Produced by Nigel Blower and the Online Distributed Proofreading Team at http://www.pgdp.net (This file was produced from images generously made available by The Internet Archive) BANKS AND THEIR CUSTOMERS BANKS AND THEIR CUSTOMERS A PRACTICAL GUIDE FOR ALL WHO KEEP BANKING ACCOUNTS FROM THE CUSTOMERSâ POINT OF VIEW BY HENRY WARREN _AN ENTIRELY NEW AND ENLARGED EDITION (THE EIGHTH)_ WITH INTRODUCTION BY A LONDON BANKER [Illustration] LONDON ROBERT SUTTON 43, THE EXCHANGE, SOUTHWARK STREET, S.E. 1908 Banks and their Customers (_SEVENTH EDITION_) By HENRY WARREN =The Pall Mall Gazette= says:-- âCaustic and interesting.â =The Financial News= says:-- âContains a vast amount of useful information intelligently discussed. To educate the public on a technical subject calls for more than ordinary knowledge. It needs what Mr. Warren undoubtedly possesses, and that is a sound, practical understanding, and a thorough common-sense way of setting forth his knowledge in simple form. This our author succeeds admirably in doing.â =The Scotsman= says:-- âCannot be too strongly recommended.â =The Draperâs Record= says:-- âMasterly.â =The Birmingham Daily Gazette= says:-- âInvaluable.â =Investorâs Review= says:-- âMuch useful and accurate information about the habits of bankers in dealing with their customers. Especially we commend the chapter âHow to Check Bankersâ Charges,â which are often curiously arbitrary and capricious.â =The City Press= says:-- âA caustic and forcible pen.â =The Bookman= says:-- âThe worth of the expert is proved. Mr. Warren on banking subjects enjoys our confidence and many editions.â =And The Glasgow Herald= says:-- âMr. Warrenâs caustic criticisms of bankers and their peculiarities have been widely appreciated.â INTRODUCTION BY A LONDON BANKER I confess that when a publisher asked me to write an introduction to Mr. Warrenâs little book I experienced some surprise; because, in the past, he handled bankers rather roughly. Perhaps the audacity of the request appealed to me. At any rate, I consented to read the proof-sheets, and, finally, perhaps a trifle reluctantly, to stand sponsor for the work in a qualified sense. I do not agree with all he says, by any means. Here is the eighth edition of a well-written, interesting guide for the customer, who has obviously found it useful. The book would not have obtained a market unless it were wanted. This must be granted. And I think that it was wanted even from the point of view of a banker. The author in a short chapter tells us how and why the joint-stock bank came to dwell among us. Then he plunges into his subject--the Guide for the Customer. The chapter on the cheque and its various crossings is admirable. I only wish that the clients of my own bank would read every word of it, and save the time of our cashiers. He who keeps his account in credit is told much that he ought to know; the depositor is shown how to check his interest; the borrower how to negotiate a loan or advance; and everybody is told the manner in which he may easily check the charges debited in his pass-book. Speaking for my own bank, I do not care who makes use of this clearly-put information. Let our clients obtain the book by all means. We shall then be spared the trouble of answering a host of stupid questions during the busiest parts of the year. Touching upon âunclaimed balances,â I am of the opinion that the public can be very well trusted to look after its own interests; and after glancing through my own ledgers I think that these unclaimed sums would not amount, in the aggregate, to a really large figure. Most of these dormant balances are insignificant. As to the pay of bank-men, I do not feel justified in expressing an opinion, beyond asserting that the wants of a bank-clerk are small. My advice to the customer is--âread the book.â âCITY MANAGER.â CONTENTS CHAP. PAGE PREFACE v I BANKING EVOLUTION 1 II ON THE CHOICE OF A BANKER 13 III THE CHEQUE AND ITS VARIOUS CROSSINGS 19 IV CREDIT-ACCOUNT CUSTOMERS 38 V DEPOSIT-RECEIPT CUSTOMERS 45 VI THE BANK RATE IN RELATION TO BANKERSâ CHARGES 61 VII LOANS AND ADVANCES IN LONDON 68 VIII OVERDRAFTS IN THE COUNTRY 75 IX HOW TO CHECK BANKERSâ CHARGES 89 X BILLS, COUPONS, FOREIGN DRAFTS, ETC. 102 XI UNCLAIMED BALANCES 110 XII BANK SHARES 117 XIII THE PAY OF BANK-CLERKS 128 BANKS AND THEIR CUSTOMERS CHAPTER I BANKING EVOLUTION We owe a great deal to the financial instinct of the Jew, who, having no country of his own, has developed an acquisitive mania for the goods of those people among whom he dwells, thanks to a progressive civilization of which he was the pioneer, in comparative safety; and, by an irony of fate, we are also indebted to him for a religion, which his more subtle mind rejects; yet, stranger still, it is a civilization based on commerce that keeps the whole world moderately sane, and tends to at least hold in check the latent savagery of the blind enthusiast who would still, but for her intervention, indulge in a bloody crusade against all who hold opposite opinions. A true civilization spells toleration; and though a creditor can scarcely hope to be popular with his debtors, he is at least entitled to the protection of the law of the land in which he lives. The Jews, who are supposed to have come over to England about the time of the Conquest, gradually possessed themselves of the greater part of the coin of the country; and the early English kings constantly resorted to them for loans. As it was thought unchristian to charge usury or interest, the business of a money-lender was consequently held in abhorrence, with the result that the Jews monopolized the trade, and acquired immense fortunes by their dealings. Their wealth naturally excited the intense cupidity of their Christian neighbours, who, making a pretext of their so-called abominations, raided from time to time the Jewish quarters of the various