recovered? How much in an open marine policy? If one has two policies, how is the loss adjusted? What is subrogation? May one recover insurance on his building burned by his own negligence? If the insured commits suicide, may his estate recover on the policy? May an insurance contract be by parol?

76. What is an insurable interest in property? Illustrate. What is an insurable interest in a life? Illustrate. When and for how long must the insurable interest exist?

Problem 1. C owned a patent and leased the exclusive use of it to B. C then insured the property used by B in order to protect the claim for royalties for the use of the patent. B's property burned. The insurance company claims C had no insurable interest in B's property. Result?

Problem 2. C is a stockholder in a corporation. He insures the corporate property, which afterwards burns. Had he an insurable interest? Problem 3. An uncle insured his nephew's life. Upon the nephew's death the insurance company resisted payment of the policy upon the ground that the uncle had no insurable interest in the nephew's life. Result?

77. In what important respect do insurance contracts differ from ordinary contracts? What is the duty of the insured as to disclosures? How has the rule been modified? What are representations? What are promissory representations? Effect of innocent representations?

Problem 4. C's building is threatened from a neighboring fire. He at once secures insurance on it, concealing the danger. Is the policy binding on the insurance company?

Problem 5. C secured insurance on the life of X. No information concerning X's habits was asked or given, but other questions were asked and truthfully answered. X was to C's knowledge very intemperate. Is the policy binding on the insurance company?

Problem 6. C secures insurance on a vacant building and states orally that it will be occupied. It is not occupied, and it burns. Is the insurance company liable?

78. What is a warranty? How does it differ from warranty in a contract of sale? How must it be fulfilled? Distinguish it from representation. What is a waiver? What is an estoppel? What is the effect of a breach of representation or of warranty?

Problem 7. C in the written application for insurance on his building (which becomes a part of the policy) states that "there is a watchman nights." The fire occurred on Sunday morning before daylight when there was no watchman. C tries to show a custom not to keep watchmen after twelve o'clock Saturday night. Should he be permitted to do so? Is the warranty broken?

Problem 8. C represents his building as "occupied as a dwelling house." (a) It is in fact vacant. Is the insurance valid? (b) It is occupied when insured, but afterwards becomes vacant. Two days later it burns. May C recover the insurance?

79. What is the standard policy? Must it be used? How are its terms fixed?

80. What three implied warranties in marine insurance? general average? What is jettison?

What is

Problem 9. (a) B's cargo is worth $29,000; the freight to be paid on it is $1000. B's goods are thrown overboard to save a ship in a storm. The ship and the rest of the cargo are saved. The ship is worth $50,000 and earns on the voyage $2000 net freight (not including that on B's goods). C's goods are worth $33,000 and D's are worth $35,000. Figure the general average and how much B will receive and how much he will lose; how much the ship will receive and how much it will lose. (b) In case B's goods are fully insured and the insurance is paid him, what are the rights of the insurance company?

PART III

PARTICULAR CONTRACTS CONCERNING

CREDITS

CHAPTER VII

CREDITS AND LOANS

81. Capital and credit; money and exchange; payment. In the conduct of a business it is necessary to consider the subjects of capital, credit, money, exchange, and the mode and effect of payments.

1. Capital. In any business enterprise capital is the total amount, measured in money, that is invested in the business. This capital sum is divided into that which goes to provide a business plant, equipment, stock, etc., and that which remains in available cash after these are installed. The latter is the working capital, for the equipment and stock must be kept intact, or if stock is sold, as in merchandising, it must be replaced in order that the business may go on. The working capital should be sufficient to enable the business to be carried on when collections are slow or when debtors become insolvent. Some of it may be invested in live interest-bearing securities which in case of need can be quickly sold or used as collateral security for temporary loans.

An individual, partnership, or corporation starts a manufacturing business. The plant and equipment cost $100,000. The annual manufactured product amounts to $1,500,000. It costs $600,000 for raw material and $800,000 for labor, repairs, insurance, and other expenses, leaving an annual profit of $100,000. How much working capital should there be over

and above the plant and equipment? This will depend upon the readiness of sales and collections, and other considerations. But if the manufacturer wishes to be able to carry on his business for three months with practically no income, he must have one quarter of his total annual cost of operation, namely, $350,000. There would then be invested $450,000, with an annual profit of about $100,000, or say on the average 20 per cent.

2. Credit. Credit consists in the ability to secure some present benefit under an agreement that the return therefor shall be postponed to some future day, as the ability to borrow money or obtain goods or services to be paid for thereafter. It is the result of the favorable opinion of the mercantile community or of the particular lender or seller as to the solvency, honesty, and business capacity of the borrower or buyer. Commercial agencies publish periodical estimates of the ability of business. concerns to meet credit obligations, and these are largely used by those who are requested to extend such credit. The two principal agencies in this country are Bradstreet's and Dun's. Every business man needs credit, and his rating in these publications is of great importance to him. If he gives false information in order to secure credit, he may be liable in deceit to any one injured thereby. If false information is given in the publications, injurious to his credit, he may have an action against the agency for damages. Should the agency through negligence give false information to the subscribers about the credit of a person rated, and if one of the subscribers by extending credit on the strength thereof should suffer a loss, the agency might be liable to the subscriber.

Good credit is of the first importance to a business man. Whether he wishes to borrow money or to purchase goods on deferred payments he must have the reputation of possessing the ability and inclination to meet promptly his pecuniary obligations. Often he must give security which may take the form of a pledge of things of value, like bonds, or of a mortgage on property, or of a guaranty by some third person. If one borrows money at a bank, he may be required to have his note indorsed by one or more persons who are known as accommodation indorsers.