FRAUD AND BANKRUPTCY.
Twene is always danger in any sweeping accusation, and when we say that the commercial public appears at present to be carried away by a delusion of no high order, we must be understood as speaking wholly and—solely of the results, and not as intending any general charge against our fellow countrymen. Individually, no doubt,- each man of that commercial public would be as well disposed to do good, to avoid mischief, and to improve his kind, as any average specimen of the highest orders in other walks of life—a clergyman, a statesman or a professed philanthropist. He supposes that he takes nothing but a " practical vie*,' and that the evil of which he is accused is something unavoidable— one of " the imperfections of human institutions." The mistake is not due to the inherent viciousness of human nature, but to the difficulty which we all feel in bearing the entire context of any question in our minds. A very complicated or profound question -presents itself to us from time to tithe only in part ; we are over impressed by the peculiar front that is before our eyes, and forget the rest.
Were it otherwise; were it possible.for any man of average in- telligence and honesty to keep before him the whole question of commercial honesty, without the slightest doubt an instant and unanimous support would be given to the new association for suppressing the practice of falsely labelling goods for sale. We have already analyzed the causes and character of the abuse ; we have shown that wherever each one man is misdescribing his case, giving under quantity, and underselling his neighbour, the result is that nobody is in any way the richer, but each is enfeebled in his business by a general mistrust. For nothing embarrasses us so much in action as a mistrust of our neighbours. It is a melan- choly fact, however, that, the new association has not met with unqualified success. It will, we believe, triumph at last ; but in the meanwhile many traders openly avow their determination to discourage attempts to put down the practice of labelling a reel of thread one hundred yards when it contains only seventy. Many commercial associations which have been invited to assist in sup- pressing frauds which are vexatious, embarrassing to the opera- tions of trade, and derogatory to the character of tradesmen generally, have answered that " the subject cannot be enter- tained." Merchants who ship goods for foreign ports reply that they must persevere with the practice to suit "the wishes of fo- reign he porters,"—who must " wish " to cheat their customers, and English merchants do not find it in their heart to refuse help in that process of cheating. While British traders are thus repelling attempts to make them honest, when there is lie incentive to dishonesty except, the hope of turning an honest penny, they are on the other hand pressing upon the Government and the Legislature new laws to enforce a greater stringency in the compulsory recovery of debt. They ask for the most liberal construction to be put on deliberate fraud, but are indignant at the leniency shown, by the present Bankruptcy law to the fraudulent, or' even the negligent:creditor. We have in previous papers, for some years past, endeavoured to show that the very backbone of British commerce is credit ; now credit can only be negatively enforced by penal compulsion ; by such means you can only restrain positive and active offences
against the law. You cannot in any way compel people to be trustworthy, or forcibly elevate their character as merchants. On the contrary, if you lead traders to believe that, however heedlessly they may trust any man that comes before them, without inquiry into his circumstances, his character, his means of payment, his prudence, or even his sanity, the State will fur- nish them with the means of repairing their own negleot. by assisting to wring the money from the debtor, you first of all in- duce the trader to afford facilities for creating a debt that cannot
be repaid, and secondly you. beget on both sides a spirit of gam- bling in chances ; the trader "chancing" the recovery of his money, and the purchaser " chancing " the payment of his debt. Many tradesmen are in the habit of laying on a little more in the price to their ordinary customers, in order to cover bad debts. sometimes they do not apparently increase the price, but they fraudulently diminish the quantity of goods sold,—giving 70 or less yards for 100 ; and then finding that even thus the system of reckless credit " does not pay," they call upon the Legislature and the Courts of Law to save them from the consequences of their own negligent, thriftless trading. Our own belief is,. that in proportion as credit, properly so called, is left to the influence of free trade, so will it flourish ; while all that the honest and prudent tradesman can reasonably require at the hands of the Legislature is protection against deliberate fraud. The trader sometimes figs es in both capacities, as debtor and creditor—as seller and purchaser ; and the present system, laxly construed, has undoubtedly fostered a spirit of gambling specula- tion in the intermediate man between the first dealer and the customer, which is as injurious to society as it is to trade. We find a capital instance exposed in the Bristol Court of Bankruptcy. The case was that of a wholesale grocer, Robert Wells, and his peculiar history maybe said to commence in January 1854, when his balance-sheet showed, in book debts, gig, carts, horses, furni- ture, and plant generally, a balance of 22801. He then had seven establishments, six in Bristol and one in Gloucester ; and, al- though he closed all but his chief house in Bristol, in 1856 he opened two additional shops, one in Newport and one at Cardiff. in the previous year he had effected a loan, the person to whom he gave acknowledgments for the advances being Charles Joseph Battershill, his own confidential clerk, to whom he paid interest at the rate of 5 per cent ; the advances amounting in that year and the two following, with interest, to 30691. In return, Wells handed over to Battershill all warrants for teas, coffees, or spices, which came into the house in the course of trade, and also al- lowed him to cash all bills received by the bankrupt ; Battershill so effectually covering the debt, that when bankruptcy was de- clared in February 1859, he had to hand over to the official assignees a balance of the moneys in his hands. On the 8th of February, the day before Wells failed, he effected a peculiar operation.