towns, in the hopes of annexing the fabulous treasure in Jewry. Under the ban of the Church, and detested by the people, the popular feeling against the usurers became so embittered that Edward I, under whose protection they lived, after having in vain attempted to persuade the Jews to accept Christianity, was compelled to banish them from England; and from 1290 to the time of the Commonwealth (a period of about 360 years) the prohibition remained in force. But the money-lender is a necessary evil; and after the departure of the Jews certain Italian merchants, known as Lombards, who had previously settled in England, immediately filled their place; and Lombard Street became as notorious for usury as had been the Jewry. The Jew may be described as a money-lender, and the Lombard as a merchant-banker, though neither was a banker as the word is now understood. Both, however, lent money at high rates of interest. A banker, in the English sense of the word, is a middleman who borrows from one set of persons at a rate in order to lend to another set at a greater rate, the difference between the two rates being his margin of profit; and banking in this sense was not practised in England until quite the end of the first Charlesâs reign, when certain goldsmiths, who were originally dealers in plate and in bullion, became private bankers. The first run upon them was made in 1667, when a Dutch fleet sailed up the Medway; and, later, in 1672 Charles II closed the Exchequer, refusing to pay the bankers either their principal or interest, with the result that failures were numerous. We are now approaching a new banking era; and in 1694 the Bank of England, which was the first joint-stock bank established in the three kingdoms, was incorporated. The private bankers, instantly recognizing in her a formidable rival, were actively hostile; but all to no purpose; and in a very little while they grouped themselves round the Old Lady, who reduced their rates and kept them in order. Hoares and Childs were in being before the Bank; but the goldsmiths, long before the new movement was a brilliant success, had few direct descendants in London; and the majority of those private bankers who opposed the Act of 1833 belonged to another generation. At its inception the Bank did not enjoy a monopoly; but upon the renewal of its charter in 1708 it was granted the monopoly of joint-stock banking in England, while the partners in a private bank could not exceed six in number. This number was increased to ten in 1857. Country banking developed slowly in England; and it was not until towards the close of the eighteenth century that private firms began to multiply in the provinces; but the Bank of Englandâs iniquitous monopoly kept them small and weak, and between 1792 and 1820 over one thousand private bankers came to grief, while the crisis of 1825 further thinned their ranks and almost emptied the vaults of the Bank of England, when it dawned upon the Government that the state of the money-market was distinctly rotten, and that it would remain so until the Bankâs monopoly disappeared. The result was the usual committee and the usual compromise. The Act of 1826 allowed joint-stock banks of unlimited liability to be formed in England and to carry on business at a greater distance than sixty-five miles from London; but such institutions could not open an office in London. Neither could they issue notes at a place within sixty-five miles thereof, nor draw any bills on London for a less amount than Â£50. In 1833, however, they were allowed to make their bills and notes for less than Â£50 payable on demand at their London agents. The demand for these establishments was not at first considerable; and very few were formed until after five or six years of the passing of this Act; but in 1830 the railway movement began in earnest, and from 1833 to 1836 joint-stock banks were established throughout the country in considerable numbers. This sudden boom in banking companies could only have one result; and failures became so numerous that Sir Robert Peel, in 1844, passed his Joint-Stock Banking Act, which, being found worse than the disease itself, was repealed in 1857. London, we have seen, contained only one banking corporation and numerous private bankers, who, forming a monopoly, were practically rich menâs banks; for they would only accept an account provided the balance was not reduced below a certain sum, while from 1813 to 1833 some twenty of them suspended payment; so stability was not one of their distinguishing characteristics. It soon became apparent that the Bank of England and the private bankers were quite unable to minister to the growing trade of the capital; and in 1833 joint-stock banks were allowed to be formed in London, but upon the distinct understanding that they were to be banks of deposit and not banks of issue. In other words, they could not issue their own notes, so were compelled to use those of the Bank of England. The first London joint-stock bank was the London and Westminster, whose prospectus was issued in 1833; but the shares were subscribed slowly, and the bank did not open its doors to the public until the March of the year following. Then came the London Joint-Stock Bank in 1836, and the Union Bank in 1839. It is usual, in this little island, to hark back to the good old days, and then, with a sigh, to regret that the old order of things no longer exists; yet it must be confessed that the London private bankers were of no service whatsoever to the small man of business, whom they simply ignored. The joint-stock banks however, ministered to the wants of the small trader; and, by diving into the heart of the masses, proved that a large number of small balances are even more desirable than a small number of large accounts, whilst in the end they practically drove the private banker, handicapped as he