§ Order for Second Reading read.
§ Motion made, and Question proposed, "That the Bill be now read a second time."
§ MR. ARCHIBALD HASTIE
, in moving that the Bill be read a second time that day six months, said, he thought that, before bringing in the measure, the right hon. Gentleman (Mr. Lowe) should have shown that there was a want of capital to carry on the commercial operations of the country. The Bill created a great monopoly in favour of capital, as did also that Bill which had just passed through Committee, and that monopoly in the end would be found to inflict the greatest evils on the mercan- 653 tile interests of the country, and prevent that wholesome competition which was so favourable to the development of commerce. They had had several Committees to inquire into the subject, and all those Committees had reported that the evils complained of were caused by overtrading, and from the redundancy of capital in the hands of a few. At present there was no want of capital, and there was no man of genius and honesty but could get persons to join him in any reasonable and bonâ fide speculation. In the face of this redundancy, however, the Board of Trade brought forward Bills of a nature to stimulate speculations which might end in the ruin of a large number of persons, and which would be most injurious to the labouring classes. It was the duty of the Government rather to check than to encourage speculation. He would ask the right hon. Gentleman, who were the parties asking for these Bills? If he were correctly informed there had only been one application in their favour. The Commissioners who had been appointed to inquire into the subject had reported in direct opposition to the Bill. After we had gone on for a long series of years, and had been envied by all the commercial nations of the world, it was proposed to revert to those ancient practices which it had been our great object to get rid of. Glasgow, a large commercial community, had petitioned against the Bill on the ground that it would lead to speculation of the wildest character, would legalise partnerships without any liability, and would open the door to the most extensive frauds, and give rise to the most ruinous speculations. The next petition against the Bill was from Liverpool, and set forth an opinion that the Bill would be attended with the greatest injury to the commercial community. The next petition which he would call attention to was from Manchester, and was to the same effect. It was worthy of remark that although the Manchester Chamber of Commerce, from which body the petition proceeded, consisted of 400 members, there was only one dissentient voice in reference to the subject of the petition. In France and Belgium it was said that limited liability in partnership worked well, but it was not the poor man who took advantage of the laws in these countries, but the rich man. In this country the forefathers of our merchants rose from being clerks at the desk, and our manufacturers from being artisans in the workshops; but if they passed this Bill they would put an 654 end to the inducements at present existing to the industrious and honest attention of such men to the concerns under their management, and consequently to their future advancement. He denied that it was the millionaires—the bloated capitalists as they were called—who opposed these Bills, because they destroyed the monopoly of capital. So far from that being the case, he contended these Bills, by limiting the loss, created a great monopoly in favour of capital. He should, therefore, move that the Bill be read a second time that day six months.
§ MR. GREGSON
, in seconding the Amendment, said, he wished particularly to call the attention of the Committee to the petitions which had been presented against the Bill from the Glasgow, Manchester, Liverpool, and other Chambers of Commerce, as a proof that the commercial community throughout the country was decidedly opposed to the principle of limited liability. The Commissioners had also reported against it, and of the sixty-seven gentlemen who were asked to express their opinion on the subject seventeen were in favour of limited liability, thirty-one suggested various amendments, and nineteen objected to the principle in toto. Moreover, there seemed at present to be no reason for giving increased encouragement to the extension of trade by the introduction of limited liability. The increase which had recently taken place in the consumption of commodities, and even of luxuries, as well as in our exports, imports, and tonnage, showed that the country was in a prosperous state, and did not require a measure which would lead, unquestionably, to over-speculation and difficulties of all kinds. He hoped, therefore, that the right hon. Gentleman the Vice-President of the Board of Trade, satisfied with having amended the law relating to joint-stock companies, would withdraw the Partnership Bill for the present.
§ Amendment proposed, to leave out the word "now," and at the end of the Question to add the words "upon this day six months."
§ Question proposed, "That the word 'now' stand part of the Question."
