§ Order for Committee read.
§ Motion made, and Question proposed, "That Mr. Speaker do now leave the chair."
§ MR. MUNTZ
said, the more he saw of the Bill the worse he thought of it, for he was satisfied it was one of the worst measures that had ever been introduced into Parliament. Instead of being called a Partnership Amendment Bill, it ought to be called a Bill for the encouragement of fraud, collusion, and robbery. Who was it that wanted the Bill? Certainly not the commercial community. He saw no reason why they should be dragooned into a Bill by the Board of Trade which was not wanted. If he were to take upon himself the business of a Chancery reformer, he would be called a conceited fool for his pains, and he did not see much difference between that and the Board of Trade undertaking to legislate in matters about which it knew nothing at all. A man in business, who was in bad odour and had little credit, could not do much harm; but if he got somebody of whom the world was to know nothing, to lend him capital secretly, he would be able to get credit on the strength of it, and then, the capital being quietly withdrawn, he might suddenly break and cheat his creditors in the most barefaced manner. He was satisfied that the commercial world did not want the Bill, and he should therefore move that it be committed that day three months.
§ Amendment proposed to leave out from the word "That" to the end of the Question, in order to add the words, "This House will upon this day three months resolve itself into the said Committee," instead thereof.
§ MR. WILKINSON
said, he would remind the hon. Gentleman that all the great reforms which had been effected of late years had been carried in opposition to persons of experience, and therefore he did not think the hon. Gentleman's remarks on the Board of Trade were well 339 founded. Free trade and the penny post had been opposed, the one by the growers of corn, and the other by the officials of the Post Office; but both measures had proved of the greatest benefit to the community, notwithstanding the predictions of those whose opinion might have been supposed deserving of attention. He thought the Bill would turn out to be a most valuable measure, and in his belief it was one generally desired by the trading community.
said, that so far from agreeing with the hon. Gentleman (Mr. Muntz), he thought the Bill the most valuable one of the Session; and he would appeal to the House whether there was not a universal feeling in its favour. He regarded the present law as antiquated and semibarbaric, and he must consider the Birmingham school very doubtful authorities in monetary matters.
§ MR. SPOONER
, for his own part, had not conversed with any person on the subject of the Bill who had not denounced it in the terms in which it had been so properly described by his hon. Friend the Member for Birmingham (Mr. Muntz). He might illustrate the working of the measure by supposing a case which was very likely to occur if the Bill became law. Three persons might enter into partnership, two openly, the third secretly. The first two, it might be, had no money, and the funds were advanced by the third, who thus gave the concern a status and a credit which it could never without his assistance have obtained. The secret partner, having free access to the books, might discover that the trade was not going on well, and cautiously withdraw his capital little by little. In that way he might get back all he had advanced, in addition to the sums he had withdrawn, in the form of imagined profits. The partnership would then collapse, and the creditors who had been seduced into trusting the firm on the faith of appearances, arising from the advances of the secret partner, would thus be defrauded of their money. If the House went into Committee, he should propose a clause compelling any secret partner to refund all he had withdrawn during the three years previous to the insolvency of the firm of which he had been a member.
§ MR. ROEBUCK
said, he could not consent to the rejection of the Bill in so summary a manner. To the general principle of the Bill, by which it was sought to 340 enable a man to obtain a capital by subscriptions from various quarters, he entirely assented; but there were one or two precautions which he thought were absolutely requisite. The evils apprehended by the hon. Gentleman opposite (Mr. Spooner), that a man might improperly obtain a reputation and credit by trading upon a loan, might be guarded against by requiring all loans made under the Act to be registered in some public record, a provision which might easily be inserted in Committee. If such a clause as this were adopted they would have all the benefits of combination without any danger to the public; and he should, therefore, support the Motion for going into Committee.
§ MR. GLYN
said, that if he had the slightest idea that the right hon. Gentleman (Mr. Lowe) would assent to the introduction of any such precaution as that suggested by the hon. and learned Member for Sheffield (Mr. Roebuck), he would not support the Amendment; but as the Bill now stood, and remembering the evidence taken before the Committee of 1850–1, he must avail himself of every opportunity to get rid of what, in his belief, was a most obnoxious measure. Although that Committee made no Report except to recommend the issuing of a Royal Commission, yet the evidence taken before it was of great value, and fully established three points. The first point was, that the repeal of the usury laws had rendered it necessary for the protection of persons in trade that there should be an alteration of the laws of partnership; the second was the necessity of an alteration of the bankruptcy laws contemporaneously with that of those of partnership; and the third was that, while it was right that persons dealing in money should be allowed to make contracts exactly like persons dealing in other articles, that permission must be accompanied with a provision for the necessary publicity of such contracts. A great deal had been said during the progress of the Bill relative to the difficulties and frauds of legislation; but he was not aware of any other means by which that publicity could be attained. None of the points established by the evidence had been provided for in the Bill. Another reason why he objected to the further progress of the Bill was that, in moving the second reading, the right hon. Gentleman (Mr. Lowe) said that the proposed measure was not to be considered as an alteration of the law of partnership, but only as a remedy 341 for something which had accidentally occurred from a legal decision with that law, to which he (Mr. Glyn) could not assent; and that if he were encouraged, he should be happy to bring in an extended Bill upon the subject. [Mr. LOWE: Would the hon. Member move for a Select Committee?] To move for a Select Committee was the very thing which he (Mr. Glyn) wanted and had recommended, but if he were prepared to take that course, why should the right hon. Gentleman endeavour to force upon the House a measure of which he (Mr. Glyn) had heard no commercial man express a favourable opinion? The right hon. Gentleman had not made the slightest provision for the summary punishment of frauds. In all countries where the law at all resembled the proposed measure, as in France and Holland, there were very stringent bankruptcy laws; but, while introducing the Bill now before the House, the right hon. Gentleman proposed to leave the bankruptcy laws of the country precisely as they were, although their stringency was being daily diminished. He hoped that the House would take the matter into its own hands, and would induce his right hon. Friend to postpone the measure to another Session.
§ MR. MALINS
said, he regretted that his hon. Friend the Member for Kendal (Mr. Glyn), who had hitherto supported the principles of limited liability, had made a retrograde movement, and was now opposed to them. Notwithstanding what his hon. Friend had stated, he would assure the House that he had scarcely met anybody who was not in favour of limited liability, and he would remind his hon. Friend that that principle was supported by three out of five of the eminent commercial men who were examined before the Committee of 1850–51. The usury laws having been repealed, a man might advance money for others to trade with at the rate of 20, 30, or 100 per cent, might stand in the place of a creditor, and might take, not only the property, but the persons of his debtors, leaving the other creditors to whistle for their money, not once only, as in the case supposed by the hon. Member for North Warwickshire (Mr. Spooner), but ten times. Now, all that the Bill under consideration proposed was, that the money might be advanced, not at a fixed rate of interest, but in consideration of the reception of a certain share of any profits which might be made by the trading. Nothing could be more reasonable than such a proposal. 342 The Bill would put an end to the contradictions and inconsistencies of the present system, and would not fail to operate beneficially on the general interests of commerce. It was no uncommon thing for a trader to employ a confidential person to carry on his business for him, yet such was the absurdity of the law as it now stood, that if that servant received a share of the profits he was a partner, whereas if he received a sum equivalent to a share in the profits he was not a partner. The distinction, therefore, was preposterous, and the Bill under consideration very properly contemplated its abolition. The principle of the measure was undoubtedly sound, and, as there was no reasonable cause to apprehend that it would have any other than a salutary operation, it was to be hoped that the House would not hesitate to sanction it.
