p. p."' before it, 
 thus : 
 
 J. C. Morgan & Co. 
 per pro J. VV. Johnson. 
 
 The abbreviations stand for the phrase " by procuration." 
 
 W\mi a \ote Becomrs Oiitlawrdi 
 
 A bill or note becomes outlawed six years after the date of 
 maturity, or after the date of the last payment on account, or after 
 the last written acknowledgment. That is, the holder of such a note 
 cannot recover upon it if the maker, on being sued, sets up in 
 defence the Statute of Limitations, which was passed in the twenty 
 
 first 
 
 part 
 
 civi\ 
 
 view 
 
 end 
 
 ren^ 
 
 kno 
 
'risk run 
 hh a fair 
 Jiiritv to 
 I promise 
 .'nt. 
 
 -, which 
 l^romis- 
 '••(J. No 
 In pre- 
 that of 
 ifUcring 
 :c. To 
 uld not 
 October 
 
 9 
 
 first year of the reign of King James I., to limit the time allowed to 
 parties to commence their suits, so as to shorten litigation. In all 
 civilized countries some period is prescribed by statute with this 
 view. An instrument approaching the legal, though not the moral, 
 end of its existence, may be brought back to infancy and have its life 
 renewed, by the holder obtaining, say in answer to a letter, an ac- 
 knowledgment in writmg of the debt from the maker of the note. 
 
 Endorsrmeiits. 
 
 The act of writing the name upon the back of an instrument is 
 called endorsing, which has two effects. It makes the endorser re- 
 sponsible for jjayment in the event of the maker failing to pay at 
 maturity, and it makes an instrument that is payable to order, trans- 
 ferable. The forms of endorsement commonly in use are (taking a 
 note payable to the order of John Jones as an example) : — 
 
 Endorsement in Blank, as 
 
 John Jones, 
 which has the effects just described. 
 
 Kndorsemrnt in Full, as, 
 
 Pay to the order of William Black, 
 John Jones, 
 which makes the endorser resj)onsibIe, and the instrument negotiable 
 only after it has been endorsed by the endorsee, William Black. 
 
 Qnalified Endorsement. 
 
 Without recourse to me. 
 
 John Jones. 
 
 which relieves the endorser of responsibility, and sin.ply make the 
 instrument transferable. 
 
 fiestrietive Endorsement, 
 
 Pay to Richard Brown. 
 
 John Jones, 
 
 which makes the endorser responsible, but confines the payment to 
 
 ore person. 
 
 Other forms of qualifymg endorsement are used, such as that 
 
 placed on checjues sent liy a clerk to the bank to be deposited to the 
 
 firm's credit : 
 
 For deposit only, 
 
 John Beattv & Co. 
 
10 
 
 The qualifying words make it impossible for the person making 
 the deposit to draw the money. 
 
 Endorsements arc jften made to serve as rereipts, as, for example, 
 I draw a (:he<iue to the order of S. Jones, instead of to S. Jones or 
 bearer, because if drawn to order, Jones must sign his name on the 
 bark l)efore he can receive payment. On paying and receiving back 
 a note payable to order that has not been transferred, and conse- 
 quently not endorsed, you should have the payee indicate that he 
 had held it, or you could prove nothing by it. Have him endorse it 
 and immediately cancel the endorsation. Notes that have been 
 retired should be cancelled and filed away like receipts. 
 
 Tlie Order of Endorser^ Liability. 
 
 The holder of a note upon which there is an endorser or several 
 endorsers has eijual recourse against any of them and the maker at 
 maturity. If he should be obliged to sue and should recover from 
 the maker, thai would discharge all the endorsers, should he recover 
 from the first endorser that man would have recourse against the 
 maker, but not against subsequent endorsers : should he recover from 
 the second endorser that endorser would have recourse against all 
 that preceded him, namely, the first endorser and the maker. 
 
 Tlir i'roi'eeding!S to be Taken on the Xon-Fayment oC a Note 
 
 llavins; an Endorser. 
 
