HC Deb 25 April 1864 vol 174 cc1559-68

Order for Second Reading read.

MR. SCHOLEFIELD

, in moving the second reading of this Bill, said, its principle was identical with that of the Bill which he brought forward in the previous year, which was referred to a Select Committee, but was sent up to the House of Lords at too late a period of the year to allow of its passing into law. The difficulty which the Bill was intended to remove was this—If a capitalist wished to lend money to a private partnership he must do so either at a fixed rate of interest or by becoming a partner and thereby risking his entire property. That risk was so great that few persons were willing to incur it. The Bill therefore proposed that capitalists should in future be at liberty to join as what was called limited partners in any general partnership, on condition that, in a public register to be kept for that purpose, the sum he advanced, the time for which he advanced it, and other particulars, should be stated. In his opinion the Bill was emphatically a creditors' measure, for at present a loan to a partnership was a secret transaction. A firm might receive credit for ample capital, but if they became bankrupt it was often found that the capital had been borrowed, and that the lender had swept away the greater part of the available assets. Under the Bill, however, such a state of things would be impossible, as the capitalist who lent his money under it would practically inform the public of the conditions of the advance. Again, the Bill did not in the slightest interfere with the present law of partnership qua those who were held out to the public as being partners. The only persons who would be limited to the amount which they had put down were those who had no contract with the creditors, and whom the creditors did not know, excepting as far as they appeared on the registry for the amount for which they were liable. The Bill was not a new one. The principle of the measure had been recommended in the Report of a Committee in 1851, and had been affirmed in a Resolution brought forward in 1854 by the hon. and learned Solicitor General. Under those circumstances, he hoped the House would read the Bill a second time.

Motion made, and Question proposed, "That the Bill be now read a second time."— (Mr. Scholefield.)

