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Trade and Commerce. By Harlow Stafford Person, Ph. D. 86 pages.
This essay took first place in the competition in 1905 for the Hart Schaffner and Marx $1,000 prize for the best contribution on certain economic subjects. The author states that when it was written he“ did not contemplate the possibility of its ultimate publication; the subject is not so fully developed, therefore, as it would have been had that outcome been in mind.” Even in its present form, however, it contains many fresh ideas which will interest broadminded accountants, business men, and educators.
The author refers at the beginning with something like reverence to the German system of industrial education, to which he ascribes in large part the success of Germany in international trade in spite of her inferior natural resources. Some objections at once suggest themselves. In the first place, Germany's industrial success is probably exaggerated. Her large export business is hardly a fair test, for it is due in part to her limited home market. In the next place, Germany has natural advantages of location which compensate to a large extent for her lack of resources. Finally, German education, however excellent it may be, is not “industrial,” as the author uses the word, but technical. As a matter of fact, the German universities and schools in the field of commercial training are imitators, not leaders. It may well be doubted whether the German business man proper has the initiative, the foresight or the practical education of his American competitor. It is in technical, not commercial, science that Germany stands preēminent.
Just what Dr. Person means by "industrial education” is not clearly stated. Effective education for business is not a hodge-podge of studies in applied science, in finance, in manufacturing, in accountancy, and in mercantile affairs. It must proceed in an orderly manner along some one of these lines, not along all of them at once. The reader gathers from the context that Dr. Person has in mind only the education of men for manufacturing business, and is unconsciously applying the standards of this kind of business education to all other kinds-an underlying fallacy that leads to some rather absurd conclusions.
It is the source, for instance, of this remark about the New York University School of Commerce, Accounts, and Finance: “As compared with the commercial departments of the colleges and universities, except in accounting, its technical subject-matter is not so advanced, and it does not offer the liberalizing training of the social sciences.” The author has evidently failed to observe the distinction between the broad education of a man of affairs and the professional education of a business specialist.
Without such confusion it would hardly be possible for him to con
clude that "general education should be pursued by all students for as long a period as possible.” So extreme an assertion could be rationally applied only to those favored young men who can step almost at once from the university into managerial positions. Even in their cases the practical knowledge and drill that specialized professional training gives would perhaps equip them better for their duties. THOUGHTS ON BUSINESS, By Waldo Pondray Warren. 237 pages.
Chicago. Forbes & Company. 1907. Price $1.25.
This book is a collection of about 200 business editorials which have appeared from time to time in a number of leading newspapers. Probably most of THE JOURNAL's readers have already seen a number of the little essays. It would do no harm, however, to re-read them and to get acquainted with the rest of the series. The author says that he counts the "acquisition of certain thoughts as red letter days.” Now that he has made the thoughts public perhaps his readers will be equally gratified. Here are some of the thoughts:
“A man may work harder counting peanuts than signing treaties.”
“Don't hire Shakespeare to write plays and then keep him busy addressing envelopes."
"Freak advertising may amuse its originators, but common sense advertising will sell more goods.”
BONDS AS INVESTMENT SECURITIES. Edited by Emory R. Johnson.
American Academy of Political and Social Science. Philadelphia, Pa. 1907. Pages 235. Price $1.25.
This is one of the series of studies of live political and economic questions issued under the auspices of the American Academy of Political and Social Science. The volume before us is made up of twenty contributions dealing with different phases of the subject and written by men of high standing and authority. Among the contributors we note such well known writers as Charles E. Sprague, Professor of Accounting in New York University School of Commerce; C. M. Keys, of the World's Work; Montgomery Rollins, the author of a standard volume on Bond Tables; William C. Cornwell, the banker; George A. Hurd, author of “Urban Land Values," and F. A. Cleveland, Professor of Finance in New York University.
The lack of a proper understanding of many of the basic principles of the bond business has, probably more than any other cause, retarded the advancement of men at the outset of their careers in the financial world. To such persons a thorough study of the articles would be invaluable. Men in positions of judiciary trust and those engaged in the investment of capital will, also, find here much interesting and useful data compiled by men well versed in the intricacies of finance.
The first two contributions are by Professor Sprague. The author considers, in detail, the common fallacies regarding the valuation of bonds and describes the proper basis for bond accounts. This paper might well be used as a general introduction to The Accountancy of Investment by the same author. Such subjects as the effect of premium and discount upon income basis, amortization and the periodical approach of a bond to par at maturity are treated at considerable length. Professor Sprague, in these two excellent articles, has spanned the gap, for many, between the supposedly intricate theory of bond valuation and the practice of blind reliance upon prepared tables of bond values, with little or no knowledge of their raison d'être.
The contributions mentioned above are supplemented in an article by Mr. Montgomery Rollins, the editor of the “Tables of Bond Values," most generally used in “the Street” to-day. The varied uses of these indispensable tables are so clearly and thoroughly explained that even the uninitiated can hardly fail to appreciate their method and its application.
The flotation of loans is considered under the title, “ Selling American Bonds in Europe." Since the Pennsylvania Railroad and the New York, New Haven & Hartford Railroad have both recently placed large loans in Europe with considerable success, the possiblities of this field have become more and more apparent. An enumeration of the banking institutions in many of the large financial centers, as well as the sentiments, prejudices and general attitude of the European investor toward our securities is the purpose of this contribution.