§ MR. CROSSLEY
said, he must deny that the Bill had any connection whatever with the principle of limited liability, for a partner under its provisions would have no liability at all. It was said that a man might lend money at any rate of interest; but there was this difference in the two cases—that a creditor, unlike a partner, had no right to examine the books.
§ MR. BASS
said, that millionaires might be opposed to the Bill, but men of moderate capital were generally in favour of it. The evils apprehended by the hon. Member for North Warwickshire from the Bill were every day in operation under the present law. The objections taken to the Bill were entirely of a nature for discussion in Committee. He hoped, therefore, that the House would go into Committee.
§ MR. G. BUTT
said, he was really surprised to hear his hon. and learned Friend the Member for Wallingford (Mr. Malins) contend that the Bill embodied the principle of limited liability. Its principle, as had been truly observed, was no liability. Had it carried out the principle of limited liability, he would have supported it; but he denied that it did so. He would put a case. Suppose a man advanced to a trader £1,000 on condition of receiving seven-eighths of the profits, he would receive his money back over and over again; and when the trader failed, he would still be a creditor for the amount. He was as friendly to limited liability as any one, but the Bill would enable persons to take away the profits of business without incurring any liability at all. Under the second clause, an agent or factor who took a 343 share of profits was exempted from partnership liabilities. The result of that would be, that men would engage as agents, servants, or factors, on such terms as to receive the greater share of the profits, and would escape liability altogether. The third clause was no less mischievous. It would enable retiring partners to pay themselves, in the shape of profits, the capital they professed to leave in the concern over and over again. Where, then, was the principle of limited liability? It was, in fact, a Bill to enable persons to share in the profits of business without being liable for a single farthing. It would give facilities for all sorts of fraud.
§ VISCOUNT PALMERSTON
said, he hoped that the House would go into Committee, and there continue that discussion, which appeared to be carried on by anticipation on the Motion that Mr. Speaker should leave the chair. Most of the objections taken by hon. Gentlemen applied to the details of the Bill, and not to its principle. It was said that the measure was not founded on limited liability; but, at all events, it was founded on the propriety of doing away with unlimited liability. It was needless to remind the House of instances illustrative of the necessity of such a change; yet he might be permitted to cite a somewhat remarkable one—namely, that of Sir Walter Scott, who, if he mistook not, was a dreadful sufferer from the prejudicial operation of the law of unlimited liability. It was said that public opinion was opposed to the Bill. Now, he must confess that he thought, on the contrary, that public opinion was strongly in its favour. The country was convinced that the law of partnership required fundamental alteration; and nothing would tend more to relieve a large portion of the community from the impediments that now prevented them from turning their small capital to profitable account than the Bill which his right hon. Friend the Vice-President of the Board of Trade had introduced. It was somewhat singular that the opponents of this measure were chiefly the great capitalists, or individuals whose position enabled them to wield a large capital; while, on the other hand, its warmest advocates were persons connected with that more numerous class who were possessed of small capital. He thought that primâ facie the inference to be drawn from that fact was, that the Bill was a good one. Be that, however, as it might, it was certainly remarkable that the hostility 344 to the measure proceeded from—he would not say "the monopolists," for that was an odious and offensive term, but—the few who had the advantage of a large capital in conducting their commercial transactions, while the friends of the Bill included those who were anxious to benefit people of humbler means by letting loose their small capital, and giving them freer access to the general market. He trusted that when the measure got into Committee, it would be found to be worthy of the attention of the House, and calculated to advance the prosperity of the community.
§ MR. T. BARING
said, that if argument were wanting against going into Committee on the Bill, it would have been amply supplied by the speech of the noble Lord who had just sat down. The noble Lord had alleged that the contest on the question lay between the few who had the command of a large capital and the many who had but little; and in a very good-humoured way he ventured to impute motives of not the most honourable kind to the opponents of the measure. Now, he must protest against a person occupying the high position of leader of the House of Commons and Prime Minister of the Crown attempting to excite a cry against the capitalists of the country, and making it appear to the people out of doors that the question at issue was one of monopoly—a disagreeable term, indeed, as the noble Lord had admitted, but which he, nevertheless, did not refrain from launching most unjustly against the opponents of the Bill. The noble Lord, he apprehended, required to be reminded that the question before the House was one of principle, namely, whether they should go into Committee; and so far from all the objections taken that night being such as could best be treated in Committee, the objection stated by the hon. and learned Member for Sheffield (Mr. Roebuck) was in his (Mr. T. Baring's) opinion fatal to the principle of the measure. That principle was that everything should be done privately and secretly—that there should be no publicitly either as to the amount and the duration of a loan or investment, or as to the time when the money was withdrawn from a concern. Would the right hon. Gentleman (Mr. Lowe) consent to modify his Bill so as to adopt the system of registration and publicity on those matters? If he did, he must go directly in the teeth of the doctrines he enunciated in the speech with which he introduced his measure. It was 345 manifest, therefore, that they were now debating a question of principle—the principle whether they were to establish a system different from any ever before adopted in any country, and completely at variance with the Bill which was proposed to the House by the predecessor of the right hon. Gentleman, and supported by the noble Lord (Viscount Palmerston) with the same warmth and, also, if he recollected rightly, with the very same insinuations against capitalists in which he had thought proper to indulge on the present occasion. Those charges were wholly unworthy of the noble Lord. If they wanted investments for small capitalists, that took them to the subject of joint stock companies. The Bill before them dealt with capital applied to the carrying on of trade; and he (Mr. Baring) viewed it in regard to its effect upon the general credit of the country. When the vastness of the credit brought into play throughout the world to carry on the commerce of England was considered, it would be seen how important it was to maintain that credit unshaken, and, therefore, he looked with the greatest suspicion on a change not demanded by the commercial community, and which must have a tendency to diminish confidence in the commercial system of the country. Allusion had been made to the fact that persons were now allowed to lend money at high rates of interest, but that was a different thing from the credit given upon the faith of money advanced. No man would give credit to another who was known to be trading upon borrowed capital for which he was to pay a high rate of interest, but any man would give credit to an establishment in which it was known that a man of great capital had invested money for the purpose of obtaining a share of the profits. Loans known to be obtained upon usurious rates of interest, would detract from the credit of any house. He should vote for the Amendment of the hon. Member for Birmingham (Mr. Muntz), for he believed the Bill was not required at all. There was no want of capital under the present system for the full purposes of trade, and the Bill, moreover, was opposed to the Report of the Commissioners who had inquired into the practicability of reforms in the mercantile laws. It was said that the Bill was justified by the evidence which had been taken. There were, no doubt, many opinions expressed in favour of the change, but there were also opinions of equal authority against it, and the evidence 346 was entirely against the principle of the Bill, which did not recognise the necessity of publicity and registration. Every witness from the United States, from France, from Holland, or any country where the principle of limited liability prevailed was opposed to the principle of the Bill. Upon those grounds he, therefore, hoped the House would call upon the right hon. Gentleman to withdraw the Bill for the present Session. The Bill was not so necessary now, as the right hon. Gentleman the Vice-President of the Board of Trade had announced his intention, at a future period, to introduce a Bill for changing the character of partnerships, and it would be much better, he considered, to deal with the whole subject upon a wide and comprehensive scale. If it were enacted that men of capital could receive profits without becoming partners, the result would be that, when hard times came, every creditor would set about collecting evidence to ascertain whether the lenders of capital had made themselves liable as partners in any other way—whether they had given advice, had examined the books, or frequented the office, and thus the Bill would become an endless source of profit to the lawyers, but a source of ruin to many who might be tempted by its provisions.