 It is of the first imjiortance to understand what should be done in 
 I he event (jf a note, having an endorser, being dishonored at nia- 
 turiiy. The maker's liability is absolute, but the endorser's is con- 
 ditional on his receiving notice of non-payment. A note that may 
 be regarded as perfectly good before maturity, not because the draw- 
 er is reliable, but because the endorser upon it is financially sound, 
 may, after it has become due, be worthless, if the proper steps to 
 iioM the endorser have not been taken. Having presented it at the 
 place named by the drawer for its payment, and payment being re- 
 fused, the iiolder is bound to notify the endorser, immediately, in 
 order to have recourse against him. This will be best accomplished 
 i)y handing tlie instrument to a Notary Public to be protested. The 
 notary will make a demand for the payment and, being answered 
 " No hinds, ' will write out a protest, inserting in it the answer to his 
 (leiiuuid : and he will, within twenty-four hours, mail a notice of pro- 
 test to the known address of the endorser or endorsers, from the 
 
 
 neai 
 
 prot 
 
 and 
 
 wil 
 
 as 
 
 pro 
 
 uot 
 
 tio 
 evL 
 
niaki 
 
 "g 
 
 >:amjjle, 
 
 ones or 
 
 on the 
 
 ng l)a(k 
 conso- 
 
 that hfc 
 orse it 
 been 
 
 11 
 
 nearest pest office to tlic place at which the note was payal)le. The 
 protest will cost the holder, in the province of Ontario, fifty cents ; 
 and each notice twenty-five cents and tiie postage : which chart^es he 
 will be entitled to collect from any of the parties to the note, as well 
 as legal interest from the dale of maturity. l"he production of the 
 protest with the note in court will be sufficient /^///M/rt«> evidence 
 upon wliich to sue an endorser. 
 
 In this prcjvince, notaries urc appointed without special examina- 
 tions by the Ontario tiovernmenl. They are usually attorneys, how- 
 ever. In the province of Quebec, the notarial is a distinct profes- 
 sion, as it is in France. 
 
 W'aivliia; I'rotest. 
 
 By waiving protf^tit an endorser renders it unnecessary for the 
 holder to have an instrument protested. This is usually done, if 
 before maturity, by the endorser writing the words on the back. 
 
 "Presentation and Protest waived." 
 
 John Jones. 
 If at maturity : 
 
 I hereby accept notice of non-payment and waive protest. 
 
 John Jones. 
 
 Protest may be waived by letter or telegram, should the endorser 
 be absent from the ;ilace of payment nt the date of maturity. 
 
 There is no necessity to jHotcst a dishonored note upon which 
 there is no endorser : the maker can be held for six years after ma- 
 turity. 
 
 raviii'j: or llakiii':: I'aiiial raymnits iipoii NotcSi 
 
 When you ])ay a note or renew one, be sure that 30U get it b.'ck, 
 and, if it has not litcn done already, cancel it, by writing "cancelled" 
 or " paid " across the face, and run a pen through the maker's and 
 endorser's names and thus render it valuekss. If the payee should 
 still be the holder he should, before returning it, endorse it, or jilace 
 som.i written (;vidence upon il that he had iieen in possession of it, 
 otherwise you could prove nothing by it. Put cancelled notes away 
 in packages as you should receipts, for |)roduction at anv time when 
 necessary. 
 
 The importance of receiving li:iik notes that have been paid was 
 made very apparent to iiie by a cIk umstance that came umler my 
 observation lecently. -V man borrowed a ^>uin of money up(jn two 
 
1-2 
 
 notes from a note shaver, and he, in turn, discounted them at a bank. 
 At the date of maturity the drawer duly appeared and tendered pay- 
 ment to the man from whom he borrowed, who accepted it, and gave 
 a receii)t. His excuse for not producing and returning the notes was 
 that they were in the bank and it was inconvenient to go for them, 
 but he i)romised to send them at an early day. In less than a week 
 he skipped out without returning the notes, and of course the maker 
 had to pay the amount to the bank as well as the notarial charges 
 incurred in protesting them. Retail dealers, who have to ask for 
 renewals from wholesale houses, are often careless about receiving 
 back their old notes. It is not difficult to recall cases in which such 
 paper has turned up in banks after the failureof a wholesale concern, 
 and the easy-going dealer had to pay them. 
 
 When making partial payments upon notes, see that the payment 
 is properly acknowledged on the back of the instrument, and take a 
 separate receipt as well. 
 
