175. Bills Of Exchange That Involve More Or Less Risk

Concerning the risk incurred in the purchase of documentary exchange, A. W. Margraff in his book "International Exchange" writes as follows:

Bills of exchange that may be purchased safely. - Bills accompanied by documents covering staple, non-perishable merchandise that can be readily resold in the market where consigned, in the event of forced sale, by reason of non-acceptance or non-payment by the drawees of the appertaining bill, and the inability of drawers to reimburse the purchaser of the bill upon demand for the amount originally paid them, plus expenses incurred.

The proceeds realized upon merchandise disposed of under forced sale would be applied on account of the amount of reimbursement demanded of drawers, and provided the merchandise was of the nature just referred to, would almost liquidate the purchaser's claim against the drawers, and the small balance, still due to the purchaser, may be recovered with little difficulty from the drawers; if, however, they have failed in the meantime, then the purchaser would have a creditor's claim for such balance against the insolvent drawers.

The possibility of such a loss is very remote in view of the fact that the majority of drawers of bills of exchange (exporters) have all refused bills immediately referred to their own agents abroad for protection.

Staple and non-perishable merchandise includes flour and other manufactured cereals such as corn meal, oat meal, hominy, etc.; farming implements, canned meats, fresh meats and other provisions, when the fresh meats and provisions are shipped in refrigerator cars and vessels of modern type, and warehoused in cold-storage plants upon the arrival at destination, if not immediately taken up by drawees.

Bills accompanied by documents representing shipments of perishable merchandise, such as butter, cheese, fresh fruits, etc., that are liable to deterioration in quality, or to absolute loss, during transit, rendering the merchandise practically unsalable abroad.

Bills with documents showing collateral security of live cattle, horses or other live animals, necessitating the expense of help and feed during transit for the maintenance of life, as a refusal of such annexed bill would depreciate the value of the security, day by day, to the extent of such expense incurred.

In addition to the liability of drawers and endorsers, if any, purchasers of documentary bills are secured by the financial responsibility of the acceptors on and after acceptance until actual payment of the bills.

The liability of drawers continues after the acceptance of bills, and remains in force during the whole life of the bills, and ceases only upon payment.

The primary conditions of the desirability of the purchase of any bill of exchange depend upon the moral and financial standing of the parties thereto, and the liabilities just stated of the parties should be quite ample in the majority of cases. Further, these bills possess another element of protection against a possible loss in this, that they are supplemented by documents covering salable merchandise with title continuing in the purchaser of the bills, until payment at maturity, or retirement prior to maturity, of the respective bills of exchange.