Battershill is sent by the bankrupt in hot haste across the Bristol Chan- nel to make sales for cash. He goes to Newport and Cardiff, and from each place abstracts a quantity of goods without weighing them and without taking any account of them in writing, telling the bankrupt's people that it was a ease of all up.' Some of these goods he sends off by the railway, having masked their value by writing false descriptions on their packages. The proceeds of these goods he pays to the bankrupt on the morning of his bankruptcy, and it is worthy of remark that it is not until the month of Au- gust last that this money is paid over to the official assignee, a period at which the bankrupt had experienced very ominous manifestations of the stern suspicions with which all his proceedings were to be scrutinized."
And on the same 8th of February, Wells placed in the hands of his solicitors 1501., making, with 50/. added on the 9th, 2001., not for any bill due—he owed them but a fraction of any such sum—but apparently in prospective payment of services for his defence. One element in Wells's defence was, that his purchases had been made under fa pressure from the commercial agents of wholesale houses, who have shown great ability and eloquence in urging purchases, on the ground mostly, that they were offering goods at low prices with a certainty that the prices would rise. It was under such circumstances that Wells, whose condition we have already ascertained, carried on his purchases, to the extent of some thousands annually, in the last seven months exceeding his annual average by nearly 10,0001.—that is to say, buying to the amount of 17,600/. ; some of the goods being bought within a few days of the failure.
The Bristol Court of Bankruptcy has in its presiding Judge a man who has deeply considered the morals of trade, as well as the spirit of law, and his reflections upon this case have forced him to review the legislation on the subject, with the result of striking out what is practically a new rule. Traders who object to any interference with the practice of falsely labelling goods,—who would retain the licence to gamble in low wholesale prices, even though they have not the capital to gamble withal, but are really staking other people's money,—traders who are clamouring for increased stringency to screw the last penny, or sell up the last stick of furniture belonging to an ordinary debtor, will be per- haps startled at the effect of Mr. Hill's judgment. Had the bankrupt in this case deceived his dealers or not?
" Is then," said Mr. M. D. Hill, "the charge proved that, in pursuance of a contract with his own clerk, the bankrupt paid off, or, what is the same thing, secured to its full value, an old debt by means of purchases which be could never have effected had the venders been cognizant of the agreement on which he acted ? That question must, I am of opinion, be answered in the affirmative. For if he had told those tradesmen, rapacious for custom as, upon his representation, they were, that he had reversed position with his servant, or, rather had become the slave of his servant, mak- ing the latter the master of his fate, binding himself to permit the ser- vant to take possession of all bills of exchange paid into the house and all the warrants for goods as they came to hand, and submitting to carry on his trade from day to day at the sufferance of this clerk, who could have termi- nated his employer's commercial existence at any moment, and, further, if the creditors had known that the clerk was using this monstrous privilege gradually to cover by securities a large debt, I cannot doubt that even had they been ignorant of his insolvency they never could by any possibility have permitted the bankrupt to become their debtor for one shilling. Was, then, this contract thus carried into effect a fraud so as to constitute the third offence enumerated in section 256 of the Bankrupt Law Consolidation Act ? Now the words defining that offence, in so far as relates to the pur- chase of goods, are these :—' If the bankrupt shall have contracted any of his debts by:any means of fraud or by means of false pretences.' After much consideration," continued Mr. Commissioner Hill, "I have arrived at the opinion that it was the intentiad of the Legislature to guard as well against passive as against active fraud. False pretences, in the language of the cri- minal law of England, mean falsehoods respecting some fact which the offender alleges to exist, or to have taken place. Such representations con- stitute an active fraud, which is not the one here charged ; but silence with regard to existing facts, the knowledge of which would protect the vendor from parting with his goods on credit, may, and I must think in this vase do, constitute a passive fraud within the meaning of the words quoted. I therefore adjudge the bankrupt guilty of this offence." This stringency is applied to fraud, whether passive or active : let us eliminate that element, before we attempt to settle how increased stringency can renovate or sustain " credit."
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