3. Such evidence as there is seems to indicate that payment by check has shown an increase during the past few years:

a) In the first place, the returns of our reports show a larger percentage in retail trade.

DIAGRAM OF THE PERCENTAGE OF CHECKS IN AGGREGATE DEPOSITS BY CLASSES OF BANES.

b) The prosperity of the farmers in the Central West has enabled many to carry bank accounts who fifteen years ago could not carry balances.

c) The third evidence is found in the growth of the number of small banks, especially in the country districts. Since national banks have been permitted to establish themselves with a capital of $25,000 their number has increased from 3,617 to 6,926.

d) The appearance of a considerable portion of checks in the deposits of mutual savings banks is also, to some degree, significant.

Of course the credit documents received in the deposits of these banks may be to a considerable extent money orders. Nevertheless their deposits show a certain use of credit paper by the patrons of the banks.

We cannot expect any social movement to continue steadily in one direction for an indefinite time. Such evidence as inquiries of this character furnish seems to show that there is a certain ebb and flow in the proportion of checks used in business payments.

The volume of credit transactions very likely tends to increase as population and business grow. It does not increase uniformly, however, but by periodic movements. That is to say, the rate of increase of credit transactions, as compared with the whole volume of business, grows, as it were, by jerks and at a decreasing rate.

One point needs to be carefully borne in mind: However great the volume of credit exchanges, however extensive the use of credit may become in a community, they can never fully displace sales for direct money payment.

4. The amount of money released by our credit transactions is not equal in amount to the volume of credit instruments, for there must always be enough to settle the uncanceled balances called for in money from day to day. The amount of money displaced is the difference between the amount that would be needed in a purely money régime and the amount needed to pay the uncanceled balances of the credit transactions. It is important to note that an increase in the volume of credit transactions does not necessarily mean that we must get a proportionate increase in our reserve of money. Every refinement of the credit mechanism makes it possible to do a larger volume of business on the same reserve.

No one can say, therefore, with definiteness what is the amount of money released if 75 or 80 per cent of our business transactions are settled by means of credit paper. This is a matter in which the long experience of practical bankers is the only safe guide, because the amount in question is changing from day to day as the conditions change. No simple rule about it can be laid down. Certainly, however, it is not 75 per cent of the money which would be necessary if all transactions were settled with money. It is an amount varying from one-third to one-fifth of uncanceled credit balances, according to the perfection of the banking machinery, the state of credit, prosperity, and public confidence.

17. THE LAW OF NEGOTIABLE INSTRUMENTS1

By D. CURTIS GANO

Definition. A negotiable instrument may be defined as a written instrument or evidence of the debt which may be transferred from one person to another by indorsement or delivery so that the legal title becomes vested in the transferee.

Principal characteristic. The principal characteristic of a negotiable instrument, and that which makes it pass freely as a substitute for money, is that in the hands of a third party who purchases it in good faith and for value before it is due, it is enforceable, while the original holder, perhaps, could not enforce it for the reason that the party who made the instrument has a good defense or counterclaim. As soon, however, as an innocent purchaser comes into possession of it for value, he cannot be prevented from collecting because of any defenses existing between the original parties. In other contracts the purchaser acquires only the right of the party from whom he buys, but in the case of negotiable paper he may acquire a better title than the original holder.

Essential conditions.-The question arises as to what conditions are essential to constitute a contract a negotiable instrument. In general we find that no exact form need be followed, although custom has prescribed forms that are very generally used, but it is required that a negotiable instrument must be: (1) in writing, (2) properly signed, (3) negotiable in form, (4) payable in money only, (5) certain in amount, (6) payable to a designated payee, (7) payable absolutely, (8) payable at a time that is certain. A few words of elaboration on each of these points is necessary.

1. No oral contract could be negotiable. By a written contract we mean one in either writing or printing, and the writing may be executed with any substance, as ink or pencil. The whole instrument must be written. No essential part, as the names of the parties, the amount, or the date, can be omitted from the writing.

