Creating a Documentary Bill

A Bank accentance may be created as
follows:

Richard Brown, in New York, buys of
John Doe, in Galveston, a quantity of mer-
chandise. In order to reimburse John Doe

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in a convenient manner, Brown arranges with
his bank in New York to accept, on presenta-
tion, the drafts of John Doe with documents
attached. Doe thereupon, under the terms
of the sale, draws on the bank, which accepts
the drafts, taking possession of the docu-
ments. The draft drawn by Doe on the
bank becomes a bank acceptance. TTien
ensues a credit operation between the bank
and Richard Brown to determine what dis-
position is to be made of the dociunents and
upon what terms the bank will surrender
them. (It must be borne in mind that the
bank is primarily Uable upon its acceptance,
and that the security for its acceptance is the
merchandise, which is the basis for the trans-
action.) This adjustment is easily made.
The bank having agreed to pay the draft
when it is due. Brown undertakes to provide
the bank with funds for that purpose prior to
the maturity of the acceptance.
Commercial Credit Bills
The foregoing case describes a documentary
bill. Another form of acceptance is created

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when the customer draws his own draft
directly on the bank, and the bank accepts it
for payment at a future time. Such an ac-
ceptance would be called a commercial credit
bill and might be secured by warehouse re-
ceipts or other collateral, or simply by the
general credit of the customer.