was by the law of the land, out of the market, or, at least, reduced him to impotency. But the London joint-stock banks, in those early days, were not without their grievances; and both the private bankers and the Bank of England seized upon every pretext in order to harass them. Being merely common law partnerships, they did not come under the 1826 Act; and until the Act of 1844 they were not relieved from certain restrictions which need not be discussed here. But the year of banking reform was, of course, 1844, when, fortunately for the trade of the country, the Bank of England was stripped of all its privileges except that relating to the issuing of notes. The Bank Charter Act of 1844 gave the Bank of England the monopoly of issuing notes in London and within sixty-five miles of it. No new bank of issue was to be formed, while a provincial bank, upon opening in London, forfeited its issue. The cheque, however, soon became more powerful than the note; and the larger provincial banking companies gladly made the sacrifice in order to establish themselves in the capital. The next step forward was when the joint-stock banks broke up the cabal of private bankers and were admitted to the Clearing House in 1854; though it is a little remarkable that, having posed as martyrs and vigorously denounced their oppressors, they should now take upon themselves to exclude certain companies which have as good a right as they to enter the sacred portals of the House; but the mote in oneâs neighbourâs eye is always so much more apparent than the beam in oneâs own. By the Act of 1858 a joint-stock bank was allowed to limit the liability of its shareholders; but the Act, was not made compulsory; and though all the companies formed subsequently registered under this Act the members of those in existence prior thereto were liable for the debts of the company in which they held shares to their last shilling. Then came the failures of the West of England Bank and the City of Glasgow Bank in 1878; and shareholders in banks of unlimited liability, with the fate of the members of these two institutions before their eyes, began to weigh their responsibilities, with the result that many sold out at panic prices in haste and regretted at leisure. The more prudent, though they held their shares, began an agitation for reform, which gave birth to the Act of 1879. We need not discuss this Act; though it may just be said that every joint-stock bank in the three kingdoms which is not limited by its charter is now a bank of limited liability under the Companies Acts. At this juncture, perhaps, a few words may be said with reference to the Bank of England, which, with a contempt for evidence that is truly British, the public is convinced cannot suspend payment; yet the Bankâs career has been decidedly checkered; and even after the passing of the Act of 1844 the Old Lady was only saved by the intervention of the Government in 1847, 1857 and 1866, while during the Baring crisis of 1890 she was compelled to borrow from the Bank of France; so, evidently, her system is not by any means a perfect one; but one does not expect perfection in finance. The perfect financial machine and the perfect man are alike impossibilities. As to the latter, did he exist, he would seem positively inhuman. It need not be said that this sketch of the English banking movement is necessarily imperfect, if only because of the small space into which it is condensed; but the average reader certainly would not trouble to digest two hundred pages on the subject of banking evolution; so possibly it may prove acceptable in this form. We have seen that the London private banker was a rich manâs banker; but it was otherwise with the country private banker, who was often of great assistance to the small trader, at whom the joint-stock banks will not now look unless he approaches them with his pockets stuffed with securities when anxious to overdraw his account. The maxim of the companies is: âLet the customers take all risks.â And if this rule is broken, then the case is an exceptional one. We need not discuss here whether or not this policy be essential to modern banking; but it is quite evident that the small man of business has lost a good friend in the old-fashioned country banker, whose place has not been taken by that person of peculiar views and training--the bank-manager or clerk-in-charge, whose urbanity must be more than painful to those would-be borrowers without security who ask for bread and are politely offered--a stone. What we have to discover is why the country banker has been practically forced out of the market by the joint-stock system; and the reason is not difficult to explain. In the first place we know that, since 1857, the partners in a private bank have been limited to ten; consequently, however anxious a banker may have been to extend his system of branches and develop his business, the difficulty of insufficient capital presented itself; whereas his rivals, who can appeal to thousands of small investors, could, once having established their credit, easily obtain as much capital as they required. The private banker, therefore, ministered to the wants of a certain town, district, or county; but the joint-stock banks spread their tentacles throughout the length and breadth of England; and, like an octopus, eventually strangled him in a manner which will be explained. In London and throughout the provinces there were numerous small firms of private bankers--small, that is to say, when contrasted with their joint-stock competitors. The banks in a manufacturing district or in a busy city would, especially during periods of active trade and rising prices, be called upon to advance large sums to their customers; but if a banker collected his deposits from a few branches within the district whence the demand arose, he would soon find himself