If J.M.  Johnson, of Saint Paul, owes C.M.  Jones, of Chicago, a hundred dollars, and Nelson Blake, of Chicago, owes J.M.  Johnson a hundred dollars, it is plain that the risk, expense, time and trouble of sending the money to and from Chicago may be avoided, and the indebtedness wiped out by J.M.  Johnson ordering Nelson Blake to pay the hundred dollars to C.M.  Jones.  The written order to this effect, called a draft, would be sent to C.M.  Jones, who would present it for payment to Nelson Blake, and upon receiving his money would turn the draft over to Blake.

To avoid the risk of being robbed, merchants and some others are in the habit of depositing each evening in a bank the receipts of the day, with the understanding that the money will be paid out, at any time, to any person whom they order it paid to.  The order on the bank is called a check.

It is very easy to see that these three devices are of immense value to the commercial world; the first by rendering available future resources, and the other two by enabling payments to be made safely.

Definitions.—­A note is an unconditional promise in writing, to pay a definite sum of money at a certain time to a specified person.

A draft is an order, written by one person and addressed to another, directing him to pay a definite sum of money at a certain time to a specified third party.

A check is a draft for immediate payment, drawn upon a bank or banker.

In the case of a note, the person who promises to pay is called the maker of the note; and the person named to be paid, the payee.

In the case of a draft or check, the person ordering the payment is called the drawer; the person addressed, the person drawn upon or the drawee; and the person to be paid, the payee.

Negotiability.—­The payee in any of these cases may wish to transfer the paper to some other person.  For instance, the holder of the note may wish to use the money before it is due, or the payee of a draft may wish to realize without going to the drawee.  In either case, the desired accommodation can be secured only by selling the paper to some one else.  This ability to be transferred is part of what is meant by the term negotiability.

But this liability to have to pay another person than the one named, cannot be imposed upon the maker or drawer without his consent.  This he gives by inserting after the name of the payee the words “or order,” or the words “or bearer.”  In the latter case, whoever holds the paper when it becomes due can collect upon it.  In case the former words are used, the paper can be transferred only by indorsement, of which more anon.