§ MR. CARDWELL
said, he hoped that the Bill would be allowed to pass the present stage without a division. He quite agreed with those who thought that it would require to be altered in Committee; but that was no reason why it should not be read a second time, deferring till it was committed those Amendments which he 655 knew many hon. Gentlemen desired to make in its details. The grounds upon which the existing law of partnership has always been defended were two. It was said, in the first place, that participation in the profits of a company ought to make a person liable to the whole extent of his fortune, because he took away a portion of the fund on which the creditor relied for his payment; and, in the second, that a partner ought to be so liable, because he was in the way of obtaining a high and usurious rate of interest. Now, having repealed the usury laws, Parliament had totally destroyed the second of those grounds, while by that very same repeal it had materially weakened the first. For it was plain that, inasmuch as a person might derive from a partnership any rate of interest, however high, he might withdraw from the creditors a large portion of the fund on which they relied for their payment. That of itself constituted a reason why the House should proceed to a careful examination of the law of partnership. But there was another ground for legislative action—namely, that by the Bill passed last Session, which they had been engaged in amending that night, they had given to joint-stock companies consisting of seven persons such great powers of limited liability—powers much larger than he thought right—that it was absolutely necessary some provision should be made of an analogous nature for smaller partnerships. If that were so, and if there were a general dissatisfaction—which he knew there was—in the legal world with the extreme extent to which the existing law was carried, then the House had a sufficient and conclusive reason why it should pass the second reading of the present Bill. With respect to how the Bill ought to stand, he thought that, if he had accurately gathered from the mover and seconder of the Amendment, as well as from other sources, what were the opinions of the commercial world, especially as expressed in the petitions to which allusion had been made by both of the hon. Members, it was not that they desired to continue the law precisely as it at present stood, but that they objected to the measure proposed by the right hon. Gentleman the Vice President of the Board of Trade in the absence of certain guards and protections which they had pointed out in their petitions. Those guards were three. The commercial community thought that when an individual engaged in a private partnership and had covered himself 656 against unlimited liability by means of this Bill, it was right and proper they should have notice that the partnership gave that peculiar privilege. They thought, secondly, that the person who enjoyed the profits of the partnership was bound to be responsible to some extent for its losses, and that, having the advantage of knowing the state of the concern, he should not, when its affairs became disastrous, be able to set his house in order, and to make himself a creditor to the prejudice of the other and more general creditors. They thought, thirdly, that in the case of insolvency, if the dormant partner had recently withdrawn any money, either in the shape of profit or capital, he should be compelled to restore that money to the assets of the concern. Now, there were great authorities in favour of a Bill so drawn. A Committee, after sitting two Sessions, had reported in favour of such an arrangement, and a Commission being appointed two years ago, in pursuance of the recommendations of that Committee, though the majority of the Commissioners were opposed to limited liability in general, yet they were equally divided in respect of such an arrangement as that to which he had referred. They had the authority of petitions from Glasgow, Liverpool, Manchester, and other large mercantile places, and also the authority of the right hon. Gentleman (Mr. Lowe) in favour of such an Amendment of the law. It would be their duty when the Bill was in Committee to examine whether the law of America, of Belgium, and of France, was left in the state in which this Bill left it, without any guards or protection whatever, and if not, the authority of those countries would be of no avail in support of the present measure. These changes could all be moved in Committee, and after it had been decided either to introduce them or not, those who thought them expedient would still be quite at liberty to take, on the future stages of the Bill, what course they thought desirable for the promotion of the commercial interests of the country. Having these views, he should certainly vote for the second reading of the Bill, and he hoped those who were disposed to agree with him would not think it necessary, on the present occasion, to divide the House.