 The Book-Keepins; in Connection witti NoteSi 
 
 Any written obligation to pay money not under seal is termed in 
 business by the holder a bill receivable, and by the maker or acceptor 
 a bill payable. In book-keeping the accounts in the ledger with these 
 are called, respectively. Bills Receivable account and Bills Payable 
 account. Bills Receivable account is made Dr. when other jjeoyiles' 
 notes and acceptances arc received, and credited when they are dis- 
 posed of. The difference or balance between the two sides should 
 correspond with the notes on hand, and the account closes by bal- 
 ance, unless all the notes have been disposed of, when, of course, it 
 will be simply ruled and footed. 
 
 Bills Payable account is credited when you issue a note or accept 
 a draft, and debited when you redeem, or, as the word is, retire these 
 obligations. The differen:e between the two sides should corresiiond 
 with the obligations outstanding, and the account closes to balance, 
 unless all the notes have been paid, when, like Bills Receivable ac- 
 count under like circumstances, it will be ruled and footed. The 
 mere novice in book-keeping will understand and be able to deal 
 with these accounts when, in the case of Bills Receivable, they are 
 simply received and disposed of, and, in the case of Bills Payal)le, 
 when they are simply issued and redeemed. But in the event of 
 
 morl 
 An| 
 
 Rec 
 
 Bill 
 
 Coij 
 
 delf 
 
 noil 
 
 Myl 
 
 reni 
 
 ne\i 
 
 hJ 
 
 to 
 
l.-^ 
 
 t a bank, 
 ■red pay. 
 ind gave 
 lotes was 
 or them, 
 a week 
 e maker 
 
 charges 
 ;isk for 
 cceiving 
 ch such 
 oncern, 
 
 Notes Having to be Renewed 
 
 more difficulty will be experienced. I shall take an example or two. 
 A note of $300 received from F. Spencer was duly debited to Bills 
 Receivable and his account was credited. It stood at the debit of 
 Bills Receivable until I disposed of it by discounting at the Bank of 
 Commerce, when I made the bank debtor for the proceeds, discount 
 debtor for the difference between the proceeds and the face of the 
 note, and credited Bills Receivable account with the whole amount. 
 My customer asks for a renewal of the note, and I consent. The 
 renewal is for three months and the interest is to be added to the 
 new note, making it $305.20. I pay the old note by cheque, send it 
 back to Spencer and get the new one. Entries for the cheque given 
 to pay the note : 
 
 Bills Receivable $300. 
 
 To Bank $300- 
 
 This entry places the note where it was before it was discounted, 
 and is the same that would be made by an endorser under any cir- 
 cumstances paying a note for a maker, except when the maker was 
 considered financially worthless, when it would be charged to Profit 
 and Loss. 
 
 Entries for the Renewah 
 
 Bills Receivable Dr $305 20 
 
 To Bills Receivable $300 00 
 
 " Interest 5 20 
 
 The maker's entry for the same transaction would be : — 
 
 Bills Payable Dr $300 00 
 
 Interest " 5 20 
 
 To Bills Payable $305 20 
 
 Partial RenewalSi 
 
 Brown renews for you half the | i. Your entry : $ c. 
 amount of a note for I500.00 duelBills Payable Dr. .500 00 
 
 to-day. You pay $250 cash and Interest 3 50 
 
 give a new note for half the To cash $250 00 
 
 amount of the old one and in- " Bills Payable 253 50 
 
 terest on renewal, $3.50. 2. His entry. 
 
 Bills Receivable Dr 253 e,o 
 
 Cash 250 GO 
 
 To Bills Receivable .... 500 00 
 " Interest 3 50 
 
14 
 
 Brown renews f„r voii half the i.' Vntir entry ■ 
 amount of a note f..,- $6co.oo, Hills I'ayal.le lir' 600 00 
 due to-day. \ uu pay .i^jo^, 00. Interest " , no 
 
 being half the amount, ])lus the 'I'o Casli ' ' 
 
 interest on renewal, and you give " HJiJs I'lyu) 
 a new note for half the amount of " ' 
 
 the old one. 
 
