Page images

not only personally liable to the debts, but are also entitled to all equitable remedies as between partners; e. g., to interfere with the books and accounts, and to have a legal co-possession of the property. Actions to recover outstanding debts must be now brought in their names, or a plea in abatement will lie. If they survive the ostensible partner, the legal rights to the property now survive to them, and do not go to the legal personal representative of the ostensible partner.

How far is it the object of the section of this Bill to disturb any other of these relations except the one of personal liability to creditors ? Whatever the object, it is pretty clear that if the clause remains as it is, with the parts between brackets unexpunged, it will leave them undisturbed. But it is apprehended, that in taking away the legal liability to pay the debts, the legal ownership of the assets must, in justice both to the creditors and to the ostensible partner, be taken away also; and that the limited partner must be made into a mere equitable cestui que trust claimant on the funds. Again, under the Bill (with or without the words in brackets), could the advancer prove in bankruptcy in competition with the creditors of the concern? This, again, is not clear; but it is presumed he could. Certainly he ought not, for several reasons. He is now liable to the debts; but because the creditors did not know of him at the time of loan, and did not trust him, he is no longer to be so liable. That is protection enough for him. Whatsoever thing is in the reputed ownership of a trader, now passes to his assignees on bankruptcy or insolvency, and the owner has no proof for the value of such thing in competition with the creditors. Nothing can be more thoroughly in a man's reputed ownership than the capital on which he has traded. That should pass also. There are many trades besides insurance in which the capital is not wanted to be paid up, but is required to be subject to call and for use as an indemnity to creditors. In all such cases, the limited partner must be made liable to fulfil his engagements to the ostensible partner, after such partner's personal insolvency as well as before ; and the rule, therefore, must of course be the same in all cases.

Further, the Law Amendment Society feel strongly that loans made for the permanent service of a trade (and therefore constituting the capital of the concern) never ought to come into competition with the creditors; and that capital, on fail. ure, should not continue as now to get back a piece of itself in the shape of a dividend upon itself. This no doubt is a part of the law of debtor and creditor, and not of partnership. There may (when the point comes under full legislative review) be a difficulty in defining those loans which ought to be brought under that category. But there is no difficulty in saying that every loan under the section of this Bill must essentially be a loan of that sort. All such loans must essentially be meant for the permanent service of the trade. True, other loans of permanent capital are by our present faulty law allowed to compete with creditors. But that is no reason for extending this class of proofs. The particular class of loan the Bill deals with, 80 far from now competing, unjustly subjects the lender to personal responsibility; and there can be no reason why, because this injustice is to be removed on the one side, another and quite new injustice should be done on the other side; and why the creditors, in losing a recourse for payment they have hitherto wrongfully had, should now find their debtor as wrongfully elevated to the position of a competitor.

Further, some provision is wanted to prevent the repayment of such loans as this section deals with just upon the eve of failure, say within six months before bankruptcy or insolvency. Such repayment should be declared to be in the nature of a fraudulent preference. Business transactions between debtor and creditor often take place on a credit so long as to make six months the shortest period which should be fixed upon, to prevent fraudulent purchases of goods, and the like, as a means of repaying capital.

It may be thought that the limitations which the Law Amendment Society desire to introduce into this Bill, would prevent persons from advancing capital for a profit return, and would make them take up in preference the position of lender at a fixed rate of interest. Practically this would not be so. When concerns are formed, people anticipate success, and the profit form of advance would therefore be more frequently adopted. Moreover, a concern, known to have capitalists standing behind the creditors, and consenting not to compete with them, will claim the highest credit. The lenders are a perpetual bail for its well-doing. It would be absurd, therefore, to prohibit the advancing of capital on this secondary basis; and yet it is conceived that the Bill, as it now stands, would so prohibit it. This matter must therefore be made clear.

A direction that all partnerships in England may (as is the case everywhere abroad) sue and be sued in the partnership name is important. With reference to the question of survivorship, of legal right as between a secret partner and the personal representative of the ostensible partner, the same provision is needed. In Scotland an action lies by and in the name of a firm against any one of the partners. This Bill applies to Scotland. The necessity of assimilating the commercial laws of the three kingdoms is now admitted, and this, of itself, would render such a provision desirable, and this Bill might be extended to effect that object.

It should be borne in mind, that it is possible there may continue to be in future, as there have so often been heretofore, partnership contracts between secret and ostensible partners, by which the secret partner may still be intended to remain liable to the debts of the concern, just as the law now compels him to be. In such a case his liability should be preserved for the benefit of the creditors, they enforcing it through the equities subsisting between the two partners.

It will be found that the above considerations, if concurred in, will lead to two or three alterations in the Partnership Bill, and that these alterations would bring the Bill almost exactly into the form recommended by the Law Amendment Society, in their Resolutions of the 7th May, 1855.

Those Resolutions were the result of a most careful consideration of the subject, and the Society, on re-deliberation, still feel that they embody the correct view of the subject. Those Resolutions were as follows:

That no person ought, by reason only of his being entitled to share in the profits of any business, to be liable to pay the debts or perform the contracts or engagements incurred or made or entered into by the persons by whom the same is carried on.

That the persons by whom the business is carried on, or who suffer their names to be used, or themselves to be held out to the world, as partners, ought alone to be liable for the debts, contracts, or engagements of the business.

That a person ought to be allowed to become entitled to a share of the profits with a limited liability to the losses of a business, and such person should not, as against the creditors of the business, have any title to the property or assets thereof, and should be compellable to contribute the share of capital he may have agreed to provide.

That any person carrying on a business, who knowingly or willingly makes any false representation as to the liability of any person as a partner therein, or otherwise to contribute to the capital or expense thereof, and thereby obtains money, goods, or credit, should be guilty of a misdemeanour.

That any partnership should be capable of suing and being sued in the name of the firm, or description used by the partnership at the time of the right of action accruing; and service of process at the place, or any place of business of the partnership, should be deemed good service.

The Committee, therefore, consider that the Bill should stand as follows:

1. 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 the profits of the trade or undertaking, shall not, of itself, render the person making such advance a partner in such trade or undertaking

2. The person making such advance 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.

3. 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.

4. 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.

5. All actions, suits, and other proceedings may be commenced or defended in the name of the style or firm under which any trade or undertaking shall have been carried on.

6. Interpretation clause.


The Committee have carefully considered the subject of Lord Brougham's observations, with a view of providing a satisfactory remedy for the evils which confessedly exist.

It appears to the Committee that breaches of trust, whether arising from criminality or from neglect, are not confined to any particular class of society; but they seem to be of more frequent occurrence in cases of trust property belonging to persons in the middle and lower ranks of life. In these cases, the trust property itself is ordinarily so limited in amount, and the parties beneficially interested therein are frequently in such moderate or even straitened circumstances, that it is wholly out of their power to resort to proceedings in equity in order to obtain restitution, or avert complete ruin. Breaches of trust also directly criminal in their nature are unhappily frequently met with among these classes, and for these there exists at present neither remedy nor punishment.

Cases of misappropriation of trust property are not, however, by any means confined to persons of the class alluded to, and the records of the Court of Chancery and of the Bankruptcy Court not unfrequently disclose frauds of great magnitude committed by persons of high standing in society. And when it is borne in mind that whenever proceedings in either of these courts,

« PreviousContinue »