16. Enumerate the leading items of resource and liability in a national-bank statement.
17. A bank receives from the comptroller of the treasury $100,000 in new bank-notes of its own issue. What ledger entry? A bank retires $10,000 of its own bank-notes. What entry?
18. Discuss fully the points which should enter into a proper estimate of the value of paper offered for discount.
19. Give the successive and necessary steps in the formation of a joint stock company.
20. Why are companies which properly exist and belong in one State sometimes organised under the laws of another State?
21. Explain very fully the difference as to resource and liability between a bondholder and a stockholder.
22. How may a stock company be dissolved?
23. What is the difference between a voluntary association, such as a society or club, and a stock company?
24. Explain very fully the meaning of _Limited_ when it forms part of the legal title of a company.
25. Is it legal to sell shares of stock and issue mortgage bonds upon the same property? What relationship do they bear one to the other?
EXAMINATION PAPER
NOTE.--_The following questions are given as a means by which the student may test for himself whether he has attentively pursued the lessons of the course or not. It is recommended that each student as he finishes the course write out the answers to the questions in full. Only such answers need be attempted as the student can frame from a careful study of the course._
1. (_a_) Give some particulars in which the Bank of England differs from our larger national banks. (_b_) Enumerate some of the advantages afforded to the community and to commerce in general by banking institutions. (_c_) How do private banks and trust companies differ from national banks?
2. (_a_) What is a stock certificate? How does it differ from a mortgage bond? (_b_) At what rate must United States 4 per cents be bought to net 3.2465 per cent.? (_c_) Give the successive and necessary steps in the formation of a stock company. How can the stock of a company or corporation be increased?
3. (_a_) What provision is usually made for the redemption of municipal bonds which have a long period to run? (_b_) What is meant when we say that a certain railway is in the hands of a receiver? (_c_) Give some of the advantages which stock companies have over partnerships.
4. (_a_) Tell how you would receipt for a payment on a note. Why is not an ordinary separate receipt sufficient? (_b_) Discuss fully the points which should enter into a proper estimate of the value of paper offered for discount. (_c_) Explain in detail the business of a note broker, giving some particulars of his responsibility in connection with the paper handled.
5. (_a_) What are the advantages to the banks of a city of their central clearing-house? (_b_) Show by a diagram how collections are made between distant points. (_c_) What is a certified check?
6. (_a_) Enumerate some of the abuses of rate discrimination in the United States and tell how they are met. (_b_) What are the advantages to the public of freight organisations which arrange for through service? (_c_) Explain in detail the methods adopted by leading and competing railway lines to regulate and adjust freight rates. (_d_) What are _differentials_? How are (1) through and (2) local passenger rates regulated?
7. (_a_) Give the particulars in which a warehouse receipt resembles and differs from (1) a promissory note, (2) a bill of lading.
(_b_) What are the advantages to the importer of bonded warehouses? (_c_) What are the duties of our foreign consuls with reference to the importation of goods?
COMMERCIAL LAW
I. THE DIFFERENT KINDS OF CONTRACTS
Commercial law relates to CONTRACTS. These are made by almost every one. A person cannot ride in a street-car without making a contract with the company for carrying him. If he goes into a store and buys a cigar, a stick of candy, or a tin whistle, he has made a contract with the man behind the counter, who owns the store or is his salesman.
Tramps and thieves are about the only persons who live without making contracts. In that respect they are like the birds of the air, getting whatever they desire whenever the chance is seen.
A contract has been defined as an agreement to do or not to do some particular thing. These are the words used by one of the greatest of American judges. The reader may turn to his dictionary and find other definitions that contain more, if he pleases, but this will answer our purpose.
All contracts may be put into three classes, and each of these will be briefly explained. First, SEALED AND UNSEALED CONTRACTS. What do we mean by a contract that is sealed? It is one to which the person who signs it adds, after his name, a seal. But what is a seal? It may consist of sealing-wax, stamped in a peculiar manner, or a wafer made of sealing-wax, or a paper wafer. In the olden times when people could hunt and fight but were not able to write their names, they put a seal at the end of a contract made by them; in other words, the seal supplied the place of a name. Each person's seal differed from the seal of every other. It had its origin really in the ignorance of the people. As they were unable to write their names these distinct signs or marks, called seals, were put on instead of their signatures.
