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THE

LAW MAGAZINE;

OR,

QUARTERLY REVIEW OF JURISPRUDENCE.

No. CIX.

ART. I.-LIMITED LIABILITY.

[This article was written before the Limited Liability Bill of last Session had received the sanction of Parliament; but as it contains an epitome of all the arguments for and against that measure, and also for and against the Partnership Amendment Bill, which has not passed into a law, we now insert it with a few slight alterations, adding some further remarks upon the provisions of the Limited Liability Act itself.-ED.]

WE

E revert to this subject, in accordance with the promise which we made in a former number, though it is now pretty well used up by the host of essayists and pamphleteers who have written upon it, and has provided matter for numerous parliamentary reports and parliamentary debates. It will not be without utility, however, to take a review of the arguments which have been commonly used in its discussion, two bills bearing upon it having been recently before Parliament, one of which has become the law of the land. After all the discussion which the subject has received, we are not satisfied that its real bearings are yet generally understood, although several blue books, containing a vast amount of useful and well-digested matter, and some very able treatises on it, have been given to the world within the last twenty years.

In 1837, Mr. Bellenden Ker made a report on the Law of Partnership, which was printed by order of the House of Commons. That report contains a great deal of valuable information, and is particularly interesting at the present moment, as showing that most of the difficulties which have arisen out 2 F

VOL. LIV. NO. CIX.

of the modifications subsequently made in the Law of Partnership, by the Joint Stock Registration Act, were then indicated; as they were also in the first report of the select committee on Joint Stock Companies, which was assumed as the basis on which the Act itself was framed. The principal evils of the Law of Partnership, as it then stood, Mr. Ker classed under three heads: 1st. Those arising from the difficulty of suing and being sued; 2ndly. Those arising from the difficulties which occur to partners from suing inter se, more especially in reference to a resort to Courts of Equity in partnership disputes, and agreements to refer to arbitration; and lastly, those arising from the rule that any person taking an interest in the profits becomes liable as a partner. The first two evils were to a considerable extent remedied by the Joint Stock Companies' Acts. The latter was no doubt intended to be dealt with in a similar spirit in the Joint Stock Companies' Registration Act; but all these attempts at alteration or improvement have, until the recent session of Parliament, been confined to public companies, though the policy of limiting the liability of partners in private trading partnerships has long occupied no small share of public attention. There is no denying this fact, that public opinion has undergone a considerable revolution in regard to the latter subject within the last few years. The old common notion, and the opinion of our ablest judges, was, no doubt, that any limitation of the liability of a partner in trade was unjust in principle, and would be impolitic in practice. "With respect," says Mr. Ker, "to the difficulties arising from the liability incurred as partner by a share of the profits, the propriety of any legal enactment on this head seems, from the opinion of the gentlemen who had been examined, to be very questionable; those in favour of it admitting the necessity of introducing such qualifications as would guard it from being made use of as a means of evading the great principle of the Law of Partnership, and at the same time the difficulty of accomplishing it; and on the other hand, the majority of the opinions, both commercial and legal, are opposed to it." Yet in the same report, we find it stated, "that with respect to the working of the law in France and New York, as far as informa

tion has been obtained, it appears to be considered beneficial; and certainly, as regards the French law, the cases which are reported do not afford evidences that this branch of the Law of Partnership furnishes any peculiar facilities for committing frauds on creditors. In France, according to the opinion of some well-informed merchants, it is very useful, as affording the means of directing to commercial enterprise much capital, which otherwise would not be so employed; as affording the means of bringing forward intelligent and skilful persons, who have not capital to enable them to enter into commercial speculation; and as enabling a retiring trader to leave in the business a portion of his gains, and thereby continue the credit of the house to his successors, which the retiring partner might not be inclined to do, if his whole fortune were to be liable to the partnership engagements. In New York it is understood that the same effect is produced."

It would be difficult now to state the usual arguments in favour of limited liability more strongly or tersely than they are here put; and yet the select committee of 1813-with this report before them, and a great mass of evidence to support the views maintained in the extract which we have just given-were so chary of giving expression to what appears to have been the conviction of the majority, that they "forbear to express an opinion, because, though highly worthy of consideration, those subjects do not appear to fall within the scope of the reference which was made to them." We next find the subject partially investigated by the committee appointed in 1850 by the House of Commons, to inquire into the subject of the investments of the middle and working classes; and their report, without pledging the committee to any positive opinion, recommended that charters of limited liability, for useful undertakings, should be granted by the Crown with due caution, at a moderate cost. This, perhaps, is the first decided intimation of opinion on the subject which we find in any of the parliamentary reports relating to the question of limited liability.

Mr. Slaney's committee was appointed in 1851 to consider the Law of Partnership, and the expediency of facilitating the limitation of liability, with a view to encourage useful enterprises,

and the additional employment of labour; and as we are now glancing at the development of opinion on the subject, in a kind of historical manner, it may not be out of place to state shortly the conclusions at which that committee arrived, as stated in its report.

Having considered the Law of Partnership as then (in 1851) existing-viewing its importance in reference to the commercial character, and rapid increase of the population, and prosperity, of the country-they recommended the appointment of a commission to consider the whole subject, "especial attention being paid to the establishment of improved tribunals to decide claims by and against partners, in all partnership disputes; and also to the important and much controverted question of limited and unlimited liability of partners." They further recommended an alteration in the usury laws, and that "power be given to lend money for periods not less than twelve months, at a rate of interest varying with the rate of profits in the business in which such money may be employed; the claim for repayment of such loans being postponed to that of all other creditors; that in such case, the lender should not be liable beyond the sum advanced; and that proper and adequate regulations be laid down to prevent fraud." The mode of granting immunity from unlimited liability advocated by this committee was similar to that suggested by the committee on investments, viz. a greater facility in the obtainment of charters of incorporation; and that power should be conferred upon traders to borrow capital, without risk to the lender, beyond the amount of the sum advanced; and they went so far as to express their conviction that it was no less "consistent with the spirit of recent legislation than conducive to the public advantage, and the promotion of legitimate trade, to relax any restraints," which existed on the free action of individuals in the application of capital, due regard being paid to the importance of preventing the acquirement of undue or undeserved credit, or giving encouragement to ignorant or reckless speculation.

The draft of the report proposed by the chairman, Mr. Slaney, contained the recommendation, "1st. That charters of limited liability, for useful local enterprises, subject to certain rules to