unable to meet the requirements of his customers. But the joint-stock banks, which have branches in many counties, can pour their deposits into those centres where demand is active; and it is obvious that a small private banker cannot hope to compete successfully against the superior organization of the companies. With the private banker it soon became a question of restricting advances; and his customers, finding that they could not obtain all the accommodation they required, naturally applied to his rivals, who, if tangible securities were forthcoming, met their demands with ease. The London and provincial banking companies, which farm both the agricultural and the manufacturing districts, by pouring their surplus capital into the London money-market, speedily obtained all the best business; and those private bankers who did not either amalgamate with, or adopt the system of, their successful rivals found themselves hopelessly out-distanced. Hence the triumph of joint-stock banking and the advent of the director and his humble, most obedient servant, the clerk-in-charge, who âmanagesâ a country branch, but whose power, in reality, is of the smallest, all the applications for advances above a certain sum having to be submitted to the chief office, while he himself is powerless to act until he receives his instructions from headquarters. This form of competition would be felt less in an agricultural county where the deposits a banker collects are greatly in excess of the demand made upon him for advances; but even there the private bankerâs luck has deserted him; for the agricultural depression thinned the ranks of his best customers, and, of course, left him a legacy of bad debts. We should, therefore, expect to see the private bankers disappear from the great towns first, and, finally, from the agricultural centres. The law of the land has kept them small; and the tentacles of the joint-stock companies have almost exterminated a class of men who enjoyed the friendship and confidence of their clients to an extent that a clerk-in-charge upon a salary of from Â£200 to Â£500 a year can never even approach. Though we live in an age of great machines, which, for reasons that will be explained later, can declare huge dividends, every now and again we hear of the inception of a new banking company. The new arrival, perhaps, waxes more than eloquent upon the large dividends paid by the existing companies, and then dwells enthusiastically upon the immense profits it hopes to earn; but can a small company ever establish its credit in face of the network of branches which now cover the land? The person who applies for its shares must certainly be of a most sanguine disposition. It is the powers that be that always excite the keenest interest, doubtless because of the possibility that a knowledge of their habits and ways may prove of pecuniary benefit to the student; and this object has been kept well in view throughout the following chapters. CHAPTER II ON THE CHOICE OF A BANKER There is an opinion which is very prevalent to the effect that, provided oneâs account be an overdrawn one, it does not matter where it is kept; and, of course, if it were possible to find a nice, philanthropic banker who would allow one a big overdraft without even hinting at security, there would be much truth in the assertion; but in view of the existing relations between banker and client, the idea is both unfortunate and fallacious. We have seen how the large joint-stock banks, by developing their system of branches, literally smothered the private banker; and the smaller companies, which possess but few branches, are now being forced to amalgamate with the larger for the same reason. If, therefore, a man has a large advance from a small provincial banking company, it may occur that, just when he is anxious to discount more bills or to increase his overdraft, the bank will be unable to accommodate him; and it therefore follows that a large bank, whose resources are abundant, is as essential to the really great borrower as it is safer for the depositor. A person whose account is in credit or who leaves money with a banker at interest naturally attaches the greater importance to the safety of his balance or principal; and, secondly, he endeavours to obtain as high a rate as possible; but he would not be so foolish as to sacrifice security to a high rate of interest; though, where the banks are equally well managed, he would select the one that offered him the higher rate or the cheaper facilities. Conversely, the person whose account is overdrawn would, other things being equal, choose the bank that offered to work his account the cheapest. Now, a bankerâs liabilities to the public are due on demand, and at short notice; and they would consist principally of âdeposit and current accounts, and notes and drafts in circulation.â These, of course, will be found on the left-hand side of the balance-sheet. As the bankerâs deposits may be demanded from him at any unlucky moment, it follows that he is compelled to hold a certain sum of cash (legal tender) in reserve; and the larger that sum, the safer are the customersâ balances. A person, therefore, who is looking for a safe banker, should see that the firm or company which he selects possesses at least from Â£12 to Â£18 in coin, bank-notes and cash with the Bank of England against each Â£100 it owes to the public. He will find the public liabilities on the left-hand side of the balance-sheet and the cash in hand on the right; and a proportion sum will soon give him his answer. But a really strong, well-managed bank only advances to, and discounts bills of exchange for, its customers to such an extent as will enable it to hold from Â£45 to Â£50 in cash, money at call and investments to every Â£100 of its public indebtedness. Cash, of course, is its vital asset; and after cash