§ MR. MITCHELL
said, he must also complain that the noble Lord at the head of the Government had thrown out unworthy taunts against the mercantile members of that House, and had told them that their objections to the measure would be better stated in Committee. But they were called upon to determine upon the principle of the Bill, which was limited liability without publicity, which was a most objectionable feature in any system of commercial legislation. He wished to know whether, in Committee, the Government would adopt those precautions against fraud which were embodied in the Joint-stock Companies Bill—that a person lending money should not be a creditor against the estate for that money, and that all partnerships in that form should be registered?
§ SIR JAMES GRAHAM
said, presuming that the hon. Member for Birmingham would press his Amendment to a division, he would beg to join in the appeal which had been made to the Vice-President of the Board of Trade by the hon. Gentleman who had last addressed them. His own Vote would depend entirely upon the answer which might be given to that appeal. He could not forget that the Bill was opposed 347 to the Report of a Commission and to the Reports of two Committees; and, although it was based upon certain evidence, it was upon evidence which did not warrant the Bill in its present shape. The great weight of testimony in favour of a measure of that description had been accompanied by statements of the necessity of publicity and various safeguards. There was a broad distinction between a man lending money on usurious interest and a person being admitted to share in the profits of the business in return for the loan of his money. The lender on usurious interest had great risks; he had no access to the accounts and knew nothing of the state of the profits. A person, however, receiving a share of the profits would have access to the accounts, would be cognisant of all the secret transactions of the concern, and might withdraw his money as opportunity offered, either immediately or gradually. He quite agreed with the hon. and learned Member for Sheffield (Mr. Roebuck) that the whole matter turned upon the question whether there should be publicity or not. If the right hon. Gentleman (Mr. Lowe) said that in Committee he would be prepared to entertain propositions to insure publicity and to create safeguards, then he (Sir J. Graham) would vote for going into Committee. If, on the contrary, the right hon. Gentleman should regard such propositions as at variance with the principle of the Bill, he (Sir J. Graham) would feel bound to vote against going into Committee.
§ MR. LOWE
said, the proposition made by the hon. Member for Bridport (Mr. Mitchell) and urged upon his acceptance by the right Baronet who had just resumed his seat reminded him that gold might be bought too dear. He should be glad to have the right hon. Baronet's support, but he would not purchase it at a price which he could not fairly pay. It had not been his intention to trouble the House upon this stage of the Bill, which had, in fact, been read a second time twice in the course of the session, after considerable discussion on each occasion; but, being challenged upon every point, and the last words of the right hon. Baronet sounding very much like an intimation of the probability that the Bill would not proceed any further, it was only right that he (Mr. Lowe) should briefly state the nature of the measure. The Bill certainly was not a Bill dealing with partnerships properly so called; that subject he had dealt with 348 already. If a partnership wished to constitute itself in a shape to receive the privileges of limited liability, the Joint-stock Companies Bill, which was now in the House of Lords, offered facilities for that purpose. He thought it very doubtful whether the principle of limited liability should be applied to partnerships in the manner that had been shadowed forth by some hon. Members in the course of the discussion, but he would give no decided opinion at present upon that point. Whatever was done with the law of partnership, the law of principal and agent ought not to be destroyed. The Bill now under consideration, however, was not a Bill to alter the law of partnership, it was merely supplementary to the repeal of the usury laws. It was not a Bill to regulate the relation of partners inter se, nor with third parties, but to regulate the terms upon which capital should be advanced. He believed the Bill to be a beneficial one, for as the hon. Member for Tynemouth (Mr. Lindsay), in a pamphlet he had published, observed, talent was a drug and capital was a drug, but the union of capital with talent was rare, and so far from being a drug would be extremely valuable to society. The present Bill would, he believed, bring about that union, and it was most desirable that it should pass, as, if it were thrown over, great injustice would be done to single traders. The Joint-stock Companies Bill was almost certain to become law, and by it a host of Companies would be created to compete with traders in all kinds of business. [Ironical cries of "Hear, hear!"] He rejoiced at that circumstance. They had carried out the principle of free trade into the competition of capital. His notion of free trade was not a one-sided one, and having enabled Joint-stock Companies to compete with individual traders, it was only fair and just to give to the latter every reasonable liberty to compete with the Joint-stock Companies. Believing as he did that the Bill was a salutary measure, he was most anxious that it should also be an efficient Bill and carry into effect the principles upon which it professed to be founded. That principle was to facilitate the advance of capital upon the considerations of a participation in the profits, and he believed that advances upon such terms would be advantageous both to the borrowers and the lenders, because the latter would take nothing except when the borrower was fully able to pay, and thus his capital would never be incumbered 349 with the payment of high interest. But the question which really pinched was—what was practicable? Hon. Gentlemen talked of safeguards being required, and that if they were introduced the Bill would be unobjectionable; but if too many safeguards were introduced, the Bill would be made safe altogether, for it would be inperative and not work at all. The question which, as a practical man, he had to decide was, how many safeguards could be introduced without making the Bill a dead letter? He wished the Bill to pass, and he wished, at the same time, that it should be effective and carry out the object it professed to have in view. That, however, would depend not altogether on the nature of the Bill itself, but on the facilities now given to other transactions of a similar nature. Where you to put a duty on an article you must look to the probable operations of the smuggler, and in the same way, when you imposed safeguards upon a particular kind of contract, which you were still anxious should be entered into, you had to consider what alternatives were possessed by persons for whom you legislated, and whether they would enter into those contracts with the safeguards you proposed to lay down. Now, he found that since the Committee of 1851, alluded to by the hon. Member for Kendal (Mr. Glyn), two changes in the law had taken place—namely, the repeal of the usury laws, and the Joint-stock Companies Act recently passed; and he asked himself, when you had got your safeguards—the publicity, the registration and the other machinery of the kind proposed—who would take advantage of the Bill at all, who would be disposed to avail themselves of its provisions? How could you expect people, when they could obtain nearly the same advantages by other methods of proceeding, to have recourse to this measure? On what principle of human nature was it expected that a man who could lend his money at a fixed rate of interest, without depending on the profits, without publicity, without registration, would put aside those facilities in order to involve himself in all the intricacies now proposed? It was perfectly clear that the effect of such a provision would be to perpetuate an injurious system now in operation—namely, the practice which prevailed, with regard to trading concerns, of having a certain amount of their capital supplied for a short period by dealers in money. That was a system which he looked upon as injurious to the trade of the country; 350 it was far better that that capital should be supplied by persons who were more intimately concerned with the business carried on than the mere money-lender or bill-discounter. Under the system now proposed, however, you would be poising the scale in favour of the money-lender and bill-discounter, and against the persons whom it was wished to emancipate (so to speak) by the Bill now before the House. What was there in the nature of loans, based on a share of the profits, which should make them so utterly different from other kinds of loans? The only difference between such loans and those of the ordinary character was, that there was something to arrive at before the interest was paid, namely, the amount of the profits; whereas in the other case the amount of interest was settled by exact stipulation between the parties. Was there anything in that principle which warranted so great a difference in the manner of treating the two cases, so that whereas in the one instance you allowed the lender the fullest licence to deal with the borrower as he thought proper, without in the least interfering with the nature of the transaction, you should think it necessary in the other instance to tie up the transaction by every species of burdensome restriction which man could conceive or invent? It was said that the man who lent money on profits had access to the books. That, however, was a mistake. He apprehended that, practically, the mere lending of money on profits would not give a man the right to go into the counting-house and turn over the books as he pleased. In equity the lender might have such a right, but how many contracts would there be in which it would be left to a Court of Equity to decide in the matter? Would it not be left to be decided in the agreement between the parties? or would it not be left to arbitration? in which case there would be no difficulty at all in the matter. What was there in all this to warrant the wonderful difference made in treating the two kinds of loans? But go a little further. How long had it been laid down that a man, when he advanced his money, might not stipulate for any advantage he thought proper? In consideration for a loan at fixed interest he might stipulate for security, he might stipulate for access to the books, and for any other advantage which he chose to insist on. Take, however, a case:—Suppose a man advanced money on security on condition that he received 351 some