The bills were introduced in the House of Lords, and passed the second reading there, but at that point their further progress was stopped for the time being by the government.
It was understood that the government took up this position at the instance of some of the English bankers, who objected to any new privilege whatever being granted to any bank; and at the instance of the other Scotch banks, who objected to the senior banks obtaining the privilege of reserve liability without being obliged so to designate themselves. The junior banks foresaw that probably they would be obliged, by the pressure of their shareholders, to register under the Act of 1879, and so have to assume the title of "limited," 1 and they objected to being compelled thus publicly to announce the fact, while the senior banks, if their bills passed, would be under no such obligation.
The government having blocked the passage of the bills, the banks, their promoters, arranged an interview with the Treasury. At this interview the government stated their objections to the proposed legislation, and a few days later these were formulated in a Treasury minute dated the 24th March, 1881, addressed to the banks.
In this minute the following objections were urged by the government:-
They thought that fresh powers or privileges should not be granted to banks claiming limited liability for note issues; nor to banks claiming limited liability, but not adopting the designation "limited," which is now a requirement of the general banking law; and, moreover, they considered private legislation on a subject of important public policy to be objectionable.
With regard to the note issues, the minute pointed out that since 1845 it had been the traditional policy of every successive government, in granting fresh powers to, or removing restrictions from, privileged banks, to make these dependent on a review of privileges. It also pointed out that while the principle of limited liability for ordinary obligations has, since 1845, received more general acceptance, the legislature has rigorously insisted on unlimited liability for note issues. The government, however, while saying that they were determined to oppose the grant of fresh powers if the three banks continued to ask for them accompanied by limited liability for notes pure and simple expressed themselves as ready to give their best consideration to any proposals by means of which the banks might think it possible to meet the wishes of the Treasury without encountering the difficulties mentioned.
1 The unlimited Scotch banks as a body have since intimated their intention of registering under the Act of 1879.
To the non-adoption of the term " limited," the Lords of the Treasury also entertained a strong objection, because it was a leading principle of the Act of 1879 to secure greater uniformity in banking regulations, and that uniformity, in their opinion, would be departed from if the bills were passed as they stood, and without making it obligatory upon the banks to adopt that affix. Moreover, the government considered it expedient that the public should know the status of the banks with which they dealt, and therefore the Act required such banks as might be limited so to designate themselves.
With regard to the objection to legislation by private bill, the Treasury held that no measure of important public policy should be so dealt with; and stated it as their opinion that the proper mode of dealing with the case of a bank whose circumstances debarred it from availing itself of the benefits of the general law, would be by a public Act modifying the general law only to the extent of the proved necessity.
To these objections the banks replied :-
1st. That inasmuch as the liability of the three banks was limited-for the note issues as well as for the general obligations-and having been so recognized by Sir Robert
Peel in his speech introducing the Scotch Bank Bill of 1845, and by parliament in passing the Act, there would be insuperable legal difficulties in the way of imposing upon existing shareholders in respect of the notes an unlimited liability, which they never undertook. While pointing out the impossibility, however, of securing the notes in this precise form, the banks expressed their desire to confer with the Treasury as to the best means to secure the same end in another way.
2nd. That it was a legal impossibility for the three banks to register under the Act of 1879. That Act was available only to unlimited companies, or to companies previously registered under the Companies' Acts as limited, and the three banks were within neither category. The banks further pointed out that so far from the uniformity of banking regulations being broken by the non-adoption by them of the title " limited," it would, in reality, be broken by its adoption, inasmuch as parliament every session, in granting fresh powers to chartered companies, has never required them to designate themselves limited.
The banks also reminded their lordships of a case in point which occurred last year, i.e., after the passage of the Act of 1879. Lord Beaconsfield's government introduced a bill in February, 1880, providing for the continuance in perpetuity of the charters (granted for limited periods and with limited liability) to the Indian and Australian and other colonial banks of London, and giving them powers to increase their capital at will, without requiring them to adopt the designation " limited." Lord Beacons-field's government fell before they could pass this bill, and were succeeded by the present (Mr. Gladstone's) government, who, in a Treasury minute, dated 21st July, 1880, expressed general approval of the principles embodied in the bill, and promised to carry them out when practicable.
The banks further submitted, that there was no instance on record of a corporation, or company of any kind, not registered under the Companies' Acts, bearing the name limited, and that the reason therefor was obvious. That term, applied to an unlimited partnership registering under the Companies' Acts, was natural and intelligible, for it denoted that the partners had by registration chosen to alter their relations to their creditors, by limiting their common law unlimited liability. But with a corporation the case was different. A corporation being, not a partnership, but a distinct person in the eye of the law, and being liable only to the extent of its corporate funds, could not assume a title which would not only be misleading, but be an absolute misnomer. The assumption of the word limited by the three banks would signify that they had in some form restricted their liability, while in point of fact the change of designation would accompany, not a limitation, but an extension of liability, and of security to the public.