comes Consols and other British Government securities in which, except at the very height of a panic, there is always a market. These are a bankâs so-called liquid assets; and it may just be added that when a bank mixes its cash and money at call and notice together, and an accommodating auditor declares that such a medley âexhibits a true and correct view of the state of the companyâs affairs,â the bank is probably so weak in actual cash as to deem it wise not to publish the figures. Money at call and short notice would represent advances to the bill-brokers and to the Stock Exchange; and though such loans could doubtless be easily called in during normal times, they would be difficult to collect when the money-market was in a turmoil. A greater part of the advances made to the Stock Exchange, though classed as liquid assets, are in reality loans in disguise; for if the banks were to suddenly ask the stockbrokers to redeem their pledged stocks and shares, those gentlemen would be hammered in clusters; and the shares, when flung upon the market to be sold at what they would fetch, would rapidly depreciate. It would certainly be interesting were the banks to specify the amount of their so-called short loans to the Stock Exchange; and, with a lively recollection of 1890, it is to be hoped that they are kept within bounds, as, upon that occasion, this class of advance hung like a mill-stone round their necks. Such liquid assets, it is to be feared, are more likely to sink the good ship than to save her in a storm. Having ascertained the ratio per cent. of a bankâs cash in hand to its public liabilities, and glanced at the call-money, the list of investments should be carefully criticized. When a banking company describes its list thus: âConsols and other securities,â it may be taken for granted that its holding of Consols is a small one. This description, in fact, is taken from the balance-sheet of an English provincial banking company, which holds about Â£19 in cash, call-money and securities to each Â£100 it owes to its customers; and yet it can find people who are foolish enough to do business with it. Considered as a financial institution, it is practically bankrupt; yet its deposits amount to over Â£4,000,000. Fortunately, however, this institution is one of the few exceptions which are best avoided. Another very weak joint-stock bank describes its investments as consisting of âEnglish Government and railway stocks.â Its cash and call-money are consolidated into one total; but, more remarkable still, an auditor actually has the impudence to declare that the balance-sheet âexhibits a true and correct view of the companyâs affairs,â when, of course, it is not worth the paper upon which it is printed. A well-managed bank, as a rule, states its holding of Consols distinctly, and, sometimes, the figures at which they have been taken. If it do not, then the value of its British Government securities is given separately. Next, it usually specifies its India Government Stock, and so on; and, finally, âother securities,â which, assumably, are of a non-liquid nature, are given last because they are of the least value from a bankerâs point of view. Naturally, if a bank possess a gilt-edged list, it advertises the fact in its balance-sheet; and those companies which indulge in ambiguity are, in nine cases out of ten, the banks to avoid. For instance, you will not find any evasions of this nature in the balance-sheets of such powerful companies as the London and County Bank, the Union and Smiths, the London City and Midland, and other really first-rate institutions, for the simple reason that there is no occasion for them. As a rule, the clearer the balance-sheet, the stronger is the bank; and the sinners, consequently, are the smaller banks, which, situated in a manufacturing centre, are unable to collect sufficient working resources to finance their customers. Their ultimate fate, it need not be said, is amalgamation with a more powerful rival. When choosing a banker, therefore, one should first ascertain that he has an abundant reserve of cash in hand, and, secondly, that his so-called liquid assets (his cash, call-money and securities) amount to from Â£45 to Â£50 against each Â£100 to which he is indebted to the public. And as to those private bankers who do not issue a balance-sheet, they are, in the first place, guilty of the sin of omission; and, in these days, when faith is not the predominant note, there seems but little inducement to buy a pig in a poke when a large bankerâs balance-sheet may be had for the asking. CHAPTER III THE CHEQUE AND ITS VARIOUS CROSSINGS A cheque is often described as a bill of exchange, drawn by a customer on his banker, for a sum certain in money, payable on demand. In these days, when the mere babe produces his cheque-book on the slightest provocation, it seems unnecessary to describe how a cheque should be drawn; though it may just be added that it must bear a stamp of one penny, and that the stamp may be either impressed or adhesive. A customer, therefore, can draw a cheque on his banker upon a sheet of notepaper; but he would be well advised, except under exceptional circumstances, to use the forms supplied to him. Order or Bearer. A cheque is payable either to âorderâ or to âbearerâ; and, if the latter word be used, then it does not require indorsing, while should neither word be upon the document, the cheque is held to be an âorderâ one. Either the person to whom it is payable or the drawer may change a cheque from bearer to order; and this he would do by running his pen through the former word; but the drawer alone can alter an order cheque by writing the word âbearerâ in full and initialling the alteration. If the cheque be signed by more than one drawer, then all should add their initials to any correction it may be desirable to make. Date of a Cheque. Any