portion of the profit—would you take his security from him because he stipulated to be paid in profits instead of a high rate of interest, which would have covered the probable profits? Now, hon. Members should be aware that all those things were to be considered; the line must be drawn, and he could not conceive where that line was to be drawn. It appeared to him, under all the circumstances, that he should be inexcusable if he consented to the proposed system of registration. He looked upon that system as the most cruel trap, the most perfect delusion which could possibly be devised—as one which would cause more hardships, more ruin, more misery than any provisions which could be imagined—as a system which would be the fruitful mother of every species of fraud and iniquity. The first words of the clause were these—No person who may hereafter lend money to a trader in the manner authorised by this Act for a fixed period of time shall be deemed to be a partner.So that, if in the slightest particular the very numerous and intricate provisions of the Act were departed from—the least omission or inadvertence rendered a lender, instead of not being liable at all, accountable to the last shilling of his fortune. A simple error in the description, an error in a figure, an inadvertence for which he might not be in the slightest degree responsible, made him liable to the extent of every farthing he possessed for the debts of the concern. Well, then, he said, better—a thousand times better—have no Act at all than such a trap as that would prove to be. Again, it was proposed to register the name, the place of business, the description of the lender, and of the the trader borrowing, and the amount of the loan. In France, where the system had been in force for a considerable period, it was found that the loans on terms of receiving profits, unlike loans on terms of fixed interest, gave a degree of credit to the borrower. If persons were found willing to lend to a concern on condition that they should only be repaid when profits began to be made, that would obviously be one means of creating confidence in such a concern. You therefore gave people, if fraudulently disposed, an opportunity, under the system of registration, of putting down the name of any great capitalist, and of entering him as a lender, thus imparting a fictitious credit to the concern. Then as to the amount of the loan. Fraudulently 352 disposed persons might put down any amount they pleased, and might refer to the registry and show that they had this amount of capital at their disposal. What made the matter worse was, that the registrar was to ascertain, by a quasi judicial process the genuineness of the loan which would give rise to the notion that that officer had made inquiry into the bonâ fides of the transaction, whereas it would really establish nothing of the sort and could lead to nothing at all. Before registering the loan the registrar was to require the production of the instrument for securing or manifesting the same, and such other evidence of such loan as he shall deem sufficient," and then he would certify that it had been paid. But suppose it had been paid. In the case of the fraudulent collusion suggested, what was to prevent the loan being recalled the next day after being so paid? Then any variation of the contract, or any change of the terms, established a new contract, that is to say, if it was not registered at the very moment it made a man again unlimitedly liable to the creditors of the concern. There were a great many points of a similar nature which he might bring forward; but he had said enough, he thought, to show the objections he entertained to the proposals made; and, entertaining those objections, he considered that he should be culpable indeed if he held out any hope that he would assent to those proposals. Their adoption would be, in his opinion, a thousand times worse than having no Bill at all. He had, therefore, no difficulty in meeting the challenge of his right hon. I Friend (Sir J. Graham) by saying that he could not adopt a system of registration which would be looked upon as bonâ fide, but would be infinitely worse than none at all; and he could scarcely imagine how such Amendments could be introduced by any Gentleman favourable to the principle of the Bill. For his part, he was prepared to stand on the principle of the Bill, which was not, as had been truly said, that of limited liability; it was not the principle that a partner should limit his liability; it was not the principle of commandite, which was devised for the purpose of cheating the usury laws; but it was to enable private partnerships, under the competition to which they were now to be subjected, to increase their capital by removing from those who were willing to advance capital the present heavy restrictions and penalties. That was the principle of the measure, 353 and he would not sacrifice the carrying out of that principle by holding out any promise of yielding to the proposals to which he had adverted.
§ MR. CARDWELL
said, he must call upon the House to observe that, as it had been put by his right hon. Friend the Vice-President of the Board of Trade, they were not going to vote upon the question of limited liability, and, therefore, hon. Members who voted against the proposal to go into Committee would not be voting against that principle. He had been under the belief that to his right hon. Friend was due the credit of having sent to the other House in the present Session of Parliament a comprehensive and useful measure for giving limited liability to Joint-stock Companies; but how great must be the disappointment with which they had listened to his right hon. Friend, who told them that any attempt, with regard to this measure, to give that simple publicity which many hon. Gentlemen thought essential to the bonâ fides of those transactions must necessarily be so impracticable that it would be thousand times better the Bill should not pass at all. Now what the advocates of publicity desired was, that the Bill now under consideration should follow the precedent of the Joint-stock Companies' Act. The hon. Member for Kendal (Mr. Glyn) identified himself with the principle of publicity, and argued that notice should be given to the whole community of the nature of the partnerships about to be created. The Joint-stock Companies Act carried out the fundamental principle of our own law, and what was also, he believed, a fundamental principle of the law of every commercial country in the world—that persons might limit their liability inter se, but that, if they limited their liability against an unknowing creditor he should not be bound by a contract made behind his back—that freedom of trade should not be extended to freedom of fraud—and that the creditor should not be governed by arrangements made collusively without his knowledge. It was found that that principle of the law of this country operated as a restraint upon commercial transactions, and, therefore, in the Joint-stock Companies' Act a mode of registration and publicity was devised, and it was provided that all persons dealing with a partnership incorporated under that Act, since they had the means of ascertaining the limits of its liability, should be deemed to have dealt with it as a limited 354 liability partnership. The hon. Member for Kendal, and others who agreed with him in opinion, said, "Be consistent in your legislation, and do not in the same Session, and on the same subject, assent to two measures which are diametrically opposed in principle." How could his right hon. Friend (Mr. Lowe) tell them that the very same regulation for which he had obtained much credit for sending up to the other House in the larger Bill would be delusive, impracticable, and mischievous, if it were introduced into the measure now before them. The right hon. Gentleman told them that the Bill did not relate to the question of partnership, but that it was intended to supplement the usury laws. Common persons, he apprehended, would judge of the object of a Bill from its endorsement, and he found the endorsement of the Bill was "Partnership Amendment (No. 2) Bill." The House had twice, during the present Session, agreed to amend the law of partnership, and he would now ask them, if they went into Committee, to do that which, by assenting to the second reading of the Bill, they had determined to do—namely, to amend the law of partnership. The right hon. Gentleman (Mr. Lowe) said, they would act with injustice towards private partnerships if they did not pass this Bill, because they had given to great partnerships all the privileges and advantages of the Joint-stock Companies' Bill, thereby raising up competitors against smaller partnerships. Now what was the natural inference to be deduced from that observation of his right hon. Friend? Why place the smaller partnerships precisely upon the same footing as the larger, let there be perfect equality—a clear stage and no favour. Every argument urged by the right hon. Gentleman against the introduce resonable precautions into his Bill told with precisely the same force against all the precautions which he had himself inserted in the Bill that had been sent up to the other House. [Mr. LOWE said that no conditions had been inserted in the latter measure.] His right hon. Friend said that no conditions had been inserted in the Bill sent up to the other House. Possibly his right hon. Friend might be interested to learn what were some of the provisions of the Bill which had been sent up to the other House. That Bill expressly required a registration of the names of partners; a statement of the objects with which the partnership was 355 established; a declaration whether the liability of the shareholders was to be limited or unlimited; a statement of the amount of capital; and it provided also that the word "limited" should be added to the title of the company; yet the right hon. Gentleman said that the measure contained no provisions for the protection of the public. Surely those conditions would suffice to give universal notice of the character of the company, and would afford a protection against fraud to the public. But if the Bill was not only inconsistent with the principle of the law of this country, but also inconsistent with the measure for the regulation of joint-stock banks, which had been sent to the other House, upon what authority was it founded? Did the two Committees of that House, which had considered the subject, recommend a measure of this description? They did not. They recommended a measure similar to that which had been suggested by the hon. Member for Kendal (Mr. Glyn). Did the Commission recommend this Bill? No. One-half the members of the Commission—for there was a difference of opinion on the subject—recommended that some arrangement should be made with regard to such loans as were contemplated by the Bill, but not without safeguards