 303 00 
 300 00 
 
 Where a casii 
 put through it. 
 follows : — ■ 
 
 4- His entry 
 Hills Receivable Dr :;oo 00 
 Cash •' "50 .J 00 
 
 'I'o I'.ills Receivable.... 600 00 
 I " ^'it^'ivst .-5 00 
 
 book is kept of course the cash would have to be 
 in that case the entries f,.r Xo. ,, would be as 
 
 JOURNAL. 
 
 Bills Payal)lt' Dr.. 250 00 
 Interest " . . ^ ^q 
 
 To Bills Payable. .' 253 5c 
 
 CASH CKKDIT. 
 
 I5y Bills Payable. I'or 
 
 part ])ayment on Xo. qj, 
 renewed as jjer [ournal 
 and Bill Book . ." . . 
 
 250 00 
 
)0 
 
 
 
 'O 
 
 
 
 
 ?03 
 
 oo 
 
 • vioo 
 
 oo 
 
 o 
 
 
 
 o 
 
 
 
 .6 
 
 oo 
 
 oo 
 
 
 ;{ 
 
 oo 
 
 vc. 
 
 to he 
 
 1 
 
 I)e 
 
 as 
 
 • 250 00 
 
 r)ie.^:pTs. 
 
 Nearly all that I have said of notes is applicable to drafts : they 
 differ, however, in form and in other respect:;. A note is a promise 
 to pay, originating with the debtor ; a draft is an order to pay, origin- 
 ating with the creditor, and addressed by him to the debtor. There 
 are three parties to a draft — the drawer, the one that draws it; the 
 payee, the one in whose favor it is drawn ; the drawee, the one on 
 whom it is drawn. 
 
 Robinson iV Johnson, Belleville, are indebted to John Lovell li: 
 Son, Montreal, who desire that they shall pay at ten day's sight the 
 amount to R. Miller, Son & Co., to whom John Lovell & Son are 
 indebted, and to effect this they draw the following : — 
 
 Draft. 
 
 $500.00. Montreal, January 8th, 1887. 
 
 Ten days after sight pay to the order of *R. Miller, Son & Co., 
 the sum of Five Hundred Dollars, for value received, and charge the 
 same to the account of 
 
 tJoHN Lovell iNc Son. 
 To :f Robinson & Johnson, 
 
 Ontario Business College. 
 Belleville. 
 ''Tayeee. t Drawer. J Drawee. 
 
 To make the draft binding upon Robinson & Johnson they will 
 have to accept it, which they will do by writing across the face ; 
 
 Accepted January loth, 1887, payable at the 
 Canadian Bank of Commerce, Belleville. 
 Robinson &• Jchmcn. 
 
 After which it is called an acceptance. Robinson & Johnson are 
 now in the same position as if they had signed a promissory note, and 
 John Lovell & Son ate in the same position as the endorser on a 
 note. It is customary to allow the drawee to choose the place of 
 payment ; in this case Robinson & Johnson name the Bank of Com- 
 merce, Belleville. If the draft were drawn at ten day's date instead 
 
u 
 
 of ten day's sight tliere would be no noressity to place the date ot" 
 acceptance upon it. In the former case the maturity would be 
 reckoned from the day the draft was drawn, in the latter it is reckoned 
 from sight. 
 
 The drawer of a draft may be both drawer and i)ayee. If John 
 Lovell & Son desired to collect for themselves the amount of Rob- 
 inson iV Johnson's debt they would draw the draft to their own 
 order. 
 
 The entries of the parties to the above draft would be as follows ; 
 
 John Lovell & Son's 
 would be 
 
 R. Miller, Son & Co.'s 
 would be 
 
 Robinson & Johnson's 
 would be 
 
 R. Miller, Son & Co., Dr. 
 
 To Robinson & Johnson. 
 
 Bills Receivable Dr. 
 
 To John Lovell & Son. 
 
 John Lovell & S-^n, Dr., 
 To Bills Payable. 
 
 Drafts sent for acceptance or collection through a bank will be 
 protested if dishonored, unless instructions to the contrary have 
 been given, or a slip be pinned to the draft with the words printed 
 or written upon it : "Not to be protested ; take this off before pre- 
 senting." You may often succeed in collecting from a slow customer 
 by the medium of a draft when dunning letters would fail to produce 
 a cent. When drawing on a doubtful customer be sure to attach the 
 "No Protest," for the reason that if your draft should be returned 
 dishonored and protested you will have to pay the notarial charges 
 yourself. 
 