person who receives an undated cheque is entitled to fill in what he believes to be the correct date, and need not trouble to return it to the drawer for that purpose. He cannot, of course, make any _alteration_ in the date, but should, in the event of a mistake on the drawerâs part, return it to him for correction, when he (the drawer) would make the desired alteration and write his initials against it. It is, perhaps, as well to remember that a certain class of debtors, who may be described as either âhard upâ or âshady,â have their little peculiarities; and one of them is to post-date their cheques when they know that there is not sufficient money at the bank to meet them. Their object, of course, is to gain time; and should a payee, upon receiving such a cheque, have cause to think that he is dealing with one of these gentlemen, he might pay in the cheque to his own banker for collection, and write pretty plainly to the drawer, requesting him to call at his bankerâs and put the cheque in order. Though a cheque be either post-dated, that is to say, dated so that it falls due after the day upon which it is drawn, or dated on a Sunday, the document is not invalidated thereby. A Stale or Out-of-Date Cheque. Most bankers would probably decline to pay a cheque which had been outstanding more than six months. The drawer, however, does not cease to be liable upon the instrument until six years after the date thereupon; though he may claim damages against the payee if he can prove that he has suffered loss through his delay. Crossed Cheques. Though this practice originated in the United Kingdom, the French banks have now adopted the idea, which is as simple as it is undoubtedly useful and protective to the customer. A cheque may be crossed either generally or specially--specially, that is to say, to some bank or to the account of an individual who keeps an account with a banker. If a customer draw two parallel lines across the face of a cheque, thus, / /, he has instructed his banker _not_ to give cash in exchange for it to the payee across his counter. It follows that a cheque so marked must be passed through a banking account. The words â& Co.â are sometimes written between the lines; but this addition is almost meaningless, the simple crossing being all that is required. A person who draws two parallel lines across his cheque, gives the following instructions to his banker: âDo not pay cash over your counter in exchange for this cheque, which must reach you through a banker, and be paid to him alone.â When, therefore, you wish a person to whom your cheque is made payable to go to your bankerâs and draw the money, you will be careful not to cross it. Practice, somehow, always seems at war with theory, and it is not by any means an unusual occurrence for a lady, after having deliberately told her banker not to pay cash for her cheque to the presenter, to indignantly inquire why he did not disobey her behest and do so. A prudent teller seldom descends to either argument or explanation, but calmly accepts such reproof as one of the amenities of his calling, and resigns himself philosophically to the inevitable. Not Negotiable Cheques. This description is somewhat misleading, for a cheque crossed /not negotiable/ is in reality negotiable, though not so fully as is the one that has been discussed in the foregoing division. The distinction, however, is not difficult to grasp. Take a cheque with two parallel lines across the face simply. Now, if such a document be lost, and find its way into dishonest hands, a third party, who gives value in exchange for it, provided he have no guilty knowledge, has a good title against all the world, and can compel the drawer to pay him the sum for which it is made out. For instance, A draws a cheque for Â£20 payable to B, and crosses it /& Co/. B, the payee, after having written his name on the back of the cheque, loses it. C picks it up and passes it on to D, who gives him cash or goods in exchange for it. As B has indorsed the cheque he will have to bear the loss, even though he has got A, the drawer, to stop payment of it at his bankerâs. But had the words ânot negotiableâ been added, D could not have enforced his claim, although he was a _bonÃ¢-fide_ holder for value. A ânot negotiableâ cheque warns any holder for value thus:-- âYou must, if you part with either cash or goods in exchange for this document, be prepared to take all risks upon your own shoulders. The crossing hereon gives you due notice that you must act upon your own responsibility, and the law, therefore, affords you no protection.â A business man cannot be too careful in dealing with a cheque thus marked; and unless he be well acquainted with the holder, he should decline to part with either cash or goods in exchange for it. One should never, even if one know that the drawer is a man of means, and that the signature upon the cheque is genuine, give value for it to a stranger, as there is always the danger of oneâs having to make good the loss of any prior holder, who may have been defrauded, whilst if the payee cannot enforce his claim against the drawer, then a holder for value cannot. A ânot negotiableâ cheque, in short, is analogous to an over-due bill. Any person who may deal with a a bill after its maturity does so upon the understanding, or, better, supposition, that he is acquainted with any flaw there may be in the title. He may not know of any; but the law holds that he does. It is precisely the same with a ânot negotiableâ cheque. Cheques, which are crossed in the manner already described, are said to be crossed generally. Cheques Crossed Specially. A cheque is said to be crossed specially when one writes across the face of it, say:-- âA/C John Smith, Provident Bank of London.