against fraud. The example of foreign countries had been appealed to, and the case of America had been mentioned. He had in his hand the revised Statutes of Massachusetts, and he found that there was not one restriction that had been called for to-night that was not in force in that State. How could it be contended, then, that such restrictions would be impracticable, mischievous, and cruel in this country? What was the law of France and Germany on the subject? The speech of the right hon. Gentleman (Mr. Lowe) might lead hon. Members to imagine that in France no regulations existed for the protection of the public. He would not enter into a dissertation upon the bankruptcy laws of other countries, but he believed the stringency of those laws afforded greater protection to the public than was given by the laws of Great Britain. The Leipsic Chamber of Commerce, speaking of the Code de Commerce, said—It is necessary that this extract (a general notification of the character of the partnership), besides the names of the managing partners, the commercial objects of the newly-established company, the commencement and the termination of the period for which it is formed, should contain 356 the number (not, however, the names) of the commanditaires, and the amount of the funds advanced or to be advanced by them. Other commercial codes require also the publication of the names of the individual commanditaires.The right hon. Gentleman, then, could not appeal to the law of America, of France, or of Europe; but it was said that the law was found to be satisfactory in those countries where there was an absence of restriction. Among the eminent men who composed the Commission there was not one whose opinion on such a subject was more valuable than that of Mr. Slater, who said—But it is by no means certain that partnerships en commandite, even in those countries where the system is most adopted, give that satisfaction which its advocates would predicate. In France, M. Horson, although in favour of such partnerships, gives no very flattering account of its operation, ascribing the evil effects which are occasionally produced by such partnerships, or rather the excrescences which have arisen out of them, 'to the fact of its principle not having been sufficiently clearly defined in the Commercial Code of 1807, while since that time the jurisprudence and the precedents have gradually deviated more and more from this principle.'Now, he would ask hon. Members if that principle would be clearly defined by this Bill? Could any man tell what would be the operation of a measure which, according to the right hon. Member for Kidderminster, would not entitle a person advancing money to a partnership to have access to the books? He (Mr. Cardwell) knew the Bill did not in terms entitle a person under such circumstances to have access to the books; but was a man to form a contract that he should be remunerated according to the profits of an undertaking, and then to be denied access to the means of ascertaining amount of those profits were? The right hon. Gentleman said that an account might be had in chancery; but would that House assent to a Bill which would establish a system of commercial contracts the nature of which could only be determined by the cumbrous and costly expedient of an account in Chancery? Mr. Horson stated that the mischiefs which had arisen in France were attributable to the fact that the principle of the law had not been sufficiently clearly defined in the Commercial Code, and those mischiefs were—That there is no guarantee that the commanditaire has wholly paid up his quota—no registration of either names or shares—and no effective security against fraud, both partnerships en commandite and sociétés anonymes being addicted to reckless speculation.357 The House had been told that all the evidence was in favour of limited liability. They were not now discussing limited liability, but, if they were, it would be found that the whole tenor of the evidence was in favour of limited liability with publicity, but certainly not without publicity. One of the witnesses, who would have the greatest weight with the Commissioners, must have been his right hon. Friend the Vice-President of the Board of Trade, and he would therefore read to the House the opinion given by him before the Commission. He was asked this question:—Ought it to be indispensable to such limited partnerships that a registration of the terms on which the partnership is carried on should be required; and that the very name by which such company was denominated should mark it as belonging to that class? What ought to appear in the registration of the company? In particular, do you think that the names of the limited partners, together with the sums furnished by them respectively, should be published in such register?The House would see that this was the very thing now asked for. The right hon. Gentleman answered the question thus:—I think, as the partners are left to fix the terms of their contract, the public should have access to those conditions by which it is to be bound, and therefore that the terms should be registered.Cruel trap! mischief! impracticability! Such had been the language of the right hon. Gentleman that night. Then, in his evidence, his right hon. Friend proceeded to say:—Too much publicity cannot be given to the nature of the partnership; and I think, to facilitate inquiry, the names of the partners should be given. I see no objection to publication in the newspapers, as practised in America; but I do not think a circular of accounts should be required.He also said, he would have certificates "distinguishing who are general and who are special partners, the amount of capital which each special partner has contributed to the common stock, the general nature of the business to be transacted, and the time when the partnership is to commence and when it is to terminate." Do not let the right hon. Gentleman now say that the lender—that was to say, the commanditaire—ought not to be registered as well as the general partners. The matter had been rather discussed as if it was some difficult question of law—as if we had got some deep abyss of legal knowledge to fathom before we could come to an intelligible 358 opinion regarding it; but in truth it was a very plain question of common sense. The question was, whether we were going, for the first time in commercial history, to legalise a state of things in which such operations as he would now describe could be carried into effect? Imagine a capitalist desirous of speculating with £10,000. Imagine him to send down to Liverpool two men of straw with £5,000 each received from him. Let it be a period of great speculation, and let them deal with some particular article which was likely to fluctuate very considerably in price. He desires one of his agents to speculate for a rise, and the other for a fall in the value of the article. The article of course would either rise or fall. One of the persons so set up by the capitalist would sustain a loss, and the other would necessarily realise a large profit. The profit would go to the capitalist, while the loss would be limited to £5,000, and as the present Bill was drawn he would be a creditor for that amount. More than that, he would be a creditor with means of knowledge that no other man possessed, and with an opportunity of getting his £5,000 that no other creditor had. Now, let the Bill be called a supplement to the Joint-stock Company's Act, or to the Usury Laws Repeal Act; or let it be called on the back "A Bill to amend the Law of Partnership," and in the debate, as had been done, let it be stated that it had nothing to do with the law of partnership—what did all that signify? The question was, whether or not that House was going to establish a gigantic system of fraud to the injury of the honest trader and to the great detriment of the commercial interests of the country? Well, what was the particular time at which this Bill was brought before the House? He had read that morning some interesting observations in the city article of The Times, one or two of which he would take the liberty to bring under the notice of the House. It was said—The form of speculation now gradually commencing will be watched with anxiety by all who regard the permanent welfare of the country.Then it went on to say that every one must see—That the final result will be a crash such as was witnessed in 1825, 1836, and 1847, and which in this country may be looked for with absolute precision once every eleven years.Then, if a crash might be expected to come in the periodical way here described, 359 there surely was no need and no wisdom to make it more serious when it did come. But a part of the article referred to the Limited Liability Act as follows:—It is a singular fact, that while the law of limited liability has been assailed on the ground that it would prove a stimulus to the wildest speculation, it has thus far led only to a few moderate and for the most part useful projects, Which may serve in their degree the healthful purpose of finding employment for our energies within the limits of our own shores.It must be very satisfactory that the limited liability law passed last year, which contained the principle of publicity, was working so well, even when the fever of speculation had begun. Could there be a better reason for taking care that in any other Bill passed by the House there should be the same safeguards? He would say, by all means allow persons, as our law now allowed, to limit their liability by such contracts as they pleased; but take care that the person against whom they were to be limited had the means of knowing the nature of the contract. On the second reading of the Bill he expressed his opinion that such alterations as were required could be made in Committee, and, had he been called on to give a vote some time ago when his noble Friend at the head of the Government, who judiciously said all those questions could be settled in Committee, sat down, he should not have voted with the hon. Member for Birmingham. But with that candour which his right hon. Friend (Mr. Lowe) exhibted on every occasion, he had distinctly told the House that the Bill would be worse than useless if the proposed change were introduced, and that it would be a thousand times better to have no Bill at all. It was clear, therefore, that if the Bill were changed in Committee, it would not have the advantage of his right hon. Friend's patronage in order to being carried into a law. If they went into Committee the result might be a law to which many in that House would positively object. If they succeeded in amending the Bill in Committee, then his right hon. Friend would abandon his guardianship of it, and they would be in no better case. Under those circumstances, therefore, he thought the wiser course would be to vote for the Amendment of the hon. Member for Birmingham.