2. It is usual that the signature be made by writing the name of the signer, but it is not necessary, as he may affix his mark or any other character intended to be a signature. It is usual to place the signature at the close of the instrument, but if it is shown that it is meant for a signature, it may be placed on any other part.

'Adapted from Gano's Commercial Law, pp. 116–53. (Copyright 1904, 1913. By permission of American Book Co., publishers.)

3. The instrument must be payable to "Order" or "Bearer." If made payable to a particular person or persons only, it is not a negotiable instrument, and falls under the rules governing a simple contract. In other words, the intent of the party making the instrument to execute a negotiable paper must appear by some express words showing such a purpose.

4. The very reason it must be payable in money is that if it were payable in any other commodity the amount could not be definite and certain. If payable in a given number of bushels of wheat, the person taking it would be obliged to determine the value of wheat at that place; the value at another place might be materially different. By the term "money" is meant the legal tender of the country; that is, a note payable in Spanish money is not a negotiable instrument in the United States.

5. The sum payable is considered fixed and certain if it is a given amount with interest, or payable by stated installments or with exchange (the bank's charges), or with the costs of collection in case payment is not made at maturity.

6. There must be no uncertainty as to the person to whom the money is to be paid. The instrument must be made payable to a certain person, or his order, or to the bearer. It need not name the payee, but it must be payable to a person or persons who can be definitely ascertained at the time of payment. If payable to A or B, it is not a negotiable instrument under the law merchant, but it has been so rendered by statute in some states.

7. If the instrument is so drawn that any condition may arise which would render it of no effect, it is not a negotiable paper. Consequently, a promise to pay a certain sum out of a designated fund is not negotiable, and this is the case even though the fund exists at the time or the condition that would nullify the contract never arises. 8. But the promise is not made conditional by designating a place of payment in the instrument. Not only must the amount be payable absolutely, but the time of payment must be definite and fixed. That is, the date of payment must be definitely stated, or it must be on or before a certain definite date, or at a certain time after the happening of an event that is sure to occur. A note payable a certain number of days after the death of a person is negotiable, the date being certain because the time is sure to arrive. But the contingent event must be certain to occur or the promise will not be absolute.

Negotiation. By negotiation we mean the transfer of a negotiable instrument from one person to another in such a way that the transferee is the legal holder thereof and vested with all of the rights of the original holder.

Indorsement.-Negotiable paper is transferred by indorsement, that is, by the payee signing his name on the back with directions as to the party to whom payment shall be made. When an instrument is made payable to a certain person or bearer, an indorsement is not necessary to give a good title to the transferee, delivery being sufficient, but if it is payable to a certain person or order, the indorsement is necessary to give title.

Blank and full indorsement. For the purpose of transfer, the indorsement must be made by the party to whom the instrument is payable.

Indorsement may be made in full or in blank. In the former case the payee writes "Pay to the order of X" and signs his name. This is also called a special indorsement. To indorse in blank all that is necessary is for the payee to write his name. This is equivalent to writing "Pay to bearer." The instrument is payable to anyone who holds it.

Obligation of indorser and drawer.-The obligation of an indorser to a transferee, like that of the drawer of a bill, is that the indorser will pay the instrument provided the maker does not, and also provided it is duly presented for payment and upon refusal is duly protested and notice of protest given the indorser. In domestic bills and notes the protest may be omitted and instead notice of nonpayment may be given the indorser. It will be seen that the contract of the maker of a note or the acceptor of a bill is absolute. Each is liable in any event, but the contract of the indorser and of the drawee of a bill is conditional upon the failure of the maker or acceptor to pay upon proper protest and notice to him.

Indorsement without recourse.-If the indorser of a note wishes to avoid any personal liability, he may indorse "without recourse" and sign his name. By the indorsement "without recourse" the indorser expressly stipulates that he will not be liable if the maker does not pay, but he is held to impliedly warrant that the signatures of the maker and all prior indorsers are genuine, that is, that they are not forgeries. The intent and purpose of such indorsement is to pass title to the instrument.