§ MR. T. BARING
said, he was opposed to the second reading, for the plain reason that the principle of the Bill was, that all publicity should be excluded, all registration omitted, and all limit denied. The right hon. Gentleman (Mr. Lowe) had 657 said that, seeing the difficulties of publicity, registration, and limit, it was beat to allow parties to arrange with one another without restriction. If they were dealing only between the several parties, he quite agreed that they should be allowed to make arrangements without publicity, registration, or limit; but when the public were concerned, there was surely some necessity for safeguards, which this measure most studiously excluded. He did not understand the reasoning of the right hon. Gentleman (Mr. Cardwell), that the repeal of the usury laws rendered a change of the Partnership Act necessary, as it appeared to him that for all purposes of commerce the repeal of the usury laws made a change less requisite. The right hon. Gentleman also said that the Joint Stock Companies Bill, which they had just passed through Committee, rendered it necessary to make such a change, whereas he thought that Bill, going down as low as the number of seven, would meet every case in which the capital of the partnership was insufficient for the purposes of business. His idea of a partnership was the union of several persons, when one man had not the power, the capital, or the means to carry on the business, and if so, a partnership ought to resemble as much as possible the individual replaced, and in that resemblance there should be the same identity of interests, the same union of action, the same complete and entire liability. It was impossible to suppose a partnership ought to exist without each and all of the partners being equally liable to the engagements of the concern. Hardships had no doubt arisen, but the right hon. Gentleman (Mr. Lowe) did not avoid those hardships, because, although a share of the profits was to be no proof of partnership, in case of failure there would be hundreds of little things ferreted out by learned lawyers, some act of correspondence, interference, or control, to bring the monied man who had lent his money under the definition of a partner. He did not think the Bill could be so modified in Committee as to make it a desirable piece of legislation, or that it could ever be rendered beneficial to commerce. He certainly did not think it would improve the tone of mercantile feeling, or raise the reputation of this country throughout the world. This country was the clearing house of the world. The great portion of the business of the world was carried on by credit, and they should be most 658 careful how they sanctioned any measure which could in any way affect the credit of the country. This Bill required no declaration that the money was to be lent for a certain period. There was to be no publicity as to the amount lent, and no prohibition that money should not be lent at one moment and taken back at another. There assuredly was no precedent for this Bill. In what country had a similar law been adopted? It was not the law in France, it was not in the Code Napoleon, it was not the law in America. The theory of the right hon. Gentleman was indeed opposed to the law of every other country, which was hedged round with safeguards against fraud, deception, and speculation. The present Bill was not the Bill of the right hon. Gentleman's own Government. The Bill of last year was full of provisions against fraud and imposture. It was not the right hon. Gentleman's own Bill of last February, for the right hon. Gentleman's Bill came out from Committee an entirely different measure. If, then, there were so much doubt in the mind of the Vice-President of the Board of Trade himself, ought the House, without great deliberation, care, and caution, to agree to the second reading of the Bill? He entreated the House not hastily to pass a measure which, by affirming a principle, might have the most serious effects upon the commerce of the country. It might be too late in the Session to refer the Bill to a Commission or a Select Committee, hut he could not sanction the Bill by his vote, and he despaired of making it a safe measure for the commerce of the country. He should, therefore, in the present state of the Bill, support the Amendment of the hon. Member (Mr. Hastie).
§ MR. BAXTER
said, he was quite unable to comprehend the force of the arguments which had been urged against the Bill. It had been argued by the hon. Member for Kendal (Mr. Glyn) that a Bill like the present would open the door to fraud by allowing persons to carry on engagements under the idea of a registered capital after that capital had long been withdrawn from the concern. But he would ask was there no fraud of a similar kind practised under the present system, and had not examples occurred in the highest circles of the metropolis of firms trading on the faith of capital which had been withdrawn for years? The law of unlimited liability frequently led persons retiring from business to withdraw their 659 capital altogether, when, under a law of limited liability, they would gladly leave a portion in the hands of their successors in order to give the new firm a good start. All that was wished was to adopt in England a principle which had long been working most advantageously in France, in Holland, in the Hanse Towns, and in the United States of America, and to which many flourishing towns, Mulhausen, for example, owed their prosperity. It was said that limited liability had occasioned many evils upon the other side of the Atlantic. He examined into the facts narrowly when he resided in the United States, and he found that the evils complained of did not arise from the limited liability law, but from the law of bankruptcy there. In the United States a preference could be given to one creditor above another. This Bill, however, did not appear to be founded upon limited liability, but on no liability at all. What the country wanted was a virtual adoption of the commandite system obtaining in