§ THE LORD ADVOCATE
said, he should not have interposed any observations of his own between the House and the division, if a discussion on the principle of the Bill had not been raised. He had 360 devoted much attention to the subject, and he must confess that if it were not for the high authority of the speakers who had preceded him, he should have supposed they had been talking about an entirely different matter from that which was really before the House. The hon. Member for Huntingdon (Mr. T. Baring) seemed to say that the Bill involved the principle of commandite. Now so far from advocating the principle of commandite he (the Lord Advocate) was not in favour of that principle; and when his right hon. Friend two years ago, proposed to introduce a Bill for establishing the principle of limited liability, he requested him not to extend the measure to Scotland, because he was apprehensive they were travelling rather too fast under the pressure of the railway system that then prevailed. On the other hand the right hon. Gentleman the Member for Oxford (Mr. Cardwell) had dealt with the Bill as if it were a Joint-stock Companies Bill. Now, in his (the Lord Advocate's) opinion, no two subjects could be more distinct. There were three commercial relations totally distinct from each other, which had been brought into discussion by recent legislation:—First, partnership proper; second, partnership en commandite; and third, the partnership of a Joint-stock Company. Those were all totally distinct from what was meant when they spoke of limited liability. Everybody knew that a Joint-stock Company was not a partnership in the proper sense of the term. It was a combination in which the stocks and not the partners constituted the principal object; so much so, indeed, that it had been doubted whether the members of a Joint-stock Company were subject to the law of universal liability. It, in fact, differed entirely from a partnership proper, for the shareholders in Joint-stock Companies were not partners, they had only an interest in the stock. In the case of a partnership proper all the partners had a right to manage the concern; their shares were not transferable; and they were not succeeded by others in. the partnership. All the qualifications which characterised the members of an ordinary partnership ceased in a Joint-stock Company. Having put that aside, what was it that was meant by limited liability? It was not to limit a man's obligations, for what he undertook to do he was bound to perform; and what he did not undertake to do, no law could make him do. If you meant by limited liability 361 to exempt a man from his own obligations, that would be a false system of legislation; but if you meant by limited liability to compel a man to do what he never undertook to do, that would be injustice. A man who stood in the position of a lender and a creditor, should not be placed in the position of a partner. He, therefore, objected to the law of commandite because it made a partner a creditor; and he objected to the present law of partnership in England, because it said that a man who was merely a creditor should stand in the position of a partner. When the right hon. Gentleman (Mr.Cardwell) talked about the universal liability of partners, that depended upon the plain principle that every trader was liable to pay his own debts; and, if there were two traders each authorising the other to act for him, each of them would be as much liable for the debts contracted by the other as if they had been contracted by himself. But, as regarded the partnership property, the man who had lent his money as an ordinary creditor in order to receive a share of the profits only, but without any authority to act as a partner—such a person could not be subjected to the liabilities of a partner. The right hon. Gentleman had said that wherever the usury laws were in force no man could receive more than the legal rate of interest in the capacity of a lender; and that he must be a partner in order to enable him to receive a larger share of the profits. But the law had been altered in this respect; and a man might now advance money upon any terms he liked, provided the amount of interest were fixed. It was said that the profits were what the shareholders and creditors looked to for the payment of their debts. But that was entirely a fallacy. It was to the partnership that those parties looked; and it was the partnership that would be liable to pay the debts. It had been argued that the terms on which the money was lent might be so extortionate that the lender would have it in his power to sweep away the whole of the profits. But the answer to that was, that if a man were truly a partner he should not be anything different from a partner; and that if he were truly a creditor he should not be something different from a creditor. That was all that his right hon. Friend the Vice President of the Board of Trade asked by this Bill. The right hon. Gentleman (Mr. Cardwell) had put the case of a man sending down 362 to Manchester or Liverpool two men of straw, to whom he advanced money, giving them instructions how they were to apply it, in order that he himself might avoid all liability; but was it not plain and evident that in that case, when a person not only advanced money, but exercised a control over it, giving instructions as to its application, the lender would be a partner, and that those facts would prove him to be a partner? The whole question, after all, was this—if a man honestly lent money to another for the purposes of trade, was that a sufficient ground for saying that he who was really only a creditor should be deemed to be a partner? It was said that such a person would have an advantage over all other creditors by knowing under what circumstances the borrower was carrying on his trade. That was perfectly true. But in Scotland any preference shown to the lender by the borrower was unlawful and was good ground for a commission of bankruptcy. It appeared to him that there was nothing in the objections that had been raised by hon. Members that could at all militate against the Bill. It was not proposed by the Bill to establish the principle of limited partnerships. What his right hon. Friend (Mr. Lowe) proposed was to describe a creditor as a creditor. He held that a partnership consisted of persons who participated both in the profit and in the loss; but where there was only a participation in the profit, and without any participation in the loss, that was not a partnership. They could not create commerce, but they could leave commerce free, and allow every man to make what contract he pleased that was consistent with the ordinary laws and policy of the country—let him know what that contract was, and give him the cheapest and most efficient remedy to enforce its observance. He was perfectly satisfied that the more free commerce was left, and the more they reverted to first principles, the more surely would they protect commerce against fraud. He believed that all restraints and penalties that might be imposed either on money-lenders or borrowers would only result in opening a door to mischief, and would be of advantage to no one.
said, the arguments used against the Bill went against the principle of limited liability altogether. His opinion was that the House legislated too much for the protection of the creditor. Men should be left to their own 363 judgment, energy, and industry, and all the attempts of the Legislature to prevent frauds were, he feared, but so many cloaks to cover them. The House could not prevent fraud, and it would be vain to attempt it. He agreed with his right hon. Friend, the Vice President of the Board of Trade, that the principle of registration was so entirely opposed to the principle of the Bill that it would be better to leave it alone altogether than admit anything like what had been shadowed forth that evening. The principle of the Bill was a simple and sound one, to allow A and B to borrow and lend on any conditions they thought proper. The public had nothing to do with those conditions. If registration was introduced, where were they to stop? Would they extend it to sums of £5 or £1? They should register not merely the sums, but also the conditions. A mere register of the loan would be of no avail, and would not prevent fraud. It would be better, in his opinion, to put the Bill aside altogether than adopt the system of registration. He could not, however, but respect the opinion of such men as the hon. Members for Kendal (Mr. Glyn), and for Oxford (Mr. Cardwell), and he thought his right hon. Friend, the Vice President of the Board of Trade, might very well have asked to be allowed to go into Committee, and see whether the opponents of the Bill had not some proposal different from that on the paper, which he might be able to adopt without sacrificing the Bill.