MR. HUBBARD

said, he hoped that his hon. Friend (Mr. Scholefield) would not think he impugned his motives in bringing forward the Bill, or that he wished to oppose all improvements in commercial legislation, because he felt obliged to move, as an Amendment, that it be read a second time that day six months. This Bill was not identical with any of the measures on the same subject which had been before presented to the House; nor was it entitled to the support which previous Bills had received from the great commercial bodies whose opinions were of much weight. The former Bill had received the support of many Chambers of Commerce, but those bodies were opposed to the Bill before the House. The Mercantile Law Society of London was composed of men who were admirably well-informed upon these subjects; and in remarks put forward by that association it was stated, that if a clerk or workman had an engagement with his master, by which in addition to his salary he was to receive a percentage on profits, there was no partnership; but if he was entirely paid by percentage that would constitute him a partner. From that statement it appeared that the difficulty which was intended to be provided for by the second section of the Bill might be altogether removed by payment being made in the shape of both salary and percentage. The strongest argument put forward in support of the Bill was that illustrated by the case of a young man exceedingly well disposed, intelligent, and industrious, but wanting capital. It was supposed that such a young man had a friend who would assist him, but who demurred to a low rate of interest, because the compensation would be insufficient, and who was afraid of imposing a high rate, from the fear that his debtor might not be able to pay it. But it must be remembered that, in reality, capital produced nothing but interest, and that the capitalist had no right to demand more on his advance of capital than the stipulated rate of interest, which rate of interest varied in proportion to the risk. If they granted to the capitalist more power to reap indefinite profits, they had no right to limit his responsibility. To upset that theory seemed utterly contrary to the whole nature of commercial equity and justice. He ventured to urge the rejection of the Bill in the interest of the creditor. Let the partnership be registered ever so carefully, practically not one man in ten would be able to keep himself au fait in the varying circumstances to which that partnership might be exposed. The object of these partnerships would be not to do business with the capital which they might acquire by these arrangements, but to do business on as extended a system of credit as possible. Only that morning a case had appeared in the papers, in which a shipowner who had commenced business on borrowed money had failed for forty times the extreme amount of his capital. If that was possible under the present system, what might not be done under the Bill? At present a person who lent money had his option. He might either go in as a capitalist and be content with a fixed interest; or he might go in as a trader with unlimited profits. If he chose the latter it was only right that his responsibility should also be unlimited. In what was now proposed by the Bill the interesting young man they had heard so much of vanished, and in his room they were asked to allow a capitalist to set up a man of straw as his creature and his agent. He would put into his hands a certain sum, but the business would be administered under his own eye, and he might obtain, unlimited credit. It was doubtless very true that no one would trust him beyond a certain amount, but then lie might obtain credit to that amount from each of forty persons. If the concern answered, the capitalist would pocket the profit; if it failed he would snap his fingers at the creditors, and walk out of the affair with impunity, beyond the loss of the sum he had invested. Such a system as the House was asked to institute would demoralize the trade of England. The scheme had been supported by reference to French and American experience. But the Committee of the Law Amendment Society distinctly stated that they did not desire to see partnerships established in this country on the same regulations as the partnerships en commandite in France, and the special partnerships in America. They objected to the commandite system because it did not secure the actual payment of the capital agreed to be subscribed. The registry simply represented a promise to pay a certain amount of capital; there was no security for its actually being paid down. The Bill, in the same way, stated that a partnership should be constituted, nut with reference to the money paid down, but with reference to the sum promised to be paid. The Committee also state that in France and America the capitalist was prohibited from interfering in the management of the business, even in the most trifling questions; but there was no such prohibition in the Bill. Therefore the argument in favour of the Bill drawn from foreign examples entirely failed. The object sought to be attained by the Bill could be obtained in a much less objectionable manner. Why should not a capitalist be permitted to make advances upon a bonded loan, certified and registered, for a certain period at a rate of interest sufficient to satisfy him, and under arrangements which would give his agent command of money for a certain time, securing him all the advantages which the Bill proposed to provide, but avoiding all the temptations to fraud and mismanagement? He was anxious to know for what reason Scotland was by the last clause exempted from the operation of this Bill. No doubt, the acute and sensible commercial men on the other side of the Tweed objected to having that mischievous principle introduced into their mode of doing business; and to avert their opposition this limitation had been consented to. If the Bill were good for England it was good for Scotland, but, believing it to be good for neither country, he should move that it be read a second time that day six months.

Amendment proposed, to leave out the word "now," and at the end of the Question to add the words "upon this day six months."—(Mr. Hubbard.)

