STREATFEILD'S AND CO.'S DISCOUNT. STREATFEILD'S AND CO.'S DISCOUNT.
Fox some weeks past an interesting discussion has been going on, which may be called "An Inquiry into the First Principles of Discount.' It does not lie in the province of the Statistical So- ciety, the Society of Arts, or even the Law Amendment Society, to originate such discussions. Such inquiries, when not provided for by learned societies, receive indirect attention from our judi- cial tribunals. On this occasion, the inquiry has been started in the Court of Bankruptcy. The text of the whole case is furnished by the failures in the leather trade ; and, upon the comparatively unimportant issue of Messrs. Streatfeild and Co.'s right to certifi- cates, we have bankers, barristers, solicitors, and bankrupts ex- pounding the practice of the discount market. And a very sorry practice it is ; one thing only is clear, that there is a wish to sacrifice the partners in the house of Streatfeild as an offering to commercial indignation, which, if successful, will do nothing towards the cor- rection of an evil in which more than bankrupts are to blame. We have before commented upon the facts of Messrs. Streat- feild's failure, and we have not a single word now to urge in their defence. Nor do we think it right to say anything in their con- demnation; their fate may be safely left in the hands of Mr. Commissioner Holroyd. But we are concerned, if possible, to point out that it is not so much the fault of Streatfeild and Co. and their connexions, or, perhaps, even the bankers and dis- counters who have lost their money, as it is the fault of our jurisprudence, which produces delusions in the present state of the law relating to Bills of Exchange.
Discount is no more than a contract, by which the amount of a bill due months hence is converted into immediate cash. It is founded upon a previous contract in the eye of the law between drawer and acceptor, by which value has passed from one to the other in consideration of a promise to pay in the future. The law requires that the acknowledgment of "value received" shall be stated on the face of the bill, and properly so. But the law does not stop there ; it requires that such an acknowledg- ment shall be made on the face of erery bill and promissory note. This requirement creates the whole mischief, because with the desire to become possessed of money the elastic conscience of commerce expands the meaning of the word " value," and the critical faculties of bankers and discounters become blunted when there is a plethora of money re- quiring profitable use at interest. This is really just the
whole issue between the leather trade and their creditors. All the bills given by the trade and discounted bear upon their face, as the law requires, the words " value received."' The law has been satisfied, and the law would have been ready to enforce the payment had an acceptor set up that any one of these bills was not given for value. For value had been given in each case ; but it was a species of value invented between drawers and acceptors, which, if it even fully satisfied the law as between drawers and acceptors inter se, depended entirely upon a definition between themselves, to whioh no indorsee had access or means of know- ledge. The capital of the firm had nearly disappeared. Mr. Laurence describes the gradual loss of the capital until it reached a minimum insufficient to carry on a small business ; at the end of 1849, Mr. Mortimore's capital was 1291. less than nothing, and that of Mr. Laurence was only 67581., after 45001. from profits had been put to the credit of each partner. With this small capital, Streatfeild and Co. were in the habit of " assisting " customers ; they " got the money by discount- ing." The process was this : a customer bought a parcel of leather, and was drawn upon for perhaps double the amount ; " advances" were made to meet the bills ; the bills were renewed from time to time, until the amount reached a total sufficient to
ruin each and every house which had accepted or been drawn upon by Streatfeilds. One instance will suffice: Lafone's purchases amounted to 30001., but his bills represented " value" for more than 30,0001. So it was with every other customer ; the degrees in difference being merely in amount and not in mode of opera- tion. The effect of this course of dealing may be stated in a few words. Streatfeilds and all their connexions are commercially ruined. When Streatfeilds stopped payment they owed to the world 219,9071. 16s. 8d. for value which they had received, and they produced assets to represent that value of 214,1431. 14s. 3d. —nearly 208. in thepound. But behind this were the liabilities on bills payable which they had accepted for others, 70,0831. 2s. 11d., and bills accepted by others for them for " value" given in renewal, 767,7301. 8s. 8d. The fictitious trading in bills over- comes the real trade in leather, and Streatfeilds' creditors have to accept a dividend not out of the value they contributed, which make the estate and effects, but subject to deduction in competi- tion with the holders of bills in amount four times greater than the value of the assets and the real debts. This is the prima facie case of fraud which the creditors and the discounters of the bills set up against Streatfeilds—that this large amount of paper is illegitimate, or accommodation paper circulated in defiance of every correct rule of commercial dealing as between banker and customer.
