Chapter XI - A Draft
- 1. To make a draft.
- 2. Forms.
- 3. For collection.
- 4. Dishonor.
- 5. Protests.
- 6. Buying drafts.
- 7. A good plan.
- 8. Good as cash.
A draft is a written order from the first party to the second party to pay to the third party a certain sum of money at a certain time.
The first party is called the "drawer."
The second party is the "drawee."
The third party is the "payee."
There are two kinds of draft.
The first is usually where the cashier of one bank, through his own check, draws on another bank for the cash difference in their accounts with each other.
The second form of draft is the most usual and is the one we shall here consider.
The cashier's draft is always for cash and the demand is always honored. The ordinary business draft may be for cash or for goods.
The business draft is usually honored, but there are circumstances under which it may be ignored.
TO MAKE A DRAFT
But let us suppose that the draft is all right and that a merchant, let us call him Henry Thomas, and suppose him a resident of Philadelphia, has a bill against James Taylor, of Cleveland, and he wants to collect it, without recourse to law. How will he go about it?
The bill is for $100.
Mr. Thomas writes this draft:
Philadelphia, Pa., Sept. 5, 1910. At sight pay to the order of Johnson National Bank of Philadelphia One hundred................... dollars. With exchange and charge same to Henry Thomas. To James Taylor, Cleveland, Ohio.
Having drawn his draft, Mr. Thomas takes it to the Johnson National Bank for collection. The collection is actually made by some bank in Cleveland to which the Johnson has endorsed it over.
If Mr. Thomas wished he might have sent his draft direct to the Cleveland bank, but he no doubt thought it better to transact such matters through his own bank.
Or if Mr. Thomas lived where he was not in touch with a bank, he might have drawn through any person whom he knew in Cleveland.
On receiving the draft for collection, the Cleveland bank would at once give it to a clerk who would without delay present it to Mr. Taylor.
Mr. Taylor, having written his acceptance of the draft, is given three days grace in which to make payment.
In states where days of grace are not allowed, he would have to pay at once.
Mr. Taylor writes the word "accepted," with the date and his name across the face of the draft, and if he does not pay cash, he states in the writing where payment will be made.
Of course, Mr. Taylor cannot be compelled to accept a draft. There may be good and honest reasons for his not doing so, but having accepted it, in business honor he is bound to pay it.
The term "Sight draft" explains itself, but the order to pay a draft may indicate, and often does, the number of days allowed for payment, after presentation.
FOR COLLECTION
What should be done by the man to whom a bill or a note is due, when the debtor lives in a place where there is no bank?
In that case he must learn in some way the name of a promising person to make the collection for him.
In this case he makes out the draft as before, and adds the words "for collection." This acts as a bar to any transfer of the paper.
Most banks refuse to handle a draft marked "for collection."