Mr. George A. Hurd deals in a most instructive paper, with a class of bonds little known, as yet, in this country, viz., bonds secured by mortgages on real estate. Although this form of obligation has been common in Europe for many years it remained for the Mortgage Bond Company of New York to introduce it to American investors a short time ago. The author details the methods and conditions attending the issue of this type of bond and the varieties of mortgaged property which may be considered proper collateral for such issues. A small issue of these bonds is now in the hands of the public, and we are led to believe that a considerably larger issue is to be placed in the market when monetary conditions improve.
The relative value of various sinking fund provisions, for the retirement of issues of bonds, are considered, in their diverse lights and their relations to different classes of bonds, by Mr. C. M. Keys. The author, an able financial journalist, treats this wide and debatable subject in a manner which should command the attention of all persons interested in corporate issues.
The organization of a bond department, its value to banking institutions, its regulation, the necessary qualifications of men employed in such departments and the requisite training and knowledge which determines their success, are subjects which are all ably treated by men of long experience in this branch of banking.
Finally, various classes of bonds-railroad, electric railway, industrial, governinent, and municipal—are considered in relation to the fundamental features of their issue, their investment value, and their relation to corporation finance.
From any point of view, be it that of the investor, the student of finance, the accountant, or the active Wall Street man, a careful inspection of this scries of articles cannot fail to be a source of in::rest and enlightenment.
JOHN TAYLOR ROBERTS
Conducted by ALEXANDER MCCLINCHIE, of the New York Bar. The purpose of this department is to present from month to month short, critical summaries of recent decisions, which affect accountants, and to furnish accurate information on legal questions. Inquiries from our readers will be welcome and will receive prompt attention.
The Distinction Between a Guaranty of Payment and
a Guaranty of Collection. To guarantee a bond or note is a very common practice among business men. Therefore, the distinction between a guaranty of payment and a guaranty of collection becomes important. If you are the guarantor it is advisable to guarantee collection. If, on the other hand you are the creditor, a guaranty of payment will save time, trouble, and money.
The general rule, well established in regard to one who becomes the guarantor of the collection of a note, is, that in so doing he undertakes that the claim is collectible by due course of law, and the courts have interpreted this to mean that the guarantor only promises to pay when it is ascertained that the debt cannot be collected by suit prosecuted to judgment, and execution against the principal returned unsatisfied. The judgment must be recovered and the execution issued thereon returned unsatisfied in whole or in part, before any liability is fastened upon the guarantor. And this judgment must be recovered without any unnecessary delay.
The creditor should prosecute the action with reasonable diligence, otherwise he cannot hold the guarantor liable. When the facts are undisputed, the question of what is reasonable diligence, is a question of law for the court. It was held in Craig v. Parkis, 40 N. Y., 181, that a delay of prosecution for six months after the debt had become due was not reasonable diligence, and discharged the guarantor.
This rule has no exception. If the principal debtor is, and has been, from the time the right to bring suit against him has accrued, entirely and hopelessly insolvent, and with nothing out of which an execution could be collected, the rule is the same; the action must be prosecuted to judgment, execution issued, and returned unsatisfied with all due diligence. The creditor must do this vain, idle, and useless thing before he can bring an action against the guarantor, because the law, said to be the perfection of human reasoning, so orders. In one case the plaintiff offered to prove that the principal debtors were hopelessly insolvent when the debt fell due, and had remained so up to the time the plaintiff sued the guarantor, and that nothing could have been collected from them at any time. These facts the plaintiff absolutely proved, but the evidence was objected to, and stricken out by order of the court. The plaintiff lost
his suit against the guarantor because he had not first brought an action against the insolvent and bankrupt principal.
The reason the courts impose the duty of prosecuting the principal debtor with due diligence, is for the purpose of collecting the debt, if possible, out of the principal. If the action is delayed, an opportunity is lost, during which time the guarantor might have been protected. But to require a creditor to prosecute a bankrupt debtor, or one who is hopelessly insolvent, and with no property out of which to collect the debt, seems to be carrying the rule beyond the bounds of reason, or of necessity. Such, however, is the law, and to protect ourselves we must obey its dictates.
The best plan is for the business man to get a guaranty of payment. Then if the debtor fails to pay, an action can be brought immediately against the guarantor. Both the principal debtor and the guarantor can be joined in one action. The guarantor has no time to get out of the way, and the creditor is saved time and expense.
Decisions of Interest. BANKING.-In South Carolina on presentation of a check the bank refused payment on the ground that the maker of the check had ordered payment stopped because it had been obtained by fraud and without consideration. In an action by a bona fide holder for value it was held by the Court that it was not essential for the bank to accept the check in order . to fix liability upon the bank and to entitle the holder to sue for non payment. The delivery of the check to the payee acted as an assignment of the funds in the bank. Therefore the drawer of the check could not stop payment when the check had passed into the hands of a bona fide holder for value.
South Carolina, Illinois, and Texas are the only states which hold to this doctrine. The doctrine in the other states is as laid down in FLORENCE Min. Co. vs. BROWN, 124 U. S., 385, and reads as follows: “A check upon a bank in the usual form, not accepted or certified by its cashiers to be good does not constitute a transfer of any money to the credit of the holder: it is simply an order which may be countermanded, and payment forbidden by the drawer, at any time before it is actually cashed. It does not of itself constitute an equitable assignment."
· By a long line of decisions Virginia has established the doctrine that a trustee under a deed of trust to secure antecedent debts is a bona fide purchaser for value. The most recent decision along this line is that of TRUSTEES OF AMERICAN BANK OF ORANGE vs. McCOMB, 54 S. E. REP., 14. In this case the bank held a note made by McComb. Being insolvent the bank made an assignment of all its property, including the note, for the benefit of its creditors. The Trustees sued on the note and the defendant answered that the note had been altered. Plaintiffs replied that they