But Messrs. Streatfield are not without a reply, and we antici- pate it will amount to something like this :—It is true that these bills were not drawn against leather ; they were drawn in re- newal of transactions which originated in the sales of leather and loans of money. This is value in the estimation of the law, a good consideration. Every bill so drawn, renewed, and redrawn and accepted, was supported by a good consideration as between our- selves and the acceptors. We lent money, sold leather, drew bills in our discretion, hoping to make a profit. Bankers and discounters sought our paper-
" We had several channels of discount. There were various terms for such transactions. 'Channel' was a right term. A few days before his stoppage he had opened several of these channels. Had had them a long time. It would not take him a long time (referring to pass-books) to give an account of all the streams he had prior to 1857, and which streams used to come for the bills. Thought they did with Overend and Co., the Bank of England, and Curries,-at least four years before 1857. Had done with the Bank of England since 1829; with the Bank of London since soon after its formation—about 1856; with the Bucks and Oxford Banking Company since about 1852. The Bucks and Oxford Banking Company used to come for his bills. Generally whenever they came for bills they had some. Had bad transactions with Cunliffe, Brooks, and Co., since long before 1847 ; with the Rye Bank thirty-five years ; with the City Bank from the time of its formation, viz., in 1855 ; with Curries since 1836 ; with Roger Cunliffe since 1845; with Dimsdale and Co. since 1846; with the Warwick Bank about four or five years ; with the London Joint-Stock Bank from its formation in 1836; with the London Discount Company since April, 1857; with the National Bank since about 1853 or '54 ; with the National Discount Com- pany from its formation in 1856; with Overend, Gurney, and Co. quite twenty-five years; with Sanderson and Co. twenty years; with Weston and Laurie about fifty-five years. That was a pretty good list. Scarcely an in- stance had occurred in which they had not come to him first. They were eager for his bills. He could scarcely supply them fast enough. Many of the other respectable banks came and asked him to open an account. There was no difficulty in placing the paper ; they never looked at it ; they only wanted bills."
In fact, the bankrupts allege that they were tempted and they fell ; they were sought out, and as money in the form of discount was freely offered them, they saw the prospect of becoming bankers, and occupying the position of the Leviathan house of the leather trade. Thus, so far as the public is concerned, the question between Streatfeilds and their creditors lies in a nut- shell ; but behind the narrow issue of their conduct there is a broader question to be considered. Granting that the conduct of the bankrupts has been reckless, and that of their bankers imprudent, it still remains for us to inquire how far we have put the power into the hands of traders to deceive themselves by false meanings of the word " value," and then to deceive others. It is idle to expect that men will eery legal definitions in their heads, or that the ethics of commerce, if left to the exposition of the wor- shippers of Mammon, will be pure. We require that every bill shall be drawn for value ; we refuse to a discounter the right to recover a suretyship bill which does not profess to be given for value. Hence, in our very desire to
prevent any other than sound commercial bills, we have created a necessity to " palter in a double sense" with the words, "value received." Streatfeilds and all their connexions attach the idea of value to a renewal of a bill ; the bankers reject this notion, and call it an accommodation bill. There is much to be said on both sides in the present state of the law. That Streatfeild and Co. have been the means of perpetrating what is, in effect, a great wrong, is quite clear ; that banks and discount houses sought their fate by making the temptation is equally clear ; how often it is that the sight of means " to do ill deeds makes ill deeds done !" But if the bankrupts have committed a wrong, it is one which is wholly beyond the power of the Court of 'Bankrupter adequately to punish. If an offence has been committed—we do not say it has—then it is an offence of such enormity that it is not by any civil process, but by criminal procedure, that it must be visited. If the banks could make out a case that they had been induced to part with their money by way of discount, on the representation that all the bills " placed" with them were trade bills, then there would be a false pretence and no more deprivation of certificate would meet the justice of the case. What we want in commerce is, to place the law of negotiable instruments on the basis of the common sense of mankind. It is notorious that accommodation bills are drawn and discounted ; it cannot be prevented, for people in want of money will not scruple to write " value received. ' But if we abolish the necessity for these words on the face of all bills ; if we simply require that where value has passed it shall be so stated, and require that no such statement need be made in any other case, we shall then be entitled to punish a deception practised upon bankers by a criminal rather than a civil penalty. At present, there is no right to prosecute for false pretence, and it is obvious that so long as we allow the door of pretence to remain open, schemers and speculators will prefer the channel of discount to the disreputable channels of felony. But as the results are the same by one mode as the other, so ought the penalty in law to be adjusted.
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