LEGAL DECISIONS AFFECTING BANKERS.

THE ATTORNEY GENERAL V. BIRKBECK AND OTHERS.

(Reported in full, see below.)

THE Bank Charter Act, 1844, prohibits bankers (other than those lawfully issuing notes on the 6th May, 1844) from issuing bank notes, and provides that if any banker, then having the right to issue notes, "should cease to carry on the business of a banker, or discontinue the issue of bank notes," it should not be lawful at any time thereafter to issue notes.

Messrs. Birkbeck were bankers lawfully issuing notes on the 6th May, 1844, and they continued their issue down to 1880, when they transferred the whole of their business (with the exception of the right to issue notes) to a Limited Company.

In the agreement, however, carrying out the transfer, elaborate provisions were inserted as to the mode of issuing the notes, which the Court construed to amount to an assignment to the Limited Company of the whole benefit of the issue, in consideration of certain payments.

The Court held that Messrs. Birkbeck, after the execution of the agreement, had ceased to carry on the business of bankers, and had discontinued the issue of notes, and that neither they nor the Limited Company had the right of issue.

THE ATTORNEY GENERAL v. BIRKBECK AND OTHERS. Banker-Bank Notes, Issue of-Penalties-The Bank Charter Act, 1844 (7 & 8 Vict. c. 32), ss. 11, 12.

By s. 11 of the Bank Charter Act, 1844, it shall not be lawful for any banker to "issue" any note payable on demand, except that any banker carrying on business as such on the 6th of May, 1844, and then lawfully issuing his own notes, may continue to issue them under specified conditions; and, by s. 12, if any banker, entitled after the passing of the Act to issue bank notes, "shall cease to carry on the business of a banker," it shall not be lawful for him to issue such notes at any time thereafter. In 1880 a firm of bankers, entitled to issue their own notes under the exception in s. 11, sold their business to a limited liability company upon the following terms :-The company took over the whole of the business as a going concern, and the goodwill, except and reserving to the firm the right to issue their own notes, but including in the sale and purchase such

benefit of the issue as was thereby agreed to be given to the company; the firm were to issue their notes in the same form as theretofore, but through the company's officers only, and might nominate those officers and make the returns required by statute through them: the company were to allow and pay the firm £2 per cent. interest on the amount of all notes from time to time in circulation: for the purposes of the issue only the firm might continue to use their accustomed name, but they were not to assign their rights, nor to take new partners for the purpose of continuing the issue without the consent of the company, nor to carry on the business of banking within a defined district without the like consent, except so far as related to the issue of their notes under the agreement: if the right of issue should at any time be taken away from the firm they were to pay any compensation they might receive to the company, unless the company should get an equal right of issue, in which case the firm might retain the compensation: if the company acquired a right to issue their own notes, the firm's right of issue was to cease. When the business was taken over by the company, a large number of the firm's notes being in circulation, the amount of them was deducted from the purchasemoney, and the notes, when presented for payment, were cashed by the company, and reissued by them. Notes in hand when the business was taken over were treated as cash lent by the firm to the company. Daily returns were made by the company showing the number of the firm's notes in circulation, and twice a year the company paid £2 per cent. interest to the firm on the amount so ascertained. On an information against the firm and the company for penalties in respect of their having issued the notes contrary to the provisions of the Act :

Held, that the company had "issued" the notes within the meaning of s. 11 of the Bank Charter Act, 1844; that the firm, in issuing the notes, were not protected by the exception in s. 11, because after the making of the agreement they had ceased to carry on the business of bankers" within the meaning of s. 12; and therefore that all the defendants were liable.

INFORMATION by the Attorney General against J. Birkbeck and others, members of the firm of Birkbeck, Robinson, & Co., and against the Craven Bank, Limited, for penalties under s. 47 of the Stamp Act, 1870 (33 & 34 Vict. c. 97).

The facts and arguments are stated in the judgment.

Sir H. James, A. G., Sir F. Herschell, S. G., R. S. Wright, and W. O. Danckwerts, for the Crown.

R. E. Webster, Q.C., E. H. Pollard, and H. E. Stansfeld, for the defendants.

Cur, adv. vult.

Feb. 9, 1884, the judgment of the Court (Lord Coleridge, C.J., and Stephen, J.) was read by

LORD COLERIDGE, C.J.:-This was an information for penalties under the Stamp Act, 1870 (33 & 34 Vict. c. 97), s. 47 (1), filed against the defendants under the following circumstances:

The firm of Birkbeck and Co., otherwise known as the Craven Bank, carried on the business of bankers in Yorkshire for a great

(1) If any banker, not being duly licensed or otherwise authorized to issue unstamped bank notes, issues, or causes or permits to be issued, any bank note not being duly stamped, he shall forfeit the sum of £50.

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many years previous to 1880, and from the year 1791 they issued notes which, subsequently to 1844, were for £5 only. In 1880 the defendants, who then represented the firm, transferred their banking business to a limited liability company called the Craven Bank, Limited. This was effected by a written agreement of which the following provisions appear to us material to the decision of the present case :

By article 1 the vendors agreed to sell and the company to purchase and take over "the whole of the said business of the Craven Bank Company and of Birkbeck, Robinson, & Co., as a going concern, and the goodwill thereof, except and always reserving to the vendors their right to issue their own bank-notes, but including in the said sale and purchase such benefit of the said issue as is hereby agreed to be given to the company."

