B I L 



401 



B I L 



for which his available funds might not enable him to 

 pay ready money, would tender to the seller an order for 

 payment on some other person, receiving or paying the 

 difference, as the case might bo, and making an allowance by 

 way of interest, or, which is the same thing in other words, 

 paying an extra price, in proportion to the time of the bill's 

 currency. To the seller this mode of dealing would obvi- 

 ously be better than the giving of a naked credit, as afford- 

 ing him an additional chance of payment, and a written 

 acknowledgment of his debt. Moreover, when the nego- 

 tiability of inland bills was admitted, they served all the 

 purposes of actual money, because in the same manner as 

 the original seller had been induced to take the order in 

 payment, another might be willing to receive it from him in 

 the purchase of other commodities ; or it might be at once 

 discounted or converted into cash by application to a money- 

 dealer, whether bill-broker or banker, in the manner which 

 has been already explained in speaking of remittances. 



But the drawing of a bill supposes, as has been said, that 

 the drawee either has in his possession funds of the drawer, 

 or is his debtor to the amount specified in the order: it wag 

 therefore by an easy step that in the transactions of whole- 

 sale dealing it became a common practice for the seller to 

 draw upon the buyer, for the price of the goods, a bill payable 

 to his (the seller's) own order at some future day. This bill 

 the buyer immediately accepted, and thus in effect acknow- 

 ledged himself to be the debtor of the drawer to the amount 

 specified, and engaged to pay the holder at maturity. By 

 this arrangement, now very general, the buyer obtains credit 

 for the term at the expiration of which the bill is made pay- 

 able, and the seller has the advantage of a fixed day for 

 payment being named in the bill, and a means of pro- 

 curing cash if he chooses to negotiate the bill. 



Neither was it an unreasonable extension of the principle 

 that a bill should be drawn and accepted on the faith of 

 funds to be received by the drawee at or before the maturity 

 of the draft. At the present day this practice prevails to a 

 great extent, and may be illustrated by a supposed case as 

 follows : There are established in most if not all the prin- 

 cipal trading ports of the world, merchants who carry on the 

 business of general factors or agents for sale, and whose 

 establishments are known among mercantile men under the 

 name of commission-houses. The course of dealing with 

 such houses is, for the most part, this : A., a manufacturer 

 at Manchester, consigns a cargo of cotton pieces to B and 

 Co., a commission-house at Mexico, for sale on his account. 

 The English correspondents of B. and Co. are Messrs. C. and 

 Co. of London. By an arrangement among these several 

 parties A. draws on C. and Co. for half or two-thirds, as 

 may be agreed, of the invoice price of the goods consigned, 

 and discounting the bill with his banker obtains at once an 

 instalment in actual money, which immediately returns into 

 his capital, and becomes useful in producing more goods 

 and creating more wealth. Ultimately, account sales are 

 furnished by the Mexican house, and A. again draws on C. 

 and Co. fur the balance, if in his favour. Annual balances 

 are struck between B. and Co. and C. and Co., and remit- 

 tances by bills for the adjustment of the account complete 

 the transaction. Now the advantages of this anticipatory 

 part-payment are obvious, more especially in the trade with 

 distant countries, as South America or the East Indies. 

 But the practice has degenerated into something of an 

 abuse; for it has of late been frequent with the consigners 

 of goods to make out invoices with prices artificially high, 

 and so to procure a remunerating return even from the 

 proportion for which they are authorized to draw in advance. 

 The effect is to throw upon the consignees the whole risk, 

 which was formerly shared between the two, and propor- 

 tionately to impair the steadiness and security of commerce. 