MR. MALINS

said, it was impossible not to see that the speech of the hon. Member for Buckingham was in favour of unlimited liability, but he thought the House would consider it was impossible for them to retrace their steps and adopt the principle which the hon. Gentleman advocated. Limited liability was a principle firmly established in the minds of commercial men, and it was being acted upon every day to a surprising extent. Joint-stock companies and banks were being carried on upon that principle, and experience showed that great commercial concerns could not be carried on so well by individuals as by companies, because, among other reasons, they were subject to changes inconsequence of deaths, which tended to interfere with their prosperity. What the Bill under these circumstances proposed to do was to extend the benefit of the limited liability principle to establishments comprising a smaller number of partners than legally constituted a company. That, however, the hon. Member for Buckingham contended was a course opposed to all commercial morality, but why it should be so, he, for one, could not understand. It was to the advantage of the public that young men who possessed skill and ability, though they might not have capital, should be able to enter into business; and his hon. Friend the Member for Birmingham desired to confer facilities for that purpose. But by the law, as it stood, a man of capital could not assist a deserving youth without becoming liable to his last farthing if he participated in the profits. If he lent the money on bond the consequence was that if the person he assisted failed he came into competition with the creditors, and had his dividend. By the Bill it would be different. The lender of the money would only be liable to the extent of the money he had advanced, or had promised to advance, and he did not come in as a competitor with the creditors. In those cases in which the principle of limited liability at present operated any one might ascertain from a public record who the members of a particular firm were, what was the amount of their capital, and how much of it was paid up; and it was a person's own fault if he did not take the proper precautions before investing his property in such hands. What, then, he should like to know, was the harm of proposing, as the hon. Member for Birmingham did, that A might carry on a business in the name of A and B, provided he gave notice that the person with whom he was in partnership was not a general partner? Could the creditor who gave credit to a concern complain when he was informed by a document to which he might refer, that the non-acting partner's was a limited liability only? It was well known in the case of even the best-conducted private banks that the partners put no capital in them — the capital being supplied by the deposits of the public; but it was also true that everything the principals possessed was at stake under the unlimited liability system. Under this Bill, if a man were a trader, and got another to join him with £10,000, of which £3,000 was paid up, and the remaining £7,000 liable to be called for as it was required, what objection, he should like to know, could the public have to a partnership of that description? In the event of a failure, how would the public suffer? The Bill provided that in that event the limited partner should pay up in favour of the creditor the difference between the sum he had paid and that which he had agreed to pay; so that, instead of anything being taken away from the creditors, they would have the advantage of a fund to which to resort. He recollected well having fought battles on the subject with eminent commercial men, such, for example, as Mr. Alexander Hartie, and the principle for which he contended had, he was glad to say, triumphed; nor could he conceive why it should stop short with companies consisting of seven members and not be made applicable to partnerships of two or three persons when hedged round, as in the case of the present Bill, by proper safeguards. The Bill, notwithstanding the opposition it met with during the last year in the Select Committee from the hon. Member for Huntingdon, was read a third time, and was not sent to the Lords because it was too late in the Session. It was not surprising to find that those who had flourished under a particular system should be opposed to any alteration, and that those eminently successful commercial men, whom the hon. Member for Buckingham so well represented, who had experience of establishments flourishing on the principle of unliraited liability, were slow to believe that any other system could be successful; but when his hon. Friend gave as an instance of the disadvantages of the opposite system the case of a gentleman who commenced trade without a penny, and lost forty times his capital, he was scarcely dealing fairly with the question. The man who had succeeded in inducing others to trust him to so large an extent was clearly no fool. He must, in short, have been a man of some capacity; and how much better would it be if, under the operation of such a measure as that under discussion, he had been enabled to go to a capitalist and say, "I have a knowledge of shipping, I know how to buy and sell, and if you supply me with £10,000 I think I can make a certain profit." Having that money, the gentleman in question, instead of causing the public to suffer, and losing forty times his capital, might have doubled it and been a successful man. If the Bill was imperfect in its details, its imperfections might be remedied in Committee. Its principle followed from that which had already been established in regard to limited liability companies; and, as he thought that it would remove an existing evil, he should give it his most strenuous support.

MR. KIRKMAN HODGSON

said, that he could see no objection to the principle of the Bill. If under its operation persons obtained credit to which they were not entitled, it could only be in consequence of want of prudence on the part of those who trusted them. The great evil of commerce at the present moment was that men gave credit to others without inquiring what was their property, or what right they had to be trusted. The hon. Member for Buckingham seemed to object to the Bill because it would compel persons to inquire what were the means of those to whom they gave credit; and he proposed as a remedy the advance of money at a high fixed rate of interest. But the Bill was intended for the benefit of persons who had acquired a character for prudence, and nothing could more clearly show that a man was unworthy of such a character than that, knowing the uncertainties of business, he should consent to pay a high fixed rate of interest, whether he made it or not. He could see no difficulty in the way of the adoption of the principle of the Bill. It had been admitted with regard to large matters; why should it not be extended to small ones? In his opinion legislation upon the subject had commenced at the wrong end. This was where it should have begun. Old houses generally came to grief either by the partners adhering to old-fashioned modes of doing business, or by their retaining the management after they had lost the energy and enterprize which were essential to the success of all commercial concerns. A business could not stand still, it must either go backward or forward; and nothing could be more justifiable than that persons who had made their fortunes, but wore anxious to keep up the name of the old house, should leave some portion of their property in the business under the management of young, energetic, and prudent men in whom they might have confidence. So far from the Bill injuring the tone of commercial morality, he believed that it would elevate it. It would give greater freedom to contract, which meant greater freedom to industry, and would confer upon honest, deserving, and excellent men opportunities of reaping the fruits of their industry which they had not hitherto enjoyed.