France, or the system of general and special partners obtaining in America—in other words, a recognition of the principle that a person may invest a certain sum in business, and be responsible to its creditors for that sum only; but the right hon. Gentleman the Vice President of the Board of Trade proposed to go much further, and to place such person in the position of a creditor, just as if he had lent money on a fixed rate of interest or had furnished goods. A and B might be said to have a right to lend and borrow on whatever conditions they pleased, but it was not the less the duty of Parliament to see that nothing was done by them against the rights of the other creditors, or which might in practice lead to deception and fraud. He would now say a few words in favour of registration and publicity, in connection with the system of limited partnership which he had endeavoured to defend. Many of the arguments used against limited liability seemed to him to be more applicable to the want of these safeguards to the creditor and the public. Mr. Torr, at the special meeting of the Liverpool Chamber of Commerce, held on the 23rd of February, 1856, said:—He therefore would ground his first objection to the measure on this point—that there was no publicity or registration required as to who the party was who advanced the money, what was the amount of the money he so advanced, and for how long such sum of money was to be advanced; and that, consequently, he was playing fast and loose 660 with the party to whom the money was so advanced. His second objection was, that there was no notice of withdrawal required, and through it the greatest opportunities would be afforded to commercial dishonesty and to the breaking down of that confidence between the banker, the merchant, and the trader in their dealings, from the simple fact that the lender, having withdrawn his money, the ostensible party would be trading on a false capital and under a false name.Mr. Bushel, Mr. Terr's seconder, used almost the same words, and the latter clause of the Amendment moved to the Resolution of that meeting recommended provision to connect responsibility strictly with ostensibility, and to give facilities to the public for ascertaining when loans were withdrawn. Now, he thought it could scarcely be disputed that parties dealing with a limited co-partnercy should have some information in regard to the terms of that copartnercy, and he could not conceive that any honest and respectable firm should object to the public knowing all about them. On this subject he adopted the words used by the hon. and learned Solicitor General in July last year with reference to joint-stock companies, but which were just as applicable to partnerships. "It was impossible," the hon. and learned Gentleman said, "to establish the principles of limited liability without a registration of the shareholders, which would show the amount of their shares and of their liabilities." The House was, besides, aware that though France was at first without a system of registration, the want of it soon became apparent, and it was supplied by the Code de Commerce, as, indeed, it was proposed in the Bill introduced by the right hon. Member for Kilmarnock (Mr. Bouverie) last year. Now, as to the general law of the United States and its practical bearing, he wished, if the House would permit him, to read two short extracts from letters which he had received on the subject, and to the correctness of which, from what came under his own observation while in the United States, and from the experience of his own business with that country, he could personally testify. The first was from a British merchant many years resident in New York:—As to the Special Partnership Law, with limited liability, and its working in the United States, I unhesitatingly state that it works admirably, and that all classes are in favour of it. I presume you are acquainted with its details, but it may do no harm if I mention the practical part of it, and which is what I have daily to do with. Every merchant having to deal with a house where there is a special partnership, on opening an account, ascertains and enters in his 'reference of standing' book the name of the special 661 partner or partners, and the amount of the special capital, and the term or length of co-partnercy, all of which information is to be found in the newspapers, and which must be advertised for a considerable period.The second was from the Consul of the United States at Dundee, a gentleman of extensive acquirements and knowlege of mercantile law:—When a special partnership is formed under the statute in one of the United States, the names of all the partners are published, showing who are general and who are special partners, the day of the commencement of the partnership, and the day it ends. This advertisement may be ordered to continue for so long a time as may be necessary; with us it is usually six weeks. This notice is not republished upon the date of dissolution; but, if the partnership is continued after the date fixed in the original notice, such notice must be republished, or all will from that time be general partners. Notice that the time of association, i.e., length of liability of special partners, is fixed and recorded, and published before they can begin business. The law, so far as my knowledge extends, is everywhere acquiesced in, and is not considered to lead to 'fraud.' I do not know that I entirely apprehend the meaning of your last question—'Has it been proposed that the special partner should rank as a creditor for the sum invested by him, in case of bankruptcy?' That would be limited liability with a vengeance. Any legislator who would propose such a law would be a veritable 'Knownothing.' So far as I know, the law works well with us, and I imagine you will find that here it is the great capitalists who oppose it.He hoped the House would consent to the second reading of the Bill, and amend it in Committee in the manner which he proposed, and which, he believed, would prove acceptable to the people of this country.