 Bank Commission Tor Collecting. 
 
 The banks usually charge }( of i% for making collections. If you 
 wish to draw for a debt, say of $200, in this province, and the drawee 
 is to pay the exchange, the amount of your draft would be $200.50. 
 If the drawee resides in a distant part of the Don.inion, or in the 
 United States, and you cannot tell what the cost of collection will be, 
 as the draft will have to pass through several banks before presenta- 
 tion and each be paid a commission, add the words after the amount 
 in the body of the draft, "with exchange." 
 
 Kinds of Drafts. 
 
 There are three kinds of drafts, namely, Time, Sight, and Demand. 
 Time drafts are those that are intended to run a certain time after 
 acceptance. The only difference between a draft at sight and a draft 
 
17 
 
 bh demand is, that on the former the drawee -can take three days of 
 grace, and the latter is payable on presentation. When you desire 
 to f;ive the drawee a definite number of days for the payment of a 
 draft after he acce|)ts it, draw so many days after sight. If you draw 
 so many days after date the time is fixed for the payment irrespective 
 of the date of acceptance. For example, to give the drawee ten actual 
 days from sight, draw at seven days sight : to give him four days, draw 
 at one day's sight and so on. The days named and the three days of 
 grace make the time the draft will mature after sinht. 
 
 'Accommodation Draft (''kite Flyiii?.'') 
 
 It is not an unusual thing when an extensive wholesale house fails 
 to hear of numerous failures among retail dealers in the same line. 
 It will be found that disaster has come upon the latter because they 
 have lent their names to the former too freely. To illustrate : I am 
 doing a retail business in Belleville with a fair amount of capital, my 
 largest creditor being John Blank & Co., of Toronto. They have 
 placed me under obligation by renewing my paper occasionallv, and 
 otherwise indulging me. Better for me that they had not. rhey 
 write and ask me to accept their draft at three months for $500, 
 beyond the amount that I owe them, giving the excuse that they 
 have to buy a large amount of exchange to remit to England in the 
 coming week, or they have heavy duties to pay ; and they remind me 
 of the help they have given me in the past. Being of a grateful 
 turn, and believmg that the house of Blank & Co., could not be 
 otherwise than sound, I consent, and duly accept the draft, hoping 
 that I shall not be called upon again to accommodate them with my 
 name. At the end of the three months they duly retire my accept- 
 ance and return it to me, as I knew they would. I am surprised, 
 however, in a few days by a recjuest to accept two more drafts of 
 $500 each, for their accommodation. Similar excuses are given and 
 I assume an obligation of $1000, for which I received no value. As 
 time goes on similar requests continue, and so does my folly, until 
 my name is upon their paper for a sum la .'er than my capital. They 
 fail with this paper under discount at the bank, and as it would be 
 impossible for me to pay it and discharge my legitimate obligations I 
 too have to make an assignment. Need I add the caution — never 
 accept accommodation drafts, or, as the expression is " fly kites " for 
 any one. The man who accepts an accommodation draft is in a 
 
 •See " Acconiniodation Note " page 5. 
 
1« 
 
 worse position than the man who endorses an accommodation note. 
 The latter can come on the maker, but the other being the primary 
 debtor will only have an equitable right over against the estate of the 
 man whom he accommodated. 
 
 \ Itank Draft, 
 
 is a medium by which a remittance is made. You desire to send or 
 carry money to a distance in a way that will be safe. Buy from a bank 
 a draft payable on demand, at the place desired, to your order or to 
 that of the person for whom the money is intended. It will cost you 
 a quarter of one per cent, more than the face, and will be cashed at 
 par at the branch or bank it is drawn upon. 
 
 If the draft is drawn upon a foreign country, it is called 
 
 A Rill of Kxclian^(>. 
 
 Bills of Exchange were not known to the ancients. We have records, 
 however, of their use in the fourteenth century. It is probable that 
 a Bill Exchange was in its origin nothing more than a letter of credit 
 from a merchant in one country to his debtor, a merchant in another, 
 requesting him to pay the debt to a tliird person w!:o carried the 
 letter, and was travelling to the place where the debtor resided. 
 