§ MR. MONTAGU CHAMBERS
said, he was of opinion that there ought to be some means of preventing reckless men of wealth from working on the credulity of others, deriving all the profits in case of success, but, in case of failure, throwing the loss upon their dupes. The difficulties he felt were with respect to the third clause of the Bill, which contained the whole pith of the measure. It proposed to enact that no person making a loan to any trader shall be deemed to be a partner, or subject to any liability incurred by such trader, by reason only that he received as a compensation for such loan any profits of the business carried on by such trader. Now, what security was there in that clause against fraud? A trader might in two or three years take nine-tenths of the profits, and then in the fourth year, when the credits of the company had become large, and it may have incurred great losses, might 364 demand his share of the profits without contributing to the losses, and, perhaps, £1,000 besides. The right hon. and learned Lord Advocate said it was simply a matter of borrowing and lending; but the law, as it at present stood, provided that a sharer in the profits should also be a sharer in the peril; and it was now proposed to abolish that salutary provision. He should, however, vote for going into Committee, in the hope that such changes would be made as would make this a useful Bill, giving freedom to capital without granting impunity to fraud.
§ Question put, "That the words proposed to be left out stand part of the Question."
§ The House divided:—Ayes 75; Noes 61: Majority 14.
§ Main Question put, and agreed to.
§ House in Committee.
§ Clause 1.
§ MR. CRAUFURD
said, it was his intention to move the omission of the first four clauses, and in lieu thereof the insertion of the following:—The advance of capital or money, to be used in any trade or undertaking, not being the trade of a banker, upon a contract with the person carrying on such trade or undertaking that the person making such advance shall receive a share of, or a rate of interest varying with, the profits of the trade or undertaking, shall not, of itself, render the person making such advance a partner in such trade or undertaking. The person making such advance shall be entitled to call for an account of the profits of such trade or undertaking, but shall not, as against creditors, have any right or title to the property or assets of the trade or undertaking; and in case of the bankruptcy or insolvency of the person carrying on such trade or undertaking, the person making such advance shall be compellable to pay to the assignees any share of capital or money which he has undertaken to provide. Any such capital or money withdrawn by the person making such advance shall, if withdrawn within six months prior to the bankruptcy or insolvency of the person carrying on such trade or undertaking, be recoverable by the assignees. No contract for the remuneration of a servant or agent of any person engaged in any trade or undertaking, by a share of the profits of such trade or undertaking, shall, of itself, render such servant or agent a partner therein, but such servant or agent shall be entitled to call for an account of the profits of such trade or undertaking.It was evident to him from the debate which had just taken place that there was a feeling, or rather a prejudice, in many minds against the object of the Bill. That prejudice arose, he apprehended, from a misconception. The Bill did not, as was supposed, touch the question of limited liability, but merely settled who should and 365 who sheuld not be deemed a partner in a commercial undertaking. Its object was to neutralise the decision in "Waugh v. Carver," and so far it would effect a great improvement in the existing law. Nevertheless he thought some of its provisions might be altered with advantage, and the clause which he proposed would, in his opinion, make it less objectionable than at present to some hon. Members. There seemed to be a very general impression that a distinction should be drawn between a lender with a varying rate of interest and one with a fixed rate. He hoped the right hon. Gentleman the Vice President of the Board of Trade would see the propriety of yielding to that impression. He would not, however, press his Motion to a division.
§ Clause agreed to; as was also Clause 2.
§ Clause 3 (Lender not to be deemed a Partner).
§ Mr. GREGSON
said, he would propose to add the following words:—No portion of such loan as aforesaid shall be recoverable until after all other creditors shall have been fully satisfied as to their lawful claims on the said business.He thought, if a person partaking of the profits was not to be considered a partner it would be difficult to say who was a partner; but he ought, at any rate, to be liable for the sum he put down to obtain those profits.
§ MR. LOWE
said, he must object to the proposed Amendment, the effect of which would be, that if a person lent some one money for the purpose of his business on the terms of receiving a portion of the profits, and, on the period of the loan elapsing, was obliged to sue the debtor for it, he could not recover without proving that all the other creditors had been satisfied. He thought he need say no more to prove the impropriety of adopting the Amendment of the hon. Gentleman.
§ MR. MALINS
said, that the Amendment was a clinging to the old notion that persons participating in a business should be amenable to the liabilities, the very thing which the Bill sought to get rid of. Taking the case of a farmer to whom money was lent, this Act said that they might lend the money and accept a share of the profits; but was there any reason why the demand of the lender should be postponed, in case of failure, till after the remainder of the creditors were satisfied? The hon. Gentleman (Mr. Gregson) seemed to think that all such transactions were to 366 be founded in fraud. The Bill was intended to give relief to capital, whereas to insert such a provision as that proposed would totally defeat its object.
§ MR. HINDLEY
said, that a partner was nothing but one who took a share in the profits; and hon. Gentlemen had better get rid of their new-fangled notions. He objected to the clause. Under it a man did not maintain the same character; in his engagements he was at one time a lender, at another a partner, and again a creditor. They had been told they were to have free trade in everything. If so, he should like to know why, if he liked to issue pieces of paper, promising to pay £1 on demand, and the people were ready to take them, the law should step in and forbid him to do so?
§ MR. SPOONER
said, he would suggest to the hon. Member for Lancaster (Mr. Gregson) that the Amendment should commence as follows:—"But in case of the insolvency or bankruptcy of such trader, no portion," &c.
§ MR. MITCHELL
said, he should be glad if the Vice-President of the Board of Trade would clearly define what a partner would be if the clause passed. He foresaw very plainly that the clause would lead to endless litigation, for in every case of bankruptcy where there was a man who had lent money in this manner attempts would be made to constitute him a partner.
§ MR. VANCE
said, he knew many firms in which the names under which the business was carried on were entirely different from those of the actual partners, and it was possible that under the clause all the partners might lend money to each other and yet none of them be deemed partners In case of bankruptcy. He agreed, therefore, with the hon. Member for Bridport (Mr. Mitchell) that the Government ought to state who would and who would not be a partner under the Bill.
§ MR. MONTAGU CHAMBERS
said, he must avow that, in common with all mercantile men, he was under the impression that an arrangement between two persons that one should advance money for the purposes of business and the other conduct it, and that they should share the profits, constituted a partnership. Now, an agreement between two persons that one should lend money to the other for the purposes of a business and share the profits was, in substance, the same thing. He was aware that it might be considered an 367 old-fashioned notion, but it was a plain, common-sense notion, and an English notion. The Amendment proposed that he should run some risk corresponding to his chances of gain, and he thought that was only fair. The measure, therefore, in his opinion, required the limitation and restriction proposed.
§ MR. LOWE
said, he was not perhaps an authority on law matters, but he would state what he believed to be essential elements in partnership at present. In the first place, there must be joint ownership of the partnership property; in the second place, there must be joint contracting; in the third place, there must be the power of choosing who should constitute the partners; and, further, the partners must be agents in binding each other in partnership transactions, which more lenders were not. Besides all this, there must be the power of sharing in the profits. But that was only one, and perhaps not the most important, incident; and his complaint against the present system was, that it extended a single incident of the law of partnership to everything, such as contracts for loans, &c. The object of the Bill was to remedy that state of things, by declaring that a man should not be deemed a partner simply because he shared in the profits. There would still be abundant criteria by which to distinguish partners.
§ MR. HINDLEY
said, he thought one of the greatest objections to the Bill was, that the question of who were partners would be left to be settled by arbitration.
§ MR. W. WILLIAMS
said, he thought that if the third clause were passed without any qualification, it would open a door to fraud. In his opinion, parties who lent money should be made liable for all engagements which were entered into while the money remained, and he also considered that in case of bankruptcy, if any collusion was proved to have taken place in regard to the division of profits, the money should be returned. The grand point was to make the provisions of the Bill sufficiently stringent to prevent fraud.
§ MR. E. BALL
said, that the simple question was this—Whether a person advancing money to another person to enable him to carry on trade was to be in a worse position than other creditors? It would be a very hard case if a man who should lend a farmer money to extend his farming were, if hard times should come, to be deprived of his claim to repayment in his due proportion on that account. The Amendment 368 would deprive the tradesman of his proper chance of obtaining capital.
