THE CHAOS OF INSOLVENCY.
Ix a recent issue of this journal, we drew attention to the sta- tistics of insolvency, developed and progressive ; and, after point- ing out the inefficiency of all the remedies so-called, now in use we asked, whether the remedy for the future was to be found in
i the increase of penalties, or n the withholding of credit now given upon faith in the vengeance of the law ? For this goes to the very foundation of the matter. Capitalists naturally look for the help of the Legislature to enforce the monetary performance of contracts. Commerce has so much ex- panded, credit so largely increased, that wholesale houses now do business with persons whom they never saw, and care little to see, so long as bills are met. Commercial ambassadors rush in hot competitive haste from town to town, and except from the gossip of "the commercial room," which is not always disinte- rested, they allow themselves no opportunity of obtaining accu- rate information, as to the means and standing of the persons from whom they solicit orders. Lower down than wholesale houses credit is extended thoughtlessly to persons, who ought never
houses, be trusted to walk round a penny. Yet when the natu- ral result of this unthinking mode of action appears' creditors cry out for the vengeance of the law, and they find that even its aid only ends in the imprisonment of about 15,000 debtors per annum, in the vain endeavour to diminution, in the annual loss of fifty millions, in writs of capias, fieri facies, and warrants of commit- ment.
And there are intermediate penalties. Debtors may be stopped in their business, and their " credit " ruined by the haste of one or more creditors to get paid. Homes are broken up ; families scattered. The whole commercial framework becomes filled with distrust and suspicion. And creditors at the present time are carried away by an infatuation that penalties must be multiplied to prevent bad debts. They imagine that a feeling of fear will prevent men accepting credit which is offered, nay often, almost forced upon them.
If penalties were increased, we believe the result would be that persons giving credit would be released from the operation of a very salutary fear under which they are, to some degree, re- strained at present. If the remedies which they wish were pro- vided for them, they would give credit with a false confidence founded on a belief, that the fear which formerly oppressed them would be transferred to their customers. When a man believes he has a chance of making a living by selling the property of others, obtained upon credit, he will not be restrained taking credit by the prospect of a contingent and remote penalty. Finding commercial travellers continually coming to him so- liciting orders, he will seek to maintain appearances, even after insolvency in his affairs has commenced. What benefit a penalty, however severe for mere insolvency, would confer on the com- munity, it is impossible to perceive. We know that every year hundreds of persons are remanded back to prison to undergo con- siderable terms of imprisonment. Yet is the evil abated ?
Before the County Courts' Act came into operation, in 1847, credit was not very generally extended by the lower section of the trading classes, except in localities which had local courts ex- tending to them by special acts of Parliament. When that act came into operation, some millions of pounds which had long figured in the books of creditors as utterly desperate debts, were sued for and judgment recovered. The amount actually obtained by payment was a gain to the commercial community they never expected. The want of a remedy had operated before on the pre- vention of credit ; the creation of a remedy suddenly came to the relief of the creditors to adjust the faulty judgments shown in giving credit to untrustworthy persons. But what is the result now ? Simply this, that the County Courts annually issue 700,000 summonses, issue 90,000 warrants against the goods of debtors, and commit 10,000 persons to prison. Were there no warrants to be procured for small debts, as before 1847, the re- sult ere now would have been, that a certain class in the com- munity would not obtain credit at all, and an immense amount of fraud, as well as cruelty, would have ceased to exist. We are willing to accept, for the sake of argument, that every one of the 700,000 whom creditors sue in the County Courts, are not willing to pay, unless compelled. But if it were not for the feeling of certainty of payment by law existing in traders minds, they would not give credit, and any inconvenience sustained by an unworthy person, is less entitled to sympathy than are the other members of the community, who, in addition to paying their own debts, are charged with the maintenance of the prisons, and the other machinery of penalties. The truth is that millions of credit are given unnecessarily and wastefully, and the competitive spirit amongst dealers to "do business" and get get paid, is the cause of much insolvency. Creditors, instead of acting as trustees for each other, only give credit to a man, believing that he will also obtain credit from others. Hence our dealer giving credit in January "at three months" is paid out of the credits of other dealers in February and March. Unless the debtor not only be honest, as this world goes, hut singularly conscientious, and stop payment, before the credit given in January is due, that particular creditor with the aid of
the law, can pay himself out of the contracts in February and March leaving the creditors in those months to bear the whole of the loss, when it accrues. This is a penalty upon credit for which the law is the responsible author. Traders struggle with the law by "appearances " and "pleas," in the vain hope of surmounting difficulties, and then generally leave the Court of Bankruptcy with a certificate of the third class. It would be much wiser to prevent creditors twisting the law to obtain preferency for them- selves, or colluding with debtors to do so, and equally prevent debters delaying creditors by the law's agency. The nonpayment of the first debt ought to create a trust in the affairs of the debtors whose estate should then be put in train of investigation and liqui- dation.