With the changes brought by time the form of this device or seal, required by law, is much simpler than it was centuries ago. Indeed, in every State persons use the letters "L. S.," with brackets around them, instead of a seal. They mean "the place of a seal," and are just as good in every way as any kind of seal that might be used. Here are two of the forms of seals in most common use:
[Illustration]
Any contract that has a seal after the name of the signer is a sealed contract, and every other is called an UNSEALED, ORAL, or VERBAL contract. If a contract was written and a seal was added after the signer's name, and there was another exactly like it in form, but without a seal, this would be called an unsealed or verbal contract, and in law would differ in some important respects from the other.
This is true in every State except California, where the difference between sealed and unsealed contracts is no longer known.
The second class of contracts are called EXPRESS AND IMPLIED CONTRACTS. By an EXPRESS CONTRACT is meant one that is made either in writing or in words. But the reader may ask, Are not all contracts of this kind? By no means. Many contracts exist between people which have not been put into words. Suppose A should ask B for employment and it should be given to him, but no word should pass between them about the price to be paid. The law would _imply_ that B must pay him whatever his work was reasonably worth. If A should come at the end of the week for his pay and B should say to him: "I never made any bargain with you concerning the price, and I am unwilling to pay you anything," A could, if he understood the law, say to B: "You told me to work, and the law _implies_ that you must pay me whatever my work is worth." How much would the law give him for his work? Just what the employer was paying other men for the same kind of work.
Another class of contracts are called EXECUTED and EXECUTORY. An EXECUTED CONTRACT is one that is finished, done, completed. If I should go into a store and ask the price of a book and say to the salesman, "I will take it," and give him the money, and take the book with me, this would be an executed contract. An EXECUTORY CONTRACT is one that is to be completed. Suppose the salesman did not have the book and I should say to him, "Please get it for me and I will come in next week and pay you for it," this would be an executory contract; and it would remain so until I came in and got the book, as I had promised to do, and paid the price.
These are the three most general classes of contracts made by persons in daily life. Almost all persons make contracts of each kind during their lives. Sealed contracts are not as common as unsealed ones, yet they are frequently made. Every deed for the sale of land or lease for the use of it is a sealed contract.
II. THE PARTIES TO A CONTRACT
To every contract there must be two or more persons or PARTIES. When Robinson Crusoe was on his island all alone, eating breadfruit and entertaining himself by throwing stones at the monkeys, he perhaps had a good time, but he could not make any contracts. But as soon as Friday came along they could make contracts, trade, and cheat each other as much as they pleased. A contract, therefore, is one of the incidents of society. A person sailing in a balloon alone could not make a contract, but if two were in the basket they might amuse themselves by swapping jack-knives or neckties, and these exchanges would be completed or executed contracts and would possess, as we shall soon see, every element of a contract.
Again, persons must be able, or COMPETENT, to make contracts. What kind of ability or competency must a person have? Not every person can make a contract, even though he may wish to do so. A MINOR, or person less than twenty-one years of age, though he may be very wise and weigh perhaps two hundred and fifty pounds, can make very few contracts which the law regards as binding. In fact, the only contracts that a minor can make for which he is bound are for necessaries--clothing, food, and shelter. Nor can he make contracts even for these things in unlimited quantities. A minor could not go into a store and buy six overcoats and bind himself to pay for them.
The storekeeper must have common sense in selling to him and keep within a reasonable limit. In one of the well-known cases a minor bought a dozen pairs of trousers, half a dozen hats, as many canes, besides a large supply of other things, and, refusing afterward to pay the bill, the merchant sued him, and the jury decided that he must pay. The case, however, was appealed to a higher court, which took a different view of his liability. The judge who wrote the opinion for the court said that the merchant must have known that the minor could not make any personal use of so many trousers, canes, and hats, and ought not to have sold him so many. In short, the court thought that the merchant himself was a young minor in intelligence and ought to have known better than to sell such a bill to a person under age.
Of course it is not always easy to answer this question, WHAT ARE NECESSARIES? Much depends on the condition of the person who buys. A merchant would be safe in selling more to a minor living in an affluent condition of life than to another living in a much humbler way. Quite recently the question has been considered whether a dentist's bill is a necessity, and the court decided that it was a proper thing for a minor to preserve his teeth and to this end use the arts of the dentist. Again, is a bicycle a necessity? If one is using it daily in going to and from his work, surely it is a necessity. But if one is using it merely for pleasure a different rule would apply, and a minor could not be compelled to pay for it. Cigars, liquors, theatre tickets are luxuries; so the courts have said on many occasions.