SIR GEORGE BOWYER

said, the speech of his hon. Friend the Member for Buckingham (Mr. Hubbard), seemed to be based on the principle that where there was unlimited profit there should be unlimited liability; but he was sure the House would say it was too late to go on a principle which had already received a negative by the decision of Parliament. Again, the hon. Member appeared to think that the Bill introduced a new principle destructive to the sound doctrines of commercial law and commercial morality. It was no new principle at all. It was a principle more than 2,000 years old; and they would find embodied in the civil law every possible variation and modification of the law of unlimited liability. If the question came to a division, he should certainly vote for the Bill.

MR. GREGSQN

said, he wished to point out that while under the measure there was to be a limit to the extent to which the non-active partner was to be liable, there was no limit as to the number of persons from whom credit might be obtained upon the strength of the sum which he advanced. Therefore, if a capitalist put £10,000 into a concern, and one man gave credit to the amount of £10,000 on the faith of the capital of £10,000 subscribed under the Act, a dozen other persons might do the same thing, and then where was the security for the creditor? In railways there was a limit on both sides; under the Bill there was not. He thought the hon. Gentleman might as well have gone a little further, and have applied the principle of limited liability to one as well as to two persons.

MR. ALDERMAN SALOMONS

said, he thought that the Bill would supply a great public want, which was finding its expression in the creation of credit companies. In times of peace there was an extension of enterprise, and this rendered fresh capital necessary. It had been said, if the principle of limited liability was to be carried so far, any one man should be able to limit his responsibility; but he took it that the very principle of the Bill was, that the man actually carrying on trade should be liable to his last shilling, but that those persons who should be registered as partners, simply contributing capital, should be responsible only to the amount for which they were registered. The Bill had been described as a capitalists' measure. He contended, on the other hand, that it was a trader's measure. It would enable honest industrious tradesmen to procure the capital which at present was beyond their reach, and would assimilate the law of England in that respect to the laws existing in every other country in Europe. He saw no reason why in this commercial country, where we had free trade in so many things, there should not be free trade in capital, provided the party who contracted the debt was held responsible for it.

MR. BUCHANAN

said, he held that the previous adoption of the principle of limited liability in favour of certain companies could not be advanced in support of the measure, as it extended the principle so far as virtually to create a new one. The statement that the question was vir- tually settled last year required this commentary, that the Select Committee refused to take any evidence, although the requisite powers had been conferred. There was no record of their opinions, which, he might state, were utterly at variance upon every point submitted to them, and the Bill might just as well never have gone upstairs at all. He would, therefore, propose that, in deference to the opinion of those commercial bodies who best understood what was suited for commercial interests, the measure should now be referred to a Select Committee, with the understanding that they would reconsider the whole question. In some respects the present Bill differed from that of last year—for instance, its application was not extended to Scotland. Of such an omission he did not approve, for if the measure were approved by the House, what was good for England would be equally good for Scotland. On the other hand, he was glad to perceive that there were some important improvements in the management clauses. ["Divide!"] He saw that the feeling of the House was against him, and therefore he would abstain from further protest against the measures.

MR. SCHOLEFIELD

said, he wished to explain that the Bill had been delivered to him in its then shape, and that he had only been able to read its principal clauses. He should be very glad to extend its operation to Scotland.

Question, "That the word 'now' stand part of the Question," put, and agreed to.

Main Question put, and agreed to.

Bill read 2°, and committed for Monday next.