§ MR. MASTERMAN
said, he viewed the Bill as a most mischievous measure, and calculated to affect injuriously the commercial interests of the country. He was sorry he could not support the Motion for the second reading of the Bill, nor could he agree with the observations of the right hon. Gentleman the Member for Oxford (Mr. Cardwell). He did not approve of the principle of limited liability, and he hoped the House would pause before it gave its assent to the Bill. He thought that the hon. Member for Huntingdon (Mr. F. Baring), who was a good authority on this subject, had given them sound advice which they ought to follow. He was quite sure that the Bill, if passed, would do great injury to the commercial classes.
§ MR. W. BROWN
said, he should support the Motion for adjournment, as he 662 thought the measure of too great importance to be hurried through its stages.
§ Motion made and Question put, "That the debate be now adjourned."
§ The House divided:—Ayes, 75; Noes, 110; Majority, 35.
§ MR. LOWE
said, that before the House went to a division he wished to say a few words, as his Bill had been very much misrepresented by the right hon. Member for Oxford; and he himself was, he thought, by no means liable to the homily which had just been read him by the hon. Member for Montrose (Mr. Baxter). The operative clause of the Bill was this:—No person making a loan to any trader shall be deemed to be a partner of, or to be subject to, any liabilities incurred by such trader by reason only that be receives as a compensation for such loan a portion of the profits made in any business carried on by such trader.Now that really was the only important part of the Bill. The Bill was not a Bill to alter the law of partnership, properly so called, at all, and all that had been said about the law of partnership that evening was totally beside the question. A partnership (which was only a contraction of "part-ownership") properly so called, existed where persons entered into a joint undertaking, and were joint proprietors of the property of the undertaking, where there was a delectus personœ as to who should associate, and when those associated jointly trusted each other. Undoubtedly it was an incident of such an association that the persons associated should share the profits, but the existing law had taken hold of that single incident—perhaps the least characteristic of a partnership—had made it the criterion of a partnership, and had applied it to several other relations in which persons might stand to each other, and in which there was no real partnership at all—where there was no joint partnership—no delectus persoœ, and no joint trusting of each other. What ought to be done with the law of partnership properly so called, he did not at that moment say. In the Bill before the House he had made no proposition on the subject at all. It was highly desirable that the whole law of partnership should undergo a strict and searching inquiry, and he should be very glad, if the House honoured him with its confidence, to undertake such an inquiry in the course of the next Session. The law of commandite, which was a modification of the law of partnership properly so called, had nothing 663 to do with the Bill; nor did he at the present moment enter into the question whether that system or the American system should be introduced into this country. The question which the Bill intended to solve was how to get rid of the perverse ingenuity which had attached the liabilities of partnerships to certain contracts which were not partnerships at all; and the hest way of doing that seemed to him to be to say that a mere participation in a share of the profits should not make persons partners where there were none of the incidents of partnership properly so called, such as those he had already enumerated. What the Bill was intended to do was to restrict partnership within its proper limits, to separate that which was a partnership from that which was not a partnership, and to relieve persons not really partners from the liabilities attaching to partners. He proposed that a man should not be rendered a partner either by lending money to another on condition that he should receive a share of the profits, or by contributing his services on the same terms, or by lending money on the understanding that he should be paid an annuity out of the profits. There was nothing of the nature of a partnership, he contended, in any of the above transactions. Many hon. Gentlemen had declared that they did not object so much to the principle of the Bill as to the absence of all safeguards; but the object of the Bill being to do away with a great injustice inflicted by the rule of law, which fixed upon certain contract interpretations and consequences which they ought not and were never meant to have, it was by no means incumbent on him at the same time to provide safeguards. There was nothing in the clearing away of an injustice which at all called upon him to provide safeguards. The principle upon which he had proceeded was to do justice, and then let things take their natural course. If hon. Gentlemen would go the length of saying that a man who lent money to a partnership should have his claim postponed to that of the other creditors, he could understand that, though he could conceive nothing more absurd; but he could not understand how it could be right that a man, who lent money to a partnership at a higher rate of interest, perhaps, than the