Trust certificate.

It sometimes happens that a number of stockholders may wish to pool their holdings in a company for purposes of control. To this end the stockholders agreeing will appoint a trustee to hold the stock and exercise all rights of control for them. The trustee gets his powers from a written trust agreement, under which he pays to the several stockholders the dividends declared, and finally delivers the shares after the trust agreement is terminated. When such an arrangement is made the trustee issues to each stockholder depositing his stock a trust certificate. One of the trust certificates issued by J. P. Morgan & Co. as trustee for Reading First Preferred is given on page 107. An examination of the certificate will further explain its use.

Other special forms of stock, such as guaranteed stock, founder's shares, treasury stock, etc., are allowed under the

of stocks.

laws of some States. These might be enlarged Other forms upon, but for the purposes of this treatise it is sufficient to call attention to the principal proprietary interests which may be sold as a means of obtaining funds for enterprise. We pass now to a consideration of sales of credit.

CHAPTER VII

FUNDS OBTAINED BY SALES OF COMMERCIAL CREDIT

THERE are still other ways of obtaining funds by exchange-methods which do not involve the sale of labor, tangible properties, or business interests. If one has salable credit, this may be disposed of to meet the funding needs. of business. In Part I credit was discussed as a form of funds. We will now discuss its use as a means of obtaining funds.

The extent of credit uses by the laboring

man.

Credit is bought and sold in the market in the same manner as are services, or stocks of merchandise. Before a sale of credit may be made, however, one must find a purchaser some one who is willing to exchange money or credit funds for a promise to deliver money at a future time. In this is found its limitation; it is this that places it beyond the reach of the ordinary laborer as a means of obtaining capital. The day-laborer goes to the man of means (the capitalist), and proposes to give him his promise to pay $110 one year hence for $100 in gold. The man of means says "No." Some such reasoning as this goes on in the capitalist's mind: "You have never been able to do more than maintain yourself." "Yes, it is true you have paid your account at the grocer's; you have kept faith with those who have furnished the means necessary to maintenance' on credit, but you have never displayed any ability to acquire 'capital."" "What surplus earnings you have had were dissipated." "You have not the ability nor the integrity to make your

The man of ability and integrity.

credit good." In other words, in the judgment of the capitalist, the credit which the laboring man tries to dispose of for capital funds is seldom considered worth as much as the money for which it is offered. The capitalist will not trade. One with thrifty habits and good training, on the other hand, may meet with greater success. On leaving college you may go to a banker to whom you are known and offer him your note. At first he may be unwilling to buy your credit. You may even have trouble to find a business manager who is willing to buy your services. But eventually you get employment. You demonstrate your ability. You show yourself to be a man capable of performing a service for which employers are willing to pay $1,000 or $2,000 per year. You exhibit some special fitness for the management or direction of some industrial function; perhaps you have invented something, the use of which will be of advantage in production; you demonstrate that you have the power to form judgments of such superior quality that a business dependent on such decision may be handled with increased profits. Now, without capital, with nothing but this ability displayed, and a reputation for habits of industry and integrity, you again approach the man of means and offer your credit for funds with which to capitalize your advantage, and he is willingeven anxious—to exchange. Why is this? Why are you able to procure capital funds "on credit," without awaiting the slow process of saving, while thousands of others are required to depend on the surplus accumulated from wages earned? The answer is plain. The capitalist believes that he is making a good trade. You have something to sell, besides your ability to work for others, which he values more highly than he does the amount of money for which credit is offered-your ability to use capital in such a way that you will be able to deliver the amount obtained "with interest." The man of means sees in the transaction a profit to himself. In exchange for funds sold, he gets a

claim to future income which, in his judgment, will be to his own advantage.

One possessed of tangible property or business interests has still less difficulty in convincing the capitalist of his ability to meet his contracts for future delivery. He offers to sell credit because he does not care to sell his tangible

The man with property.

property or business interests. The property gives a double advantage: by its use a larger income is assured; if this larger income does not suffice, the property is still capable of being sold as a means of obtaining "funds" with which to meet credit contracts. All of this is taken into account by the one to whom the man with property offers to sell his credit.

note.

CREDIT INSTRUMENTS USED AS A MEANS OF
OBTAINING FUNDS

A promissory note is a written contract for the future delivery of a specified sum of money. The contract is similar to that made between speculators in Promissory grain or securities known as futures, except that the "note" is for the delivery of money instead of a particular grade of wheat or a particular class of bonds. The delivery must be made on or before a stated time, and nothing will satisfy the contract except the delivery of the particular thing promised.

Form of note.

There is nothing fixed or prescribed about the form of the promise; it may be expressed in any way so long as its essentials are present. These essentials will be set forth in detail. Being a contract in writing, the parties must be set forth in the instrument. There must be at least two parties named-the one to whom the promise is made and the one making it. The one making the note is called the maker; the one to whom it is made is called the payee. The maker usually signs his name under the writing which carries the promise. There may, however, be two or more

1. As to parties.