Debts are the monetary results of civil contracts. The basis of these contracts are credit. That term indicates that the vendor and buyer had confidence in each other's commercial honour. And if the vendor parted with the possession of his goods, in faith, that on a day certain, he would receive the equivalent price in cash, so the buyer expects that the goods he receives are of the quality and quantity he ordered and contracted for. If buyers often fail to perform their parts of contracts, vendors as frequently impose inferior goods! There is mutual deception and disap- pointment. Nonpayment sustains adulteration, and trade instead of being a fair exchange of commodity and credit, is simply a bargain, in which incipient insolvents seek to overcome adultera- ting dealers. The law has produced this state of things. A ven- dor is entitled to sue the buyer for goods sold, which must pay in full, and commence a cross action for damages on breach of con- tract. But if the law permitted a buyer only to receive such part only of the bulk as is genuine and agreeable to order, in weight, quality, and measurement, or plead a set-off for the difference, the evil of adulteration would meet a check. And until whole- sale dealers and manufacturers reform their own evil doings, they are not entitled to ask for penalties upon buyers, but the latter are equally entitled to say, "Physician heal thyself." One penalty, indeed, is wanted. We have over and over again pointed out that the line which the law draws at the point of credit to condone fraud should be abolished. If a man, by studied appearance of decent and suppressed representation, or even active misrepresentation, obtains credit, and squanders the proceeds, we deal with him only civilly, and refuse him a certificate at the very worst ; but if a wretched, starving boy steals any part of the bankrupt's trading property, the latter's assignees are entitled to prosecute and punish by hard labour for the felony. But where is the difference between the two offenders morally ? Insolvency arises from one of five causes, or some of them in combination, and each cause requires a different curative proof of discharge and punishment, with the view of prevention. These are misfortune ; incapacity ; expensiveness ; recklessness ; and fraud. Pine misfortune only requires to be ascertained to be dis- charged. Incapacity, indeed, which is the cause of much insol- vency, can only be detected and dealt with by dealers themselves, in denying to it the opportunity of any further display of commer- cial bungling. A man who has brought himself into Court by his own extravagance, as too many do, is not entitled to the same discharge as misfortune. Recklessness is still less entitled to pro- tection, whilst fraud ought to be dealt with in commerce precisely as it is dealt with in criminal jurisprudence, so long as we are satisfied that we are dealing with our criminals correctly. If a man of superior intelligence chooses the path of credit to commit felony, let him pay its penalty. Only let us remember that the higher the penalty the greater the difficulty in procuring a con- viction, and yet a blind unreasoning confidence will be thereby created in the law powers, notwithstanding its inefficiency. The present classification of certificates is worthless. But if a first- class certificate were only given to unavoidable misfortune, a second, which should protect the person, but not the future gains of incapacity and expensiveness, and only a third to recklessness, which should be voidable at any time if misconduct was to be ap- prehended, we should have a classification with a substantial meaning.
The questions arising out:of insolvency are too wide to be dis- cussed in single papers. But we are most concerned, at present, to deal with that unmerciful feeling with which we are always troubled after a commercial crisis ; a rage for penalties. If we can eliminate fraud from the complex web of commerical in- accuracies, and fix its place in criminal law, we shall do much towards the prevention of purblind action in the Legislative, con- founding the innocent and incompetent trader, with the swindler and reckless gamester. For the rest, in the absence of the proof of fraud, we look more in the direction of abolition, than inven- tion, of penalties. The penalties we have, have only created a class of dealers, who gave credit, less from a feeling of confidence in their customers than of faith in the law's compulsion. It is that class who are crying out for penalties. But it is not their voice we should listen to at this time. We wish to reform the law which shall govern their transactions in credit ; they wish for a law to compel a penal performance of contracts of which their reckless credit is the base. The difference is a most important distinction for legislation.
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