earnings. He offers $10,000 per year to Jones for the use of the plant, the amount to be paid as follows: $5,000 in six months and $5,000 one year hence. This Jones accepts. The use of the lease is plain. It avoids the necessity of raising funds with which to purchase that. part of Brown's business equipment. Instead of the factory being a capital asset, and the funds represented as a liability, the rent becomes a fixed charge against the net earnings from operation. The financial importance of the lease is one of avoiding the necessity for funds to the extent that business equipment is obtained in this way. Credit transactions are carried on under the guise of a lease. The use of the lease by a railroad as security for the purchase of cars has been described under The lease as the title "Car-trust Bonds." The same prinsecurity. ciple is employed in sales "on the instalment plan.” One wishes to purchase a piano. The price is $500. This may be paid for at $10 per month. Instead of the seller taking a note with a mortgage on the piano as security for the payment of the note, he leases the piano to the purchaser for $10 per month, the agreement being that when the purchaser has paid $500 in rent he shall become the owner. The uses of the lease by credit stores. Some merchants make a special feature of sales on credit secured in this way. They advertise extensively, asking people of small means, laboring men, etc., to deal with them on credit. Instead of making a direct sale, however, they simply lease the cook-stove, the carpet, the wall-hangings, the crockery, etc., and retain the title to the goods; they collect rents till an agreed amount has been paid, when the merchant gives the title to the purchaser. This allows a man without accumulated funds to set up an establishment, and surround himself with comforts of life which otherwise he could not afford. He is limited only by his inability to pay the rent, Dangers of lease pur While the lease gives to the merchant the best security possible, it threatens the purchaser with loss of the goods and all previous payments on them in case of default of one rent payment. In the case of chases. the piano purchase above referred to, the purchaser may have paid $450 in rents, at $10 per month, and have still only a $50 balance before the title would pass, but failure to make the next month's payment would give to the owner (the piano dealer) the right to take the instrument away, and confiscate the whole amount paid in. This is the method commonly employed by company stores in the mining districts. The miner can get what he will within the limits of the judgment of the company storekeeper as to the ability of the employee to make payments of rent. But the laborer stands in constant danger of losing his all by simply stopping wages for a month. |