 This mode of making payments was found by experience extreme- 
 ly convenient for all jiarties — to the creditor for he could thus collect 
 his debt without trouble, risk or expense ; to the debtor, for the 
 facility ot payment was an ecjual accommodation to him ; to the 
 bearer of the letter who found himself in funds in a foreign country 
 without the danger and incumbrance of carrying specie. 
 
 At first, perhaps, the letter alluded to many other things besides the 
 order to pay money ; but it was gradually disencumbered of all other 
 matters, was left open, and the paper on which it was written gradual- 
 ly assumed the size and form now in use. The assignee was, perhaps, 
 desirous to know beforehand whether the party to whom it was ad- 
 dressed would pay it, and sometimes showed it to him for that pur- 
 pose ; his consent to pay was the origin of acceptances. 
 
 Three, or at least two, bills are issued in a set, one of which being 
 paid the others are void. The original object of issuing more than 
 one bill was that they might be sent by different conveyances and 
 whichever one was presented to the drawee first was paid. VVIien the 
 ocean mails were carried by sailing vessels delays were frequent. A 
 vessel bearing the second of exchange, although sailing two weeks 
 later than the one by which the first was sent, might reach its des'ina- 
 
|n note. 
 
 Primary 
 
 I" of the 
 
 Pcnd or 
 ja bank 
 pr or to 
 ost you 
 phed at 
 
 10 
 
 tion at an earlier date than the other. The punctuality of the ocean 
 
 mails now, renders it usually unnecessary to remit more than one bill 
 of the set. 
 
 Form of First of Kxcliaiii^e. 
 
 No. 159. Bellf.vim.k, Ont., 15th Feb., 1888. 
 
 Exchange for ^100 Sterling. 
 Three days after sight of this first of exchange (second and third 
 of the s.inie date and tenor unpaid) pay to the order of W, H. Robin- 
 son the sum of One Hundred Pounds Sterling, for value receiv-d, and 
 charge the same to the account of 
 
 The Atlantic Hank of Canada. 
 
 John Stirling, Manager, 
 
 Albert Power, Accountant. 
 To The Bank of Scotland, 
 
 London, England. 
 
 liCtter of Credit. 
 
 Colonial Bank, Bardados, W.I., 26th January, 1889. 
 Messrs. Brown Brothers & Co., 
 
 Agents Colonial B.ink, 
 New York 
 Dear Sirs, — 
 
 You are hereby authorized to cash the Gold Drafts, without deduc- 
 tion, of Mr. Belfield (Irannum on Mr. E. T. Grannum of this Island 
 at 30 days sight to the extent of $120, say One Hundred and Twenty 
 Dollars, this Credit to remain in force for three months trom date. 
 
 The Messrs. Grannum's signatures were sent you last year. 
 
 I am, 
 
 Dear Sirs, 
 
 Yours faithfully, 
 
 F. J. Howell, 
 
 Pro-Manager. 
 Circular Letters of Credit 
 
 are issued by some banks for use by travellers. They are more 
 convenient than a bill of exchange, because money can be obtained 
 upon them in various countries. The identification of the person to 
 whose order a circular letter of credit is drawn is established by his 
 Signature on the margin, certified by th^ banker who issued it. 
 Where he is an entire stranger, to prove his identity, he has only 
 to submit his signature for comparison with that which he signed 
 upon the margin. 
 
20 
 
 QUESTIONS FOR REVIEW. 
 nsroTES. 
 
