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FEDERAL RESERVE BANK
OF

Circular No. 1
Series o f 1924

DALLAS

February 4,1924.

IM P O R T A N T I N F O R M A T IO N C O N C E R N I N G T H E W O R D I N G O F P R O M I S S O R Y
N O T E S O F F E R E D T O THE FE D E R A L R E SE R V E B A N K O F D A L L A S
FO R R E D ISC O U N T O R O T H E R P U R P O S E S

To the Member Bank Addressed:

Promissory notes offered to the Federal Reserve Bank of Dallas by its member banks
must be so worded as to be negotiable in the strictly legal meaning of the term.
According to a recent opinion of our Counsel, the negotiability of a promissory note
in our hands is destroyed, if it contains any wording which renders it other than an
unconditional promise ‘to pay a sum certain in money on demand or at a fixed or
determinable future time. In the application of this opinion to our rediscount operations,
a number of cases have already arisen in which we have had to reject paper offered, as
non-negotiable under Counsel’s ruling, although drawn on note forms which we had
heretofore accepted. ' As this matter is of interest to all member banks which contemplate
using the rediscount facility this season, we suggest that a careful examination be made
of your own note forms, in order to determine whether they contain any provisions which
might affect the negotiability of your bills receivable in the hands of this bank.
This question of negotiability does not*apply to paper in the hands of the original
parties to the transaction, that is, the lending bank and the borrower, but applies only
to paper when in the hands of a third party becoming a holder of it for value. It would
be difficult to enumerate all of the possible qualifications which would tend to impair
negotiability, but member hanks are referred to the Uniform Negotiable Instruments Act,
which has been adopted by the legislatures of the various states making up our district,
for full information as to what constitutes a non-negotiable instrument under the law.
Yours very truly,

Governor.

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)


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