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 scurce of interest and enlightenment. JOHN TAYLOR ROBERTS

Legal Department.

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

were holders in due course without notice of the alteration. The Court decided that the note was taken in the course of regular business and for value, and therefore the plaintiffs were bona fide holders for value.

The State of Connecticut holds that trustees do not take negotiable notes as bona fide holders for value, and the states differ on the questions of an antecedent debt being value. The law of each state must be examined on this point on account of the diversity of opinions.

The Bank of Wyndmere received and paid a check drawn on the First National Bank of Lisbon. The signature was forged. It was paid finally by the First National Bank without discovering the forgery. The supposed maker of the check discovered the forgery and refused to allow the bank to charge it to him. The Bank of Wyndmere, which was the first to receive the check, refused to refund to the First National Bank of Lisbon and an action was begun for its recovery. The Court held that a drawee who pays by mistake a forged check may recover the sum paid unless the drawee had in some way misled the party receiving the money. This was a North Dakota decision. The general rule is that the drawee is bound to know the signature of the drawer and so cannot recover back money paid on a forged check. If the party who received the money on the forged check in any way contributed to the forgery, the money could be recovered. There is a tendency to limit the doctrine that a bank is supposed to know the signature of the drawer at its peril, as for example in Ohio it has been held that where the holder of a check has not made due inquiry as to its validity before taking it and the bank has the right to presume that such inquiry has been made the money may be recovered.

News Items.

Governor Hanly has appointed Harvey C. Cheney, of Lafayette, as executive accountant of Indiana. This position was created by the last Legislature and carries with it a salary of $2,500 a year. The relation of the executive accountant to the State institutions and State officers is much the same as that of the bank examiner to the banks of the State. Mr. Cheney formerly was auditor of Tippecanoe County, Indiana.

The Public Utilities Commission of the Second Division of the State of New York is reported to be holding conferences with a view to arranging a uniform system of accounting for railroads under the supervision of the Commission.

C. P. A. Question Department.

CONDUCTED BY LEO GREENDLINGER, B. C. S.

Criticism and exchange of ideas will clear many a doubt and at the same time improve shortcomings. To solve, compare, and criticise C. P. A. problems, and thereby to aid in bringing about a uniform American standard for C. P. A. examinations, is the object cf this department. With the aid of suggestions and criticism from the professional brethren, it can undoubtedly be achieved. Inquiries will be cheerfully answered.

The first of the two following problems has been submitted, with solution, to THE JOURNAL by Gustave Jacobsson, B. A., and is the fifth question in Practical Accounting set by the University of Illinois at the examination for certificate as C. P. A., May, 1906. The second is the sixth question in Practical Accounting set by the N. Y. State Board, June, 1900, and is solved at the request of subscribers of THE JOURNAL.

QUESTION 5.

Two printing and stationery houses decide to combine their businesses for the purpose of reducing expenses. An accountant is called in to examine the books of each company and report upon the financial condition of each and also upon the past profits. Owing to the fact that corporation A has never separated its purchases as between its retail and its manufacturing department, he finds it impossible to prepare a combined profit and loss account showing the gross profit of the retail departments and the manufacturing departments of each company. The following statement, however, exhibits a summary of their combined trading accounts:

The amalgamation is effected, and after carrying on the business for twelve months an inventory is taken and the books closed. It is found that instead of realizing a profit of $30,000.00, they have only made a profit of $14,000.00.

An analysis of the various accounts, made by their accountant, showed the following summarized statement: