GENERAL AVERAGE.

ART. 89. When, for the safety of a ship in distress, any destruction of property or expense is necessarily and voluntarily incurred, either by cutting away the masts, throwing goods overboard, or otherwise, all persons who have goods on board, or property in the ship, bear their proportion of the loss.

The method of apportioning the loss among the several interests, sacrificed or benefited by the sacrifice, is called General Average, and the property thus sacrificed is called Jettison.

In ascertaining the amount of loss to be averaged, not only the amount of goods thrown overboard is considered, but also all damages to the ship, cost of repairs, and expense of detention for making repairs, including the wages of officers and crew; also the expense of entering a harbor to avoid peril, or of setting afloat when stranded; also towage in case of being disabled, or salvage paid another vessel for affording relief, etc.

When the repairs made consist of new masts, rigging, etc., a deduction of of their cost is usually made, since they are considered better than the old.

In estimating the value of the three contributing interests— vessel, freight, and cargo-it is customary to value the cargo at the price it would have brought at its port of destination. It is sometimes valued at its invoice price at the port of lading.

As the wages of seamen, pilotage, etc., are paid out of the freight, a deduction is made from the gross freight for this purpose. The amount to be deducted is not determined in a uniform manner. According to some authorities, the gross freight less is the net freight, except in New York, where is deducted. The general practice, however, is to ascertain what sum will actually be left to the vessel as net freight, after paying seamen's wages, etc. Sometimes the vessel earns a net freight of the total amount, and sometimes the seamen's wages, etc., absorb the whole of a very low freight. Each case is estimated by its attendant circumstances.

The practical difficulty in General Average is to determine whether the loss is subject to a general average. In some cases the loss is borne by only a part of the contributory interests.

When either a part or the whole of the ship or cargo or both is insured, the insurers bear their proportion of the loss as found by average. (See Ex. 1.) In some instances the adjustment of the insurance becomes a very intricate problem.

RULE.

Divide the total loss subject to average by the sum of the values of the contributory interests, and multiply each interest by the percentage thus found.

Note. The jettison must be included in the contributory interests, and bear its proportion of the loss.

Examples.

1. The ship Western World, in her passage from New York to Aspinwall was struck by a severe gale near the island of Cuba. After throwing overboard cargo amounting to $4650, she made the port of Havana. Here the cost of the necessary repairs of the vessel was $1800, and the cost of detention in port $450. The contributory interests were as follows: value of ship $35000; value of cargo $24000; net freight $4000. Of the cargo, $8500 was shipped by Terry & Wheeler; $7500 by Morse & Duty; $5000 by T. C. Hood & Co. ; and $3000 by P. Kinney & Co. How ought the loss to be averaged?

Total contrib. interests, $63000

Total loss,

$6300

6300.00÷63000=.10; loss 10 per cent.

$35000×.10=$3500, loss borne by ship.

24000x.10 2400, " 66

=

8500 x.10= 850, 66

cargo. freight.

"Terry & Wheeler.
"Morse & Duty.

4000 x.10 400, 66

"T. C. Hood & Co.

300, 66

"P. Kinney & Co.

2. The steamship Asia sailed from Liverpool to Boston with a cargo as follows: shipped by T. S. Foot & Co. $45500; by C. S. Moore & Co. $10500; by T. Hope & Sons $7450; by C. White & Co. $12550. During a storm the captain was obliged to throw overboard cargo amounting to $8500, and the necessary repairs of the ship cost $2700. In addition to repairs, the charges for seamen's board, dockage, etc., were $500. How is the loss to be shared, the value of the ship being $40000, and the net freight $4000 ? Ans. Loss, 9%.

Remark. The following examples will give the student some idea of Insurance as connected with General Average.

