3. If a bank issues a large amount of bills, or letters of credit upon its agents or branches, the tendency is to render the exchange favorable.

The bank receives the money for these bills or letters at the time it issues them. This money will often be composed of the notes chiefly in circulation, and a part of them will consist of the notes or obligations of the rival bank, and will be paid in the exchange or if the bank receive from its agents or branches any claims upon the rival bank, or even any bills to be collected, the effect will be to render the exchange favorable in the same way as the granting letters of credit upon those agents or branches.

4. The increase of lodgments on current accounts has a tendency to render the exchanges favorable.

On these accounts money is received and money is paid out daily. The receipts of money tend to throw the exchange in favour of a bank, because some portion of these receipts will consist of the obligations of the rival bank. The payment of money tend to render the exchange unfavorable, because some of the notes issued in payment will find their way into the other bank. When therefore the receipts are more in amount than the payments, the exchanges are likely to be favorable. When the total deposits lodged in a bank continue to increase, the exchange will probably be favorable during the progress of such increase; but after the deposits have ceased to increase, the exchange will not be more favorable than before the increase began. As long as the amounts of the deposits in the respective banks remain stationary, the operations on those accounts will not affect the exchanges, although the deposits in one bank may be twice the amount of those in the other. But if from a transfer of accounts or from other causes the deposits increase in one bank and diminish in the other, the exchanges during these operations will be in favor of the bank whose deposits are on the increase. But let the progress of

increase be over, and the amounts of the respective lodgments become permanently fixed, then as far as the operations on the current accounts are concerned the exchanges will again be equal.

5. An increase in the amount of local bills under discount has a tendency to render the exchanges unfavorable. Local bills are bills payable in the place where the bank is established. The operations on the local bill account are similar to those on the deposit account. When these bills are discounted, notes are issued—when the bills are paid, notes are received. When the amount of local bills paid is greater than that discounted, the tendency is to render the exchanges favorable. Thus, to reduce the amount of local bills under discount, is to render the exchanges favorable; and to increase the amount, is to render them the reverse. But though the operations on the local bill account are similar in their nature to those on the current accounts, yet the effect is different as to their influence on the exchanges. For as the amount of the local bills under discount increase, the exchanges become unfavorable; but as the deposits increase, the exchanges become advantageous. In the increase of local bills the issue of notes will be more than the receipts; but in the increase of the deposits the receipts will be more than the issues.

The following is the mode of settling the exchanges in Scotland:

Explain to the committee the mode which the banks making exchanges of each other's notes?

pursue

in

Out of Edinburgh, at the branches of the different banking companies, if there are more than one in a place, they meet on a certain day or days in the week; in Glasgow they meet twice in a week; at Aberdeen it was only once a week. The mode of settling the balance of exchange is by a draft on Edinburgh, payable on demand; that is the mode of doing it in Glasgow; at Aberdeen it is settled by a bill on London, at ten days' date. The exchange in Edinburgh embrace the exchanges in the country; the exchange that takes

place at Glasgow on Monday, becomes a new exchange in Edinburgh on the Tuesday; and the aggregate balance of the Glasgow exchanges, meeting in this way in Edinburgh, are settled by the party either having to receive, or to pay, by a bill in London at ten days date." (Lords, 178, Thompson.)

SECTION VI.

BILLS OF EXCHANGE.

A bill of exchange is a written order from one person to another, directing him to pay a sum of money either to the drawer or to a third person at a future time. This is usually a certain number of days, weeks, or months, either after the date of the bill, or after sight; that is, after the person on whom it is drawn shall have seen it, and shall have written on the bill his willingness to pay it. The party expresses this willingness by writing on the bill the word" accepted," and his name. If the bill be drawn after sight, he also writes the date of the acceptance.

If the party in whose favour the bill is drawn, wishes to transfer it, he writes his name on the back. This is called an indorsement; and may be either special or general. A special indorsement is made to a particular party, as " pay to Messrs. John Doe and Co. or order." A general or blank indorsement is when the person merely writes his name. It is held by the lawyers that a special indorsement cannot follow a general indorsement, and that in such a case the holder may sustain an action for the amount, though the bill

*

*See Chitty on Bills of Exchange, p. 103.

be not indorsed by the party to whom it is thus specially assigned. In practice, however, this is very common; and bankers always refuse to pay bills not properly indorsed, even though previous indorsements may be general. But in regard to post bills the Bank of England pays no regard to any special indorsement that may follow a general indorsement.

£1000.

The following is the form of a bill of exchange :London, 1st of May, 1827. Two months after date, pay to the order of Messrs. Quick, Active, and Co. (or me or my order) the sum of one thousand pounds, for value received.

Hearty, Jolly, and Co. Accepted, payable at

To Messrs. John Careful & Co.
Southwark.

Messrs. Steady & Co. Bankers.
John Careful & Co.

A promissory note is as follows:

£1000.

London, 1st of May, 1827.

Two months after date, we promise to pay Messrs. Hearty,

Jolly, and Co. or their order, the sum of one thousand pounds, for

value received.

At Messrs. Steady and Co.

Bankers,

Lombard Street.

John Careful and Co.

The acceptance is usually written across a bill, but should always be on the front, not on the back of the bill. An indorsement, as the name implies, should be placed on the back.

The person who draws a bill is called the drawer; the person on whom it is drawn is called the drawee: after the bill is accepted the drawee is called the accepter. The person who indorses a bill is called the indorser; the person to whom it is indorsed is the indorsee. The person who pays a bill is the payer; the person to whom it is paid is the payee. These and

F

similar terms may be illustrated by a circumstance said to have occurred on the cross-examination of a witness, on a trial respecting a mortgage.-Counsellor. "Now, Sir, you are a witness in this case; pray do you know the difference between the mortgager and the mortgagee?"-Witness." To be sure I do. For instance, now suppose I nod at you, I am the nod-er, and you are the nod-ee." The word discountee denoting the person for whom a bill is discounted, is not used in England, but I observe in the parliamentary evidence that it was employed by some of the witnesses from Scotland.

All bills, except those payable on demand or at sight, are allowed three days grace. Thus a bill drawn at two months from the first of May, will fall due on the fourth of July; but if that day be a Sunday, or a public holiday,* the bill will be due on the day before. Some bills instead of being drawn after date or sight, state the time of payment, as " on the first of August pay, &c." These bills are allowed the usual three days of grace. Such a bill would fall due on the fourth of August.

Some parties when they indorse a bill, write at bottom "in case of need, apply to Messrs. C. D. and Co." That is, if the bill be not paid when due, Messrs. C. D. and Co. will on the day after it is due pay it for the honor of the indorsers. The notaries always observe the "cases of need" upon the bills that come into their hands, and apply to the proper parties.

* To remove all doubts upon this subject, an act of parliament was passed (7th and 8th Geo. IV. chap. 5.) which enacts," that from and after the tenth day of April, one thousand eight hundred and twenty-seven, Good Friday, and Christmas-day, and every day of fast or thanksgiving appointed by his Majesty, is and shall for all purposes whatever, as regards bills of exchange and promissory notes, be treated and considered as the Lord's day, commonly called Sunday." This act does not extend to Scotland, but it has since been extended to Ireland. This act does not vitiate a bill dated on a Sunday.