Up To Date Business | Page 7

consideration, but this is only true between the original parties to a note. The third party or innocent receiver or holder of a note has a good title, and can recover its value, even though it was originally given without a valuable consideration. An innocent holder of a note which had been originally lost or stolen has a good title to it if he received it for value.
[Illustration: A special form for a promissory note.]
A note does not draw interest until after maturity, unless the words WITH INTEREST appear on the face. Notes draw interest after maturity and until paid, at the legal rate.
A note should be presented for payment upon the exact day of maturity. Notes made payable at a bank, or at any other place, must be presented for payment at the place named. When no place is specified the note is payable at the maker's place of business or at his residence.
In finding the date of maturity it is important to remember that when a note is drawn days after date the actual days must be counted, and when drawn months after date the time is reckoned by months.
To DISCOUNT a note is to sell it at a discount. The rates of discount vary according to the security offered, or the character of the loan, or the state of the money market. For ordinary commercial paper the rates run from four to eight per cent. Notes received and given by commercial houses and discounted by banks are not usually for a longer period than four months.
VIII. THE CLEARING-HOUSE SYSTEM
In large cities cheques representing millions of dollars are deposited in the banks every day. The separate collection of these would be almost impossible were it not for the clearing-house system. Each large city has its clearing-house. It is an establishment formed by the banks themselves, and for their own convenience. The leading banks of a city connect themselves with the clearing-house of that city, and through other banks with the clearing-houses of other cities, particularly New York. Country banks connect themselves with one or more clearing-houses through city banks, which do their business for them. The New York banks, largely through private bankers, branches of foreign banking houses, connect themselves with London, so that each bank in the world is connected indirectly with every other bank in the world, and in London is the final clearing-house of the world.
[Illustration: The advantages of the clearing-house system.]
Suppose that the above diagram represents the banks and clearing-house of a city, and also the two business houses of Brown and Smith. Brown keeps his money on deposit in Bank E, and Smith in Bank B. Brown sends (by mail) a cheque to Smith in payment of a bill. Now, Smith can come all the way to Bank E, and, if he is properly identified, can collect the cheque. He does not do this, however, but deposits Brown's cheque in Bank B, the bank where he does his banking business. Now, B cannot send to E to get the money. It could do this, perhaps, if it had only one cheque, but it has taken in hundreds of cheques, some, perhaps, on every bank in town, and on many banks out of town. It would take a hundred messengers to collect them. So, instead of B's going to E, they meet half-way, or at a central point called a clearing-house, and there collect their cheques. B may have $5000 in cheques on E, and E may have $4000 in cheques on B, so that the exchange can be made--that is, the cheques can be paid by E paying the difference of $1000, which is done, not direct, but through the officers of the clearing-house. Now Bank E's messenger carries Brown's cheque back with him and enters it up against Brown's account. This in simple language is the primary idea of the clearing-house.
The clearings in New York in one day amount to from one to two hundred millions of dollars. By clearings we mean the value of the cheques which are cleared--that is, which change hands through the clearing-house. Usually once a week (in some cities oftener) the banks of a city make to their clearing-house a report, based on daily balances, of their condition.
[Illustration: The route of a cheque.]
To illustrate the connection between banks at distant points let us suppose that B of Media, Pennsylvania, who keeps his money on deposit in the First National Bank of Media, sends a cheque in payment of a bill to K of South Evanston, Illinois. K deposits the cheque in the Citizens Bank of his town and receives immediate credit for it upon his bank-book, just the same as though the cheque were drawn upon the same or a near-by bank. The Citizens Bank simply sends