3. The schooner Michigan sailed from Chicago for Buffalo with the following cargo: 25000 bushels of wheat owned by Smith & Dewy; 18500 bushels of corn owned by Fisk & Hunter; 850 barrels of flour owned by T. Ford & Co. The schooner is insured in company A for $30000, which is of its value, at 3 per cent.; the wheat in company B for $22500 (invoice price) at 2 per cent.; the corn in company C for $9250 (invoice price) at 1 per cent.; and the flour in company D for $4250 (invoice price) at 2 per cent. The gross freight was $6000, and seamen's wages, etc., of the gross freight. During a severe storm the flour was thrown overboard. How is the loss to be borne? How is the payment of the sum for which the flour is insured to be adjusted?

Explanation. By general average we find that the average loss is 5 per cent., and that the schooner must sustain $2250 of the loss; the cargo $1800; and the freight $200. Insurance Company A must pay 5 per cent. of $30000=$1500; company B 5 per cent. of $22500-$1125; company C 5 per cent. of $9250=$462.50; and company D 5 per cent. of $4250 $212.50.

4. Suppose, in the above example, that when the schooner reached her dock in Buffalo the flour could have been sold for $6120; the wheat for $35780; the corn for $11100. How is the insurance to be adjusted?

INTEREST.

ART. 90. Interest is the compensation allowed for the use of money or capital.

It arises from voluntary loans, from certain investments giving a periodical income, and from delay in payment of debts already due.

The principal is the sum loaned, or the debt on which interest is paid.

The amount is the principal and interest taken together.

The rate of interest is fixed by mutual agreement, or by law; and is the ratio between the principal and interest for an assumed length of time, expressed by percentage; thus, "6 per cent. per annum," declares the interest for one year to be of the principal. In expressing the rate per cent., one year is generally assumed; though in discounting "short paper," a month is frequently used; as 1 per cent. per month.

Usury formerly was synonymous with interest, but now signifies illegal interest. England having abolished all usury laws, has no further use for that term. The practicability of voluntary contracts in loaning money, restricted only as other contracts are restricted, is gaining increased favor among intelligent political economists, and not the least among money borrowers. When the rate has not been previously agreed upon, a legal rate is desirable, to avoid contention or oppression. Government regulates all weights and measures, but not the prices of the articles weighed and measured. So it regulates the weight and fineness of coins, but it should not dictate the price paid for the use of them. The injustice of restricting the rate of interest may be seen by applying the principal to insurance companies. If the premium for insurance be restricted to a low rate, only the safest risks would be taken, those having greater risks could not be accommodated. So in restricting the rate of interest, only the rich and those who could offer the best

securities would be able to borrow money. If the loan be made at higher than the legal rate, the rate must be raised still higher to cover the risk arising from illegality.

ART. 91. INTEREST may be simple, annual, or compound. In simple interest the principal alone draws interest; which as it accrues remains unchanged until ultimate payment.

In annual interest the interest on the principal due at the end of each successive year becomes a new principal to draw simple interest until payment. When interest is made payable semi-annually or quarterly, the interest, if not paid, is convertible at those periods into the principal, as in annual interest.

In compound interest the entire amount due at regular intervals of time, both of principal and interest, is converted into one new principal. It is thus compounded annually, semiannually, or quarterly.

The

In

Note. The difference between simple, annual, and compound interest in their effect depends upon the time when interest money, if not paid, begins to draw interest. In general a debt should begin to draw interest as soon as it is due. time when a debt of interest becomes due is conventional. bank discounts it is payable in advance. In simple interest it is not considered due until the ultimate payment of the principal. In annual interest it is due after it has been accruing for one year, except the interest on interest, which is not due till ultimate payment. Compound interest supposes all interest, whether upon principal or interest, to be due at the end of equal successive intervals of time, generally of one year or six months. When the interest is considered due the instant it has accrued, and all interest is made to draw interest, it is called instantaneous compound interest. The actual difference between even instantaneous compound interest and simple interest is not so great as at first might be supposed. For 6% simple interest for one year will amount to more than 5% instantaneous compound interest.