§ MR. WILKINSON
said, he had never been able to understand how the creditor could be damaged by a lender's receiving interest in proportion to the profits, instead of a fixed rate; on the contrary, that had always appeared to him the best arrangement for them; inasmuch as it would prevent the lender from drawing interest when no profits were made.
§ MR. BARROW
said, that the proper principle was, that a man who claimed an extraordinary amount of profit, and who did not enter the concern as a mere ordinary trader, should also run the risk of loss.
§ Question put, "That those words be there added."
§ The Committee divided:—Ayes 83; Noes 80; Majority 3.
§ MR. SPOONER
said, he thought the Bill contained no sufficient precaution against the undue preference of a creditor who had advanced money upon participation of profits, and he therefore moved the addition to the clause of the following proviso:—Provided always, that any person making a loan to any trader and receiving a share of the profits as compensation for such loan shall, in the event of the trader becoming insolvent, repay to the estate of such insolvent trader all moneys drawn out by him either on account of the principal of the loan so made as aforesaid, or on account of the profits received as aforesaid, within the three years immediately preceding the insolvency of such trader.
§ MR. MALINS
said, he put it to the right hon. Gentleman (Mr. Lowe) whether, after the division which had just taken place, it was worth while to proceed with the Bill? The principle of the Bill was that money might be lent to a trader upon a contract for remuneration by the receipt of a share of the profits, without incurring any of the disadvantages formerly incurred by a partnership. Now, those disadvantages were two—liability to creditors and liability to the loss of capital, as between the lender and the other creditors. It had, by a small majority of three, been decided that if a trader or farmer borrowed money of two persons—of one upon interest at the rate of 20 per cent, and of the other upon a participation in the profits, and became insolvent—the man who had lent at the rate of 20 per cent, while the profits were not more than 10 per cent, should be paid in full, while the other who had fairly agreed to take a share 369 of the profits should be unpaid. That seemed to be so fatal to the principle of the Bill that he put it to the noble Lord (Lord Palmerston) and the right hon. Gentleman, that it had become valueless and was not worth the waste of any more time upon it.
§ MR. MUNTZ
said, he quite agreed with the hon. and learned Gentleman who had last addressed them, that the Bill now was not worth a single farthing, as no man of any common sense would lend money under the clause as it now stood. He would recommend that when a Bill of this sort was next brought in it should be a little better considered. If they wanted to have limited liability, why not adopt the system which prevailed on the other side of the Atlantic? In America, when persons entered into a limited partnership, they advertised the names of the limited, and of the general, partners; and with respect to the former class not only the sums they had contributed, but the time for which they were to remain in the concern. An intelligent American, whom he had met the other day, told him that, in the United States, they were very jealous even of the system, and clogged it as much as possible. A limited partner was not allowed to interfere at all in the management of the concern. If he kept but a desk or a stool in the office for himself he became a general partner. To the adoption of such a system as that he (Mr. Muntz) should have no objection; but do not let parties contract debts with the public under an arrangement which no one could understand.
§ MR. LOWE
said, he considered that he need not assure the Committee that he very much regretted the decision which had just been come to. An old school-book of his said, that two things were most contrary to good counsel—quickness and anger. He would indulge in neither. The best proof which he could give of his intention to go on with the Bill was to turn to the Amendment before the Committee. That Amendment was quite opposed to the principle of the Bill. Its effect would be that a man who had advanced money upon participation in the profits might draw out his money, leaving the concern perfectly solvent; but if two years and a half from that time the man who was carrying on the business entered into a speculation and failed, the party who had previously advanced money would have to pay 370 to the other creditors all that he had advanced.
§ MR. ARCHIBALD HASTIE
said, that the right hon. Gentleman had stated that if anything occurred in Committee which went against the principle of the Bill he would abandon it; but yet, after the Amendment which had just been carried, he said that it was his intention to go on with it. If the Amendment was adopted there could be no objection to the addition of the proviso of the hon. Member for North Warwickshire.
§ MR. SPOONER
said, he would acquiesce in the propriety of the suggestion, and modify his proviso accordingly.
§ MR. MONTAGU CHAMBERS
said, he thougt the difficulty could be met by making the proviso run, "Provided that at the time the party withdrew the loan the concern was solvent." He would also suggest the further limitation of the time to six months.
§ MR. SPOONER
said, he feared that the adoption of the hon. and learned Member's advice would lead to endless litigation. The difficulty would be to prove when the insolvency commenced. The remedy was in the hands of the party himself, by inserting a notice of the withdrawal of the money in the Gazette.
THE ATTORNEY GENERAL
said, it was his opinion that the real question they had to determine was whether they would make a man a partner who had advanced money to a firm without any intention of becoming one? If they meant to do so, the better course would be at once to abandon the Bill; if, on the contrary, they designed that he should not be a partner, it was most inconsistent and inequitable to saddle him with any of the perils and responsibilities of partnership. The principle of the Bill was, that what a man stipulated for in the way of interest he might stipulate for in the shape of profit, but that he might make this arrangement with the borrower, that if there were profits he, the lender, should share in them, and that if there were none he should forego the benefit he might have derived if the advance had been made on the usual terms 371 of loans on interest. The hon. Member for North Warwickshire (Mr. Spooner) said, let the withdrawal from the concern be inserted in the Gazette, but if the person advancing the money were not a partner, why was he to insert that he had quitted the firm?
§ MR. CARDWELL
said, he did not think his hon. and learned Friend the Attorney General had heard the argument which took place previous to the last Amendment. By the last division they had made a person who advanced money to a firm a partner to this extent, that the money he put in was to remain as assets for a certain time. The object of his hon. Friend (Mr. Spooner) was to take care that that provision was not evaded by the lender withdrawing his money. That proposition was on the same principle as the Joint-stock Companies Act, which provided that any person who ceased to be a holder of any share should, if the Company were wound up within the period of one year, be liable to contribute to the debts.
§ MR. HANKEY
said, it appeared to him that the Committee seemed determined to argue the Bill as if the lenders were to have all the responsibilities of partners. If they affirmed that principle, he should recommend his right hon. Friend to withdraw the Bill. He was one of those who thought that if the Bill were carried out in its original intention, it would have a good effect, but if it was to be fettered by the Amendments proposed, the better course would be to abandon it.
§ MR. MALINS
said, he thought there could be no more miserable and profitless occupation than that in which they were now engaged. The principle of the Bill was, that a person lending money should be absolutely free from the consequences of partnership. The Committee had negatived the principle by throwing on the lender one of the most penal consequences of a partner—the total forfeiture of the capital lent. It was attempted now to carry that further, and to say that if a man, on the 1st of January, withdrew money from a form perfectly solvent, and that firm, on the 1st of February, entered into imprudent speculations, leading to ruin, and was insolvent on the 1st of June, the original lender should be liable, on the 31st of December, to bring the money back again. If that proposition was agreed to, he trusted that, with or without the consent of the right hon. Gentleman (Mr. Lowe), 372 the Committee would come to a Resolution not further to waste their time.
§ VISCOUNT PALMERSTON
said, he quite agreed that it was impossible to assent to the clause without entirely departing from the fundamental principle of the Bill. They could not alter a lender into a partner without defeating the object with which the Bill was introduced. Therefore, he had no hesitation in saying the decision of the Committee now must determine whether the Bill should be given up or not.
§ MR. W. EWART
said, that as they had already departed from the principle, it was useless to go on with the Bill.
§ Question put, "That those words be there added."
§ The Committee divided:—Ayes 105; Noes 125: Majority 20.
§ Clause agreed to, as were the remaining clauses.
§ House resumed.
§ Bill reported.