â One may name, in the crossing, any particular bank, and the banker upon whom the cheque is drawn will take care that it comes through the channel indicated thereupon. In the above illustration, for instance, your banker will see that the cheque has the name of the âProvident Bank of Londonâ stamped upon it; and should he not find it there, then he would decline to pay the document. Either the payee or the holder of an uncrossed cheque may cross it generally or specially; and if it be already crossed generally, then either can cross it specially, or add the words ânot negotiable.â How to Cancel a Crossing. The drawer alone can do this by writing upon the cheque the words âpay cash,â and signing his name beneath them in full. How to Indorse or Back a Cheque. For all practical purposes one cannot do better than sign oneâs name upon the back of a cheque exactly as the drawer has written it upon the face, with, of course, the omission of any courtesy title, such as Miss, Mr. or Esquire, which are merely there as a mark of civilization and progress. If oneâs name be spelt incorrectly, then one should back the cheque just as it is drawn, and write oneâs correct name underneath the misspelt signature. Further, do not bully the cashier if he make this request of you, for to do so is the sign of a weak mind. A cheque payable to John Smith, Esq., or to Mr. John Smith, should be indorsed:-- âJohn Smith.â Doctor John Smith may sign âJ. Smith, M.D.â; and Colonel John Smith, âJ. Smith, Colonel.â These embellishments, however, are as unnecessary as a flourish would be on the final _h_ of Smith, and, in a busy age, the sarcastic person, like the law, regards them as superfluous. A Miss Mary Smith, who has married a Mr. John Brown, would indorse a cheque made payable to her in her maiden name:-- âMary Brown, _nÃ©e_ Smith.â If the cheque be made out to Mrs. John Brown, then she signs:-- âMary Brown, wife of John Brown,â or âMary Brown (Mrs. John Brown)â in brackets. Certain ladies of a masterful temperament appear to entertain a strong objection to signing themselves âthe wife ofâ such-and-such an individual, as though the designation smacks of an inferiority of which they are not conscious; and such susceptibilities may at least be soothed by placing the opprobrious term within brackets. A cheque payable to Mrs. Brown or bearer would not, of course, require her name upon the back. But if it were to order, then she would indorse it either M. Brown or Mary Brown. When the drawer omits oneâs initials, one should write oneâs usual signature upon the back of the cheque; and though it is not necessary to sign christian names in full, even when they are so written upon the document, the capital letters must, of course, agree with those upon the face. A cheque drawn in favour of Messrs. Robinson is obviously payable to two or more persons of that name, so it may be indorsed: âA. & C. Robinson,â âRobinson & Son,â âRobinson Brothers,â or âRobinsons.â âRobinson and Nephewâ would not, however, meet the case, for it by no means follows that the nephew is a Robinson. It is equally as probable that he may be a Smith or a Jones--or a somebody else. In practice, provided the cheque be for a small amount, the paying banker is seldom squeamish, but when a large sum is in question he naturally takes care that he is upon the safe side, for the good man is very human. Where a cheque is payable to two or more persons, who are not partners, then all should indorse. A payee who is unable to write must make his mark or cross (the trade-mark of the illiterate) in the presence of a witness, who attests it thus:-- his George X Brown. mark Witness: Robert White, 55, High Street, Birmingham. When the payee (the person to whom a cheque is payable) writes his name upon the back of an âorderâ cheque the document is said to be indorsed in blank, and becomes in effect payable to bearer. He can, however, make it payable to another person by writing above his signature: âPay Thomas Brown or order.â Thomas Brown must then indorse the cheque. Further, any holder may write this request above the indorserâs signature, thereby converting an indorsement in blank into a special indorsement. A restrictive indorsement gives the indorsee no power to transfer his rights. Hence a cheque indorsed to âJohn Smith onlyâ prevents further negotiation of the instrument. Where a cheque is payable to, say, John Smith for R. Jones, the payee simply has to write his own name on the back. Should the name of a fictitious or non-existing person be inserted as payee in an order cheque, the document may be treated as payable to bearer. Cheques drawn to âcash,â âhouse,â etc., are so treated. It is usual, however, for the drawer to indorse them, just as he would a cheque payable to âself or order.â Any executor or administrator can indorse a cheque made payable to a deceased person, but all trustees must sign. In practice, a banker usually guarantees or confirms these indorsements. Finally it may be added that it is not illegal to indorse a cheque in pencil, though a banker would probably decline to honour it on the plea that it becomes fainter as time progresses. Again, too, an indorsement may be made on the face as well as upon the back of a cheque, but the customer, unless he be of a peculiarly combative temperament, merely wishes to know what is usual, and we are all aware of the accepted rule in this instance. Agents and âPer Proâ Indorsements. A signature by procuration indicates that the agentâs power to bind his principal may be, and probably is, limited. For instance, the agent may only have authority to indorse cheques and bills, and if he sign as either drawer or acceptor, he cannot bind his principal. Moreover, as a procuration signature operates as notice of his limitations, a holder has no claim upon his principal, as he should have protected himself by demanding to see the agentâs letter of authority. A customer, when he wishes another person to draw cheques on