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the depositor to rescind the contract and recover the deposit from a receiver subsequently appointed, the officers must have known or believed the bank to be insolvent at the time the deposits were received. It is not sufficient if they knew it to be in an embarrassed condition.

Books and Papers.

Questions.

1. Have the shareholders the right to inspect the corporate books and papers?

2. Have the directors the right to inspect the books and papers of the company?

3. By whom should the corporate books, papers, records, accounts, etc. be examined and audited?

4. What is to be gained by having an audit by Professional Accountants and Auditors?

5. Where is there such a firm of Public Accountants & Auditors as referred to in the last question.

Books and Papers.

Answers.

1. Yes, they have the right and should exercise it more than they do. Such inspection should, however, be at such a time as not to interfere with corporate business.

2. Every director has the right, at any time to inspect the corporate books.

3. By reputable, disinterested, competent Public Auditors.

4. It puts the questions of solvency, financial standing and credit beyond doubt, puts the management fairly before the Stockholders or Proprietors, increases the value of securities, wins the confidence of the Public generally, and guards against errors, and protects against loss through fraudulent operations.

5. D. A. Keister & Co., No. 88 Wall Street, New York City.

WE WILL SERVE YOU BY THE YEAR AS CONSULTING ACCOUNTANTS AND AUDITORS BUSINESS AND FINANCIAL ADVISORS.

D. A. KEISTER & CO.

88 WALL STREET,

NEW YORK.

Bonds and Mortgages.

Questions.

1. Have corporations the power to issue negotiable bonds as security for their indebtedness?

2. Can a corporation sell its bonds at a discount? 3. Has a corporation power to pledge its bonds? 4. Are the bonds of a corporation valid, if the mortgage is void?

5. Are Coupon bonds negotiable if under seal? 6. Does the non-payment of interest render bonds non-negotiable?

7. If bonds are issued in blank, may the holder fill in the blank?

8. Who is a "bona fide” holder of corporate bonds? 9. Who is a purchaser "for value?”

10. Do subscribers to bonds become liable to the creditors of the corporation?

11. Are corporations prohibited from issuing bonds and mortgages?

12. If bonds are negotiable, is the mortgage securing them negotiable also?

13. What are the circumstances that should put the purchaser of bonds upon inquiry?

14. When are bonds treated as a liability on the books of the corporation?

Bonds and Mortgages.

Answers.

1. All corporations have the power to contract debts for the purpose for which it was created, and to issue bonds as security therefor, without any express grant, unless it be restricted by its charter or governing statute.

2. In the absence of statutory restraints, corporations have the same power as an individual to raise money to prosecute its business, and could sell its bonds at less than par value for that purpose.

3. Corporations have the power to issue bonds secured by mortgage, may execute such bonds and mortgage to secure them, and then transfer them as collateral security for an indebtedness of a less value than the sum for which the bonds are issued, and which is secured by mortgage.

4. When a corporation requires money to accomplish the purpose for which it was organized, borrows money and issues negotiable bonds secured by mortgage, will be liable for the bonds even though the mortgage be void. The mortgage is merely collateral, it is an additional security for the bonds, and its validity cannot of course affect the primary effect of the bonds.

5. Yes.

6. If coupons are not paid when due, it would not affect the negotiability of corporate bonds, or of the subsequent coupons, until the maturity of the bonds themselves. Innocent purchasers for value, without notice of such default, will be protected.

7. If a corporation issues bonds to a payee not named, that is, payable in blank, and have passed in this condition, the holder may fill the blank, so as to make the bond payable to himself or his order, and could maintain suit thereon in his own name.

8. To be a bona fide holder, one must be himself a purchaser for value without notice, or the successor of one who was.

9. A purchaser for value, means one who has purchased for value, it does not mean that full value should be paid, but any value, of course any grossly inadequate value should put one on inquiry. An investor should investigate a corporation's right to issue and sell its securities.

10. No.

11. Many of the states have made constitutional prohibitions, against corporations issuing stock or bonds, except for money, labor, or property actually received and applied to the purposes for which the corporation was created, and providing that all fictitious indebtedness of corporations shall be void.

12. A mortgage may be given to secure a debt evidenced by bonds, or other negotiable security, but the mortgage itself is not a negotiable security, unless made so by statute, of which we do not know of any.

13. The face of the bonds themselves should be carefully studied. Any reference to the statutes under which they are issued is notice to purchasers as fully as though the whole statute be given. When bonds state the maximum number of bonds to be included

in the series, a bond bearing a higher or lower number would be sufficient to put a purchaser on inquiry. If bonds refer to the mortgage, such reference will effect intending purchasers with the terms of the mortgage.

If interest coupons are due and unpaid, it is sufficient to make one suspicious of their value and should put one upon inquiry. If bonds are offered at a low value, having coupons attached that have been due and unpaid for a long time, should be circumstances sufficient to put one upon inquiry.

14. Bonds are not treated as a liability on the books of the company until they are sold. Bonds in the hands of brokers are not a liability until they are sold.

Bondholders.
Questions.

1. Is a minority of bondholders, bound by a reorganization by a majority?

2. By whom are the bondholders represented in a mortgage?

3. What are the rights of holders of income bonds? 4. Can a corporation issue its shares to bondholders as a bonus?

5. What are the rights of a bondholder who fails to deposit his bonds within the time prescribed in a reorganization scheme?

6. By whom are bondholders represented in litigation for the payment of interest, etc.?

7. What number of bondholders should request the trustee to foreclose?

8. How are the funds produced by foreclosure sale distributed to the bondholders?

Bondholders.

Answers.

1. Reorganization can only be made effective by the consent of all the original bondholders, the bond is a contract and trustees have no power to compel a bondholder to make a new and different one. Each bondholder has a right to what his contract gives him, and a majority of the bondholders have no right to enter into a scheme to reorganize against the dissent

of a minority. If any object to a reorganization, those favoring it, will be obliged to have the mortgage foreclosed according to its terms, or purchase the interest of those dissenting.

2. Bondholders are represented by "Trustees" whose name or names must appear in the Bonds and Mortgage.

3. If a railroad company consolidates with another company, the holders of its income bonds, retain a specific lein upon the income derived from the property which has gone from his debtor into the hands of the new company. A company will not be allowed to charge against income any payment or loss arising out of a previous debt, and the holder of coupons upon such bonds will be entitled to have the interest earned during each interest period applied upon the coupons representing that period.

4. Yes, a corporation can issue its stock to bondholders as a bonus, and decisions of importance have been so made, nevertheless it is against public policy to do so.

5. If a scheme of reorganization is agreed upon, which involves a new issue of bonds by the new company to be exchanged with the bondholders for their bonds under the mortgage foreclosure, wherein a stated time was given, those who do not surrender their bonds for exchange before the expiration of that time, will have no right to have the exchange made thereafter. In the absence of fraud a bondholder will be the loser by his delay.

6. Bondholders are represented by the trustee in the mortgage.

7. Any bondholder, upon the non-payment of any installment of interest on any bond, may file a bill for the enforcement of the security by the foreclosure of the mortgage and sale of the mortgaged property.

8. The funds arising from the sale of the property are the representative of the property itself, and each bond carries only a fractional interest of the property mortgaged, consequently each bondholder will receive only his proportion of the whole.

CORRESPONDENCE IN ALL MODERN LANGUAGES.

D. A. KEISTER & CO.,

88 WALL ST., NEW YORK.

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