concern could afford, should enjoy the advantage of having his claim preferred to that of all the other creditors, while he who lent money, receiving as interest a share of the profits, should be postponed to all the 664 others. The attempt to make a distinction between loans made at a fixed rate of interest and loans at a fixed share of the profits was a mere commercial superstition. He would ask the House just to take a practical view of the question. Supposing he wished, under the Bill, to place an old servant in business, and to lend him money for the purposes of establishing it, his right hon. Friend the Member for Oxford (Mr. Cardwell), he supposed, would say, "If you do that on terms of sharing the profits you must be postponed to the other creditors." Now, what would be a fair argument in such a case? His (Mr. Lowe's) notion was, that, in the first place, all outgoings should be paid; next, that a certain sum should be allowed as wages to the man who conducted the business; and that then the surplus of profits should be divided in whatever ratio might have been agreed upon. "But," said the right hon. Member for Oxford, "if you do that we shall postpone you to all the other creditors, and you may deem yourself fortunate if we do not confiscate your money altogether." The right hon. Gentleman urged that in such a case, the lender should require a certain profit—say 10 per cent; that he should insist upon receiving that amount, whether the poor wretch who managed the business was able to provide for his own subsistence or not; and, if he was ruined, the lender would then come in and be treated pari passu with the other creditors. Now, the Bill provided for the case of loans calculated upon a principle different from that of a fixed rate of interest. The hon. Member for Huntingdon (Mr. T. Baring) and some other hon. Gentlemen had spoken of the Bill as if it were a bold, wild, and revolutionary measure. Now, it appeared to him (Mr. Lowe) to be an exceedingly moderate measure, for it did not touch the subject of partnership at all, hut dealt only with that of loans, leaving the question of partnership, with regard to which great difficulty existed, for subsequent consideration. He believed that what the Bill proposed to effect was at present the law of the land. The Bill might be objected to on the ground that it only proposed to establish what was now the law, but although he believed it to be the law it had not been so declared by the judicial tribunals. A bank had recently been established upon the principle of giving depositors a share of the profits of the concern by way of interest upon their deposits; and according to the opinions of high legal authori- 665 ties, which had been taken by the projectors of the bank, such a participation in the profits would not render the depositors liable as partners. The question had not, however, been decided by the judicial tribunals, and the Bill would remove any doubts which might exist upon the subject. He, therefore, hoped the House would assent to the second reading of the Bill.
§ MR. HINDLEY
said, if he required any justification for having voted with the minority in favour of the adjournment, he found it in the extraordinary speech of the right hon. Gentleman who had just sat down. He had listened with great attention to that speech, but he could not understand it, and he thought that was an excellent reason for adjourning the debate. He did not object to the principle of limited liability, but he did entertain the strongest objection to the principle involved in the third clause of the Bill under consideration. He believed that clause would inflict a most serious blow upon the commerce of the country, and he trusted the House would carefully consider the subject before they gave it their assent. He thought the speech of the right hon. Gentleman was calculated to excite great alarm in connection with the question, and he hoped the House would not now agree to the second reading of the Bill.
§ MR. KIRK
said, he should oppose the second reading of the Bill, as it stood, for he thought that the right hon. Gentleman the Vice President of the Board of Trade should have adopted the course suggested to him by the right hon. Gentleman the Member for the City of Oxford. It was, he thought, but fair that a person who participated in the profits of a business should also share in its liabilities; but the effect of the present measure would be that, when a party having a claim against a firm applied for payment to the person whom he might think responsible to him, he would find him a creditor equally with himself.
§ MR. HORSFALL
said, that the right hon. Gentleman (Mr. Lowe) had told them the object of the Bill was not to alter the law of partnership, but he found in the preamble these words—"Whereas it is expedient to amend the law relating to partnership." If the Bill had been a final measure, he (Mr. Horsfall) would have been disposed to support it, but after the threat of the right hon. Member for Kidderminster, that next year another alteration in the law of partnership was to be 666 proposed, he (Mr. Horsfall) would give his vote against it. If another Bill on the subject were to be brought forward next Session, why should not the present measure be postponed and amalgamated with it?
§ Question put "That the word 'now' stand part of the question."
§ The House divided:—Ayes 97; Noes 66; Majority 31.
§ Main Question put, and agreed to.
§ Bill read 2°.