The chief object of the Act of 1879 being, as we have seen, to restrict the liability of shareholders by giving permissive power to create a limited reserve liability instead of an unlimited liability; or to declare, in the case of companies already partially limited, that their uncalled capital should be converted into a reserve liability, and not to give power to such companies as already happened to be absolutely limited, to extend their liability; there were a certain small number of banks existing in the kingdom which were shut out from the advantages of the Act.
Among such banks were the five old chartered banking corporations, viz.:-The Bank of England, the Bank of Scotland, the Royal Bank of Scotland, the British Linen Company Bank, and the Bank of Ireland. These five banks, by virtue of their constitution as chartered corporations, were debarred from placing themselves under the Act, which only provides for the re-registering of companies already registered under the " Companies " or other Acts.
These banks stand in a unique position as regards all other banks in the kingdom. They were incorporated by Act of Parliament or by Royal Charter long anterior to the Act of 1826 permitting the formation of joint-stock banking companies, and, as a necessary incident of their incorporation at common law, the liability of their shareholders is limited.
As there has been some discussion on this subject recently, and as it has been doubted whether this is the position of the chartered banks, it may be well to look for a moment at the authorities for the dictum.
In 1826 Select Committees of the House of Lords and the House of Commons on Promissory Notes reported to their respective houses that members of chartered companies were by virtue of their charters protected from personal responsibility beyond the amount of their respective shares.
And Sir Robert Peel in his Bank Act of 1844, and his Irish and Scotch Acts of the following year, specially exempted the five banks named from the obligation of making an annual return of the names of their member- to the Commissioners of Stamps and Taxes.
In "Bell's Commentaries on the Laws of Scotland," also, in book v. chapter 1, section 3, it is stated that "The chief benefits of a charter to a company, and the most remarkable of its peculiarities when compared with the constitution of private partnership, are that it enjoys the privileges of a corporation; the power to hold lands; to make bye-laws; to enjoy in its several partners freedom from any responsibility beyond the stock, with the power of selling their shares, and thereby transferring their right and character of partners to others who become partners. The debts of the company affect only its stock, so that neither can the individual members be prosecuted or have diligence directed against them; nor can they be called upon to make up any deficiency to the creditors."
And coming to our own day, we may mention the opinion of the Lord President of the Court of Session expressed in his judgment in the case of Murdochs Trustees versus the Liquidators of the City of Glasgow Bank, already referred to in the previous section. Counsel for the Trustees argued that the City of Glasgow Bank, having been registered under the Act of 1862, became thereby an incorporated company, and that the rules of liability of shareholders in an unincorporated bank were no longer applicable to it. With reference to this argument the Lord President in his judgment said, " If a joint-stock company, by registration under the Act of 1862, becomes without condition or qualification a corporation, with all the characteristics belonging to a corporation at common law, there would be an end of this case. Such corporations are created by special statute or by royal charter for carrying out important public objects, and have also been created occasionally for trading purposes, and notably for carrying on the trade of banking; and in such cases, if the special Act or charter of incorporation does not expressly make the corporators liable for the debts of the corporation, they will not be so liable. The corporation, being a separate person, has its own estate and its own liabilities, and the corporators are not liable for the corporation, but only to the corporation, within the limit of the obligation they have undertaken to subscribe to the corporation funds. 'Si quid universitati debetur singulis non debetur nec quoad universitas debet singuli debent.'"
So far from this view being questioned, indeed, it seema rather to have been doubted at one time whether it were legally possible for the members of a corporation to impose upon themselves voluntarily any liability beyond the amount of their shares. But to set the question at rest, a permissive Act was passed in 1825 (6 Geo. IV. cap. 91), which provided, "That in any charter hereafter to be granted by His Majesty, his heirs, or successors, for the incorporation of any company or body of persons, it shall and may be lawful, in and by such charter, to declare and provide that the members of such corporation shall be individually liable in their persons and property for the debts, contracts, and engagements of such corporation, to such extent, and subject to such regulations and restrictions, as His Majesty, his heirs, or successors, may deem fit and proper, and as shall be declared and limited in, and by, such charter; and the members of such corporation shall thereby be rendered so liable accordingly."
And it is by virtue of this permissive Act that the shareholders of most of the India and China and Australian banking corporations in London are liable for double the amount of their shares.
The Act of 1879 was therefore wholly unavailable to the banks named, and there was no other Act under which they could go whereby they could gain the objects of that Act. But the three Scotch chartered banks having determined to move with the times and provide for their creditors some security beyond their existing large paid up capitals and reserve funds, last November lodged private bills in parliament for that end.