his behalf, gives a letter of authority to his banker, and states therein exactly what his nominee or agent may do. The authority may only allow a certain person to sign cheques on his behalf up to, say, Â£100, and the banker would, of course, refuse any cheque drawn in excess of that sum. Most bankers keep printed forms of this description, and the customer, if he obtain one, can, by crossing out what the agent may _not_ do, limit his power to any extent he thinks necessary. These letters need not be stamped, and, unless previously revoked, they continue in force until the bankruptcy, insanity, or death of the principal. We can now see that dealing with an agent is not unattended by certain risks. The banker always protects himself by ascertaining that an agent really has authority when he signs the name of a client in the capacity of either drawer or indorser, but as he (the _paying_ banker) is not liable upon either a forged or an unauthorized indorsement, _per pro_ indorsements are universally accepted by the banks in the ordinary course of business. They are not, however, legally obliged to pass them, and a banker may demand to see an agentâs authority or insist upon having a confirmation of the indorsement. An agent usually signs:-- â_per pro_ (or _p.p._) John Brown, Robert Smith.â It has been held that â_p.p._ Mr. John Brown, Robert Smith,â is a good discharge, but the foregoing method is the more general. There have also been decisions in favour of the prefixes âproâ and âfor,â though most bankers refuse to pay cheques so indorsed. Procuration indorsements are not accepted on dividend-warrants. A cheque payable to Brownâs Drapery Stores may be indorsed:-- â_p.p._ Brownâs Drapery Stores, Thomas Brown, Proprietor.â Again, should Thomas Brown receive a cheque, which, he knows, is intended for him, though made payable to Thomas Bright, he might sign upon the back: â_p.p._ T. Bright, Thomas Brown.â He can explain the reason for this to his own banker, but the paying banker will not question the indorsement. Cheques which are drawn in favour of an establishment one owns, or of a commodity one sells, can always be backed â_per pro_.â A cheque to the order of a limited or unlimited company is generally indorsed _per pro_ the company, and the signer should then state the position he occupies, whether director, secretary, manager or cashier, as in the following illustration:-- â_p.p._ The Hull Shipping Company, Limited, Walter Wilson, Manager.â It is always advisable to sign for or on behalf of a company, and to state in what capacity one signs, so as to avoid a personal liability. An agent who signs under a power of attorney, usually indorses: âThomas Brown by his attorney William Smith.â It is as well to remember that a power of attorney often confines the agentâs power, as in the case of a letter of authority, within very narrow limits, and that the principal is only bound by its provisions. Bankerâs Liability on Forged Indorsements. The paying banker is not liable upon a forged or unauthorized indorsement, but the collecting banker is in the case of uncrossed cheques, and, according to a recent decision by the House of Lords, may be upon crossed ones. If a banker credit his customerâs account with the amount of a crossed cheque _after_ it has been cleared, he is protected by Section 82 of the Bills of Exchange Act; but should he credit his clientâs account with the said cheque before he himself has collected it, then he ceases to be a mere agent, and becomes a holder for value, and, consequently, liable upon a forged indorsement. As it is usual, both in London and the provinces, to credit a customerâs account with cheques on the day that he pays them in, it follows that an employer, if his agent have indorsed crossed cheques without authority and placed them to an account in his own name, can recover their amount from his agentâs banker. Bankerâs Liability where Drawerâs Signature is Forged. The banker is liable to a customer upon any forged cheque he debits to his account. When a Cheque is Legally Paid. A banker, having passed the cash across his counter, cannot legally demand it back again, and the presenter may please himself whether or not, if asked, he will return the money. The banker has no power to compel him. Stopping Payment of a Cheque or Bill. This must be done by the drawer or acceptor, as the case may be, and by him alone. He should write a note to his banker, giving an exact copy of the cheque or bill he wishes returned, and the banker will then mark his ledger and instruct the cashiers to refuse payment of the document, if presented. Should he pay the instrument in spite of the customerâs order to the contrary, he will have to make good any loss occasioned by his negligence. Lost Cheques. The payee or the holder who loses a cheque can, of course, give notice of his loss to the banker upon whom it is drawn, and the banker would doubtless question any presenter, but he, the payee or holder, must obtain an order from the drawer instructing his banker to stop payment. The drawer, though he cannot refuse such a request, may insist upon receiving security before he issues a fresh cheque. Further, if the drawer employ the customary means of communication, such as, for instance, sending his cheque through the post, or should the payee himself select a particular channel, then any loss falls upon the latter. A holder for value, however, provided the cheque be not tainted with forgery, and that it be not crossed ânot negotiable,â can compel payment from the drawer, who must then fall back upon his indemnity should he have issued a duplicate cheque. Sending Cheques through the Post. When remitting cheques to oneâs banker for the credit of oneâs account it is advisable to write across
{'title': 'Banks and Their Customers by Henry Warren', 'source': 'Project Gutenberg', 'lang': 'en'}