By article 7 it was agreed as follows:-" If circumstances permit, the vendors shall for a period not exceeding five years, and may for a longer period, continue to issue their own notes in the same form as heretofore, but through the officers of the company only; and the vendors for that purpose shall from time to time nominate such clerks or officers of the company as they the vendors shall think fit, and shall make the returns required by statute through such clerks or officers. The company shall allow the vendors interest at the rate of £2 per cent. per annum on the amount of all notes from time to time in circulation. The account between the vendors and the company in respect of the issue shall be stated, and a balance struck, on the 30th day of June and the 31st day of December in every year, and the amount found due shall be thereupon paid, after deducting therefrom all the expenses of the issue. For the purpose of the issue only the vendors may continue to use the names of their said firms, or such name as has been hitherto accustomed; but the rights of the vendors shall not be assigned, but shall pass only to the surviving or continuing partners or partner: Provided always that a new partner or new partners shall from time to time be admitted on like terms for the purpose of continuing the issue of notes, but not without the consent of the company."

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Article 10 provided as follows "The vendors shall not, nor shall any of them, at any time hereafter as long as the company carry on business, unless with the consent of the company, carry on in the county of York or the county of Lancaster the business of banking, except so far as relates to the issue of their notes under this agreement."

Finally, article 11 is as follows:-"If at any time hereafter the vendors shall be restrained from issuing their notes, and no equal right of issue shall at the same time be given or allowed to the company, any composition or compensation which shall be made to the vendors or their successors in exercising their right to issue in respect of such right shall be paid over by them to the company:

but, if at the time of such restraint an equal right of issue shall be given or allowed to the company, then any such composition or compensation as aforesaid shall belong to the vendors or their successors absolutely. If at any time hereafter the company shall acquire the right to issue their own notes, the right hereby reserved to the vendors of issuing their own notes shall thereupon cease and be determined."

Under this agreement the company took over the business as from the 1st of July, 1880, and have carried on the business since that time. The facts with regard to the issue of notes of the firm were as follows:-When the business was taken over a considerable number of notes, about £60,000 worth, were in circulation, and the vendors received from the company £60,000 less than they would otherwise have been entitled to. In other words, £60,000 in circulation were treated as a liability of the firm which the company were to meet. On the other hand, the notes in hand at the various branches of the firm were treated as so much cash lent by the firm to the company. As the outstanding notes were presented for payment they were cashed by the company; and on the other hand, they were issued by the company to persons who had to receive cash from them and who chose to take it in that form. Daily returns were made to the head office of the company, showing how many of the firm's notes they had in stock at the closing of the bank, and this showed how many were in circulation. Twice a year the firm were paid £2 per cent. interest on the amount in circulation thus ascertained. The notes in stock were regarded as having been received by the company for the firm and re-lent by the firm to the company as soon as they were received by the company for the firm.

Several affidavits were filed, and a good deal of argument was put forward, as to the manner in which the books were kept, and the inferences to be drawn from them. It was sworn by certain accountants from different government offices that the books showed that the company, and not the firm, carried on the business of a bank of issue for their own profit, and that no separate accounts were kept of the issue business and the other business of the bank. It was sworn, in substance, on behalf of the defendants that the books when properly examined showed the course of business which has just been described; and it was argued that it followed that the firm still carried on their business of a bank of issue through the company, who acted solely as their agents. The controversy as to the books appears to us immaterial. The substance of the transaction appears on the agreement, and on statements of fact admitted to be correct. The way in which it was recorded in the books really throws no light upon it. It is consistent with either of the views suggested to us as to the transaction itself.

The legality of the arrangement made, and of the course pursued in virtue of it, depends mainly upon the construction of 7 & 8 Vict.

c. 32, ss. 11 and 12 (the Bank Charter Act of 1844). Sect. 11 prohibits the issue of notes by bankers, with the following exceptions, -"Any banker who was on the 6th of May, 1844, carrying on the business of a banker in England or Wales, and was then lawfully issuing in England or Wales his own bank-notes under the authority of a licence to that effect," may "continue to issue such notes to the extent and under the conditions hereinafter mentioned, but not further or otherwise." It is admitted that the defendants (other than the Craven Bank, Limited) are within this exception. The question is whether they are within a limitation imposed upon it by This section provides that, "if any banker who after the passing of this Act shall be entitled to issue bank-notes shall cease to carry on the business of a banker, or shall discontinue the issue of bank notes . . . . it shall not be lawful for such banker at any time thereafter to issue any such notes." By the interpretation clause, s. 28, it is enacted that "the term 'banker' shall extend and apply to all corporations, societies, partnerships, and persons, and every individual person carrying on the business of bankers, whether by the issue of bank-notes or otherwise, except only the governor and company of the Bank of England."

8. 12.

Upon these enactments it was contended that, in the circumstances already detailed, all the defendants had issued bank - notes in contravention of s. 11; that the Craven Bank, Limited, having been established in 1880, were not within the exception, and that the Birkbecks were not protected by the exception in s. 11, because they had ceased to carry on the business of bankers within the meaning of s. 12.

To this it was replied that the Birkbecks had never ceased to carry on the business of bankers; that under the agreement with the company they continued to carry on the business of a bank of issue, and that the company issued their notes as their agents, and not otherwise.

We are of opinion that the contention of the Crown is correct, and for the following reasons:-We think that the effect of the agreement between the company and the firm of Birkbeck & Co. substantially and really was to transfer the business of the firm to the company, including in the transfer the right, which before the transfer the firm no doubt possessed, of issuing bank-notes; and that the object of the provisions in the agreement which we have quoted was to evade the provisions of the Bank Charter Act, and to keep alive the power to issue notes, which according to those provisions would have ceased as soon as the firm was merged in the company. We do not mean to cast any imputation on the parties by this statement. There are many cases, and this may be one of them, in which legal obligations are the measure of moral obligations. The question before us is simply whether the parties have succeeded in keeping outside the prohibition of the Act. We think they have not.