Perhaps, however, if this were the only abuse of bills, 

 there would be little to complain of nothing, certainly, to 

 counterbalance the immense advantages which are derived 

 from them as instruments of exchange ; but, unfortunately, 

 of late years, the abundance of money in the English mar- 

 ket, and the consequent facility of negotiating paper secun- 

 ties, the competition of trade, and the accompanying relax- 

 ation of the system of credit, with other causes which will 

 readily suggest themselves, have given occasion to practices 

 which are not only a wide departure from the original pur- 

 poses of bills of exchange, but are most injurious to the 

 general interests of trade. Good bills, we have said, may 

 be always discounted. Accordingly, any man whose credit 

 is good may at any time raise money upon a bill drawn, 



accepted, or indorsed by himself. If his credit bo doubtful 

 he may still procure cash by the same expedient, paying, 

 however, a premium or rate of discount proportioned to tile 

 increased risk. Among needy men instances are not un- 

 frequent of discounts procured by these means even at the 

 exorbitant rate of 20 or 30 per cent. But a still more com- 

 mon practice is the negotiation of what are called by the sig- 

 nificant name of accommodation bills. A trader unable to 

 meet his liabilities applies to a friend whose credit is better 

 than his own, to accept, or in some other way to become a 

 party to, a bill concocted for the purpose, undertaking to pro- 

 vide the funds necessary for paying it when due, and gene- 

 rally giving in return his own acceptance of another con- 

 cocted bill, known in the mercantile world as a cross accept- 

 ance. When one or more names have thus been obtained 

 sufficient to give currency to the bill, it is discounted, and 

 the money applied to the necessities of the trader. As this 

 bill falls due, the same operation is repeated, until the sys- 

 tem of expedients failing at last, as sooner or later it inevi- 

 tably must, the ruin of the insolvent trader himself is con- 

 summated, and not unfrequently draws along with it others 

 who, unfortunately or imprudently, may have become parties 

 to these unsubstantial representatives of value. Of the 

 more serious mischiefs of this dangerous practice, such as 

 the temptation to forgery by the use of fictitious names as 

 drawers or payees, it is perhaps useless to speak, because few 

 men at first seriously contemplate the commission of a 

 crime, but are rather drawn into it by circumstances not fore- 

 seen or not appreciated ; but the reflection that it is a foolish 

 and improvident practice that, in addition to the loss of 

 credit, which, once perceived (and how can it fail to be per- 

 ceived?), it is sure to occasion, there is the certain expense 

 of stamps and higher rates of discount, and moreover a 

 double liability in respect of every shilling for which cross 

 acceptances are given may perhaps have some effect in 

 deterring honest men, however necessitous, from having re- 

 course to this fatal expedient. 



The various uses to which bills of exchange are made 

 applicable in the great community of commerce having been 

 thus explained, it remains only to take a glance at their 

 legal incidents as instruments of contract. 



In contemplation of law, a bill of exchange, as well in its 

 original formation as in its successive transfers, is an assign- 

 ment of a debt, by which the right of the original creditor 

 to sue for and obtain payment is transferred t ) the holder 

 for the time being. In such a substitution the Roman law 

 saw nothing objectionable ; and in those countries there- 

 fore which adopted the civil law for their own, the negotia- 

 tion of bills found no impediment. But the common law of 

 England had early taken up a notion, founded probably on 

 experience of the mischief, that the assignment of things 

 not in possession, such as a debt or right, being in truth the 

 assignment of suits at law, might be converted into an en- 

 gine of oppression, and refused therefore to recognize the 

 validity of such transfers. Bills of exchange fell within the 

 boundaries of this prohibition, but the reason of the prohibi- 

 tion did not apply; and as the operations of commerce would 

 have been impeded, if usages current among merchants 

 generally had not received the sanction of the municipal 

 tribunals in the several countries in which they were carried 

 on, the negotiability of bills, which was recognized else- 

 where, was of necessity admitted as part of the law of Eng- 

 land. It was not, however, until three centuries after the 

 indulgence thus shown to foreign bills, that the negotiability 

 of inland bills, which could not plead the same warrant of 

 prescription, was recognized by the courts, unless on proof of 

 some special custom of trade ; but expediency finally pre- 

 vailed, and at the present day, as well by the common law as 

 by the statutes of 9 and 10 Will. III. c. 17, and 3 and 4 Anne, 

 c. 9, they stand on the same general footing as foreign bills. 



It is this assignability, vesting in the holder a right of 

 action against the original parties, which chiefly distin- 

 guishes a bill of exchange from every other form of con- 

 tract recognised by our law. Another and scarcely less im- 

 portant privilege is, tliat though a simple contract debt, and 

 as such requiring a consideration, or quid quo pro, to give it 

 legal efficacy, the consideration is presumed until the want of 

 it be shown. It is available therefore in the hands of a bona 

 fide holder, upon merely formal proof of title by the signa- 

 ture of the parties to be charged : that is to say, it is unne- 

 cessary to prove value given, unless it be first shown on the 

 other side that the bill is in some stage or other tainted with 

 an illegality, and tho bona fides is assumed until it shall be 



NO. 255. 



[THE PENNY CYCLOPEDIA.] 



VOL. 