The courts, in fact, regard a minor as hardly able to contract even for necessaries, and he is required to pay for them for the reason that as he needs them for his comfort and health he ought to pay for them. In other words, his duty or obligation to pay rests rather on the ground of an implied contract (which has been already explained) than of an express one. The force of this reasoning we shall immediately see.
Suppose a minor should say to a merchant who was unwilling to sell to minors,--having had, perhaps, sad experience in the way of not collecting bills of them,--"I am not a minor and so you can safely trust me. I wish to go into business and wish you would sell me some goods." Suppose that, relying on his statement, the merchant should sell him hats or other merchandise for which he would afterward decline to pay, on the ground that he was a minor. Suppose he proved that he really was one--could the merchant compel him to pay the bill?
He could not compel him to fulfil his contract, because, as we have already said, the law does not permit a minor to make a contract except for necessaries. The court, then, would say to the merchant: "It is true that you sold the goods to this minor; he has indeed lied to you; still the court cannot regard a contract as existing between you and him." On the other hand, a court will not permit a person to defraud another, and the merchant could make the minor pay for the _deceit_ or _wrong_ that he had practised on him; and the measure of this wrong would be the value of the goods he had bought. Thus the court would render justice to the merchant without admitting that the minor could make a legal contract for the goods that he had actually bought and taken away.
III. THE PARTIES TO A CONTRACT (_Continued_)
In the former article we told our readers that there were some persons who could not make contracts, and among these were INFANTS or MINORS.
In most of the States a person, male or female, is a minor until he or she is twenty-one years old. In some of the States, among them Illinois, a female ceases to be a minor at eighteen years of age.
By the Roman law a minor did not reach his majority until the end of his twenty-fourth year, and this rule has been adopted in France, Spain, Holland, and some parts of Germany. The French law, though, has been changed, with one noteworthy exception. A woman cannot make a contract relating to her marriage without the consent of her parents until she is twenty-five. Among the Greeks and early Romans women never passed beyond the period of minority, but were always subject to the guardianship of their parents until they were married.
MARRIED WOMEN are another class of persons who cannot make every kind of a contract like a man. Once a married woman had but very little power to make contracts. However great might have been her wealth before marriage, as soon as she entered into this blissful state the law kindly relieved her of all except her real estate, giving it to her husband. On the other hand, he was obliged to pay her bills, which was one of his great pleasures, especially if she was a constant traveller to the silk and diamond stores. She could still keep her real estate in her own name, but that was about all. Her husband took everything else; he could claim her pocket-book, if he pleased, and was obliged to support her in sickness or health, in sweetness or in any other "ness."
The law has been greatly changed in all civilised countries in this regard, and to-day in most States she can make almost any kind of a contract. In some States, however, it is even now said that she cannot agree to pay the debt of another, but this is, perhaps, the only limit on her power to contract. She can engage in business, buy and sell, transfer notes, make contracts relating to the sale and leasing of her real estate, insure it, build houses, and do a thousand other things quite as freely as if there were no husband around. The most of these changes widening her authority to make contracts have come within the last fifty years. Of course, unmarried women can make contracts like men, and many of them know it.
Another class who cannot make contracts are DRUNKEN PERSONS. Once the law regarded a drunken man as fully responsible for his acts, and if he made a contract he was obliged to execute or fulfil it. He could not shield himself by saying he did not know what he was doing at the time. The court sternly frowned on him and said: "No matter what was your condition at the time of making it, you must carry it out." This was the penalty for his misdeed. It may be the courts thought that by requiring him to fulfil his contracts he would be more careful and restrain his appetite. Whatever the courts may have thought, they have changed their opinions regarding his liability for his contracts made under such conditions. Now they hold that he need not carry them out if he desires to escape from them. There is, however, one exception to this rule. If he has given a note in the ordinary form, and this has been taken by a third person in good faith who did not know of the maker's condition at the time of making it, he must pay. But, we repeat, the third person must act in good faith in taking it, for if he knew that the maker was drunk at that time he cannot require him to pay any more than the person to whom it was first given.
One other class may be briefly mentioned--the INSANE. They are regarded in the law quite the same as minors. For their own protection the law does not hold them liable on any contracts except those for necessaries. These are binding for the same reasons as the contracts of minors, in order that they may be able to get such things as they need for their health and comfort. For if the law were otherwise, then, of course, merchants would be afraid to sell to them. But as merchants can now safely sell to them whatever they truly need in the way of clothing, food, etc., to make themselves comfortable, so, on the other hand, the insane, like minors, must pay for these things, and it is right that they should.