 (live a definition ot a Tromissory Note. State the three reasons 
 that make it desirable to hold a note against a debtor. Explain the 
 term " discountini,' a note." Name the parties to a note. I Tow are 
 notes transferred ? \Vhen may notes be transferred ? I'lxplain a non- 
 negotiable note ; a note negotiable without endorsement ; a note 
 negotiable by endorsement, dive the form of a non-negotiable note ; 
 a note negotiable by endorsement ; a note negotiable without en- 
 dorsement : a note payable on demand ; a joint and several note. 
 E\i)lain a joint and several note. What are the rights of a third 
 party m a negotiable note ? What are the rights of an assignee of a 
 non-negotiable note ? Explain an accommodation note, (iive an 
 example, and state why it is made payable to the order of the endorser 
 and not to the order of the lender. Explain a Lien note. Explain 
 what is meant by the legal rate of interest. Under what circumstances 
 would you insert the words "as wkli- aktkr as iikfokk MArimrrv 
 UNTIL I'aid"' in a note bearing interest. What is a usury law? 
 What are days of grace? When would a note drawn 3 months 
 from October 26 fall due ? When would a note drawn at 
 ninety days from October 26 fall due? What is a i)ower of 
 attorney? How does the holder of a power of attorney sign 
 business ])apers for his principal? What does the abbreviation 
 pet pro stand for ? When does a note become outlawed ? What is 
 the Statute of Limitations? What is the act of endorsing ? What 
 are its effects ? Ivxplain entlorsement in b'ank ; endorsement in full ; 
 rmalified endorsement ; restrictive endorsement ; endorsement for 
 deposit only. How could you prove the payment of a note ? What 
 is the order of endorsers' liability ? What are the proceedings to be 
 taken to hold endorsers on a note not paid at maturity? What is 
 waiving ])rotest. dive examples. Why is it unneces.sary to jjrotest 
 a note on which there is no endorser ? How should partial payments 
 be acknowledged on notes ? When yc 1 have paid a note what should 
 you do with it ? When renewing your note what should you receive ? 
 What is a bill receivable? What is a bill payable? In book-kee^)- 
 ing what are the accounts representing notes called ? Analyse the 
 bills receivable account .\nalyse the bills payable account, (iive 
 the entries of the maker having a note renewed. Give the entries of 
 the holder when renewing a note. Give the entries of each for par- 
 tial renewals. 
 
21 
 
 QUESTIONS FOR REVIEW. 
 
 DI^^IFTS. 
 
 Explain the difference between a note and a draft. How many 
 parties are there to a draft ? Name them. Explain each one's 
 position. Which one accepts the draft ? Give an example of a 
 draft with tliree firms or persons ( oncerned, How is a draft j)ayable 
 ten days after sii^ht accepted? How is a draft jjayable ten days 
 after date accepted ? From what date do you reckon the maturity 
 of a draft drawn ten days after sight ? From what date do you 
 reckon the maturity of a draft drawn ten days after date? What is 
 a draft called after it has been accepted? What party to an accept- 
 ance stands in the same position as the maker of a note ? What 
 party to a draft stands in the same position as the endorser on a 
 note? Under what circumstances are the drawer and payee of a 
 draft the same person ? 'I o whose order is it made payable ? 
 Give the drawer's entry for a time draft. Ciive the payee's entry. 
 Give the drawee's entry. What will be done when a draft is dis. 
 honored ? How may protect be avoided if desired ? What is the 
 usual rate of bank commission for collecting drafts? How will you 
 ensure the collection of a definite sum when you cannot tell how 
 murli the exchange will be? Name the three kinds of drafts. 
 Explain each. To give a person four clear days to pay a draft, no 
 matter how long it may take to reach him, how would you draw it? 
 To give him fifteen days? To give him three days? To give no 
 time? What is an accommodation draft ? What expression is used 
 to describe this method of raising money ? What is the object of a 
 bank draft ? AVh.-it does par mean ? When is a draft called a bill o^ 
 exchange? What was its origin? How many liills are usually issued 
 in a set of exchange? Why is more than one issued? Give the 
 form of the first bill in a set of exchange? The second? The 
 third ? What is a letter of credit ? 
 
 ii^44V 
 
ONTARIO BUSINESS COLLEGE, 
 
 BELEVILLE. 
 
 In the Twentieth Annual Circular of the Ontario Business 
 College, just published, will be found tha amplest evidence 
 that this institution occupies a position not reached by any 
 similar one in Canada. Among merchants and practical 
 accountants this fact is everywhere acknowledged, and in 
 consequence its graduates are pre-eminently successful in 
 securing the conHdence of business men. It has had students 
 from twenty-one different states and provinces, including 
 three of the West India Islands. 
 
 W. H. Robinson, 
 
 J. \V. Johnson, F.C.A. 
 
 Send for the College Circular. 
 
 Principals. 
 
less 
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 iny 
 cal 
 in 
 in 
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