The record-union., 1895-10-05
IT is NOTHING new.
The Eleventh Century Limited LA
bility Company.
Principles of Modern Law That Were
Adopted Centuries Ago In
Europe.

EDS. RECORD UNION: Readers of the
argument in the case of the Government
against Mrs. Stanford may enjoy bit OF
history regarding the rise of ceitain in
stitutions involved in the case. The his
torical facts to which / ain about to call
attention throw, of course, no light upon
what the decision in the present case
ought to be: for that rests upon the prln-
ciples of modern law. But the interest
in the case may extend TO matters re-
motely connected herewith, and IL may
help the layman TO understand better the
points made, if he knows something OF
the origin and meaning of the institutions
upon which the case to q certain extent
depends Let nothing, however. IN this
article be construed as encroachlng upon
the field of the lawyers in their argu-
ments.
A part of the question now before the
courts involves q consideration OF the
principle of limited liability as applied TO
corporations. The modern joint stock
company, as they call it in England, or
the corporation, as we call IL, Is primarily
an institution for collecting relatively
small sums from persons wishing 10 ln-
vest them protitably, and willing to risk
just the amount they invest and no more.
1t seems to have arisen in its modern
form in imitation of the methods used In
floating public debts, the sums thus
collected being used TO carry out some
enterprise so large as to be beyond the
reach of any one or two persons. even II
they were willing to risk millions IN
single enterprise. The risk Is In TINS
way so well distributed that generally
speaking no one individual would be
ruined in case of failure. With certain
notifications, due to the special laws OF
different countries or States, this ia the
character of the modern corporation.
The Constitution of California, as
most people know, makes an important
exception to the general rule, when II
sIipulates that each member OF corpor-
alton shall be held responsible for his
share of the debts. The general rule Is
that the stockholder may lose ali he pays
for the stock and no more. partner
ship, on the other hand. is an arrange
ment which involves the whole fortune
of each participant in the venture. Ii
the Losses are great he may not only lose
all that he has in the business, but may
be called upon to make good the losses IN
excess of that from his own private for
tune, even TO the whole amount thereof.
We generally assume that the principle
OF the corporation, 4. G., limited liability,
is of more recent growth than that of the
partnership. We assume this because
partnership rests, in general, on the older
common law, while corporation is the
creature mainly of the newer statute
law. Historically, however, the princi-
pie of limited liability is older than Is
usually assumed. 1t dates from the tenth
century.
Medieval theologians, and hence me-
di3val law, were host lie to the payment
of interest for the use OF capital. The rea-
sons for this do not concern US here. But
usury, or the taking of interest for money
loaned, was forbidden. Still, as capital
grew, it naturally sought profitable in
Vestment, and various methods OF OBJ
tanning a return by its use were invented,
which, while evading the spirit of the
law, complied with the letter. One of
these methods was by the formation of a
temporary partnership for a special pur-
pose. Such partnerships, which, as we
shall see in q moment, were funda-
mentally different from modern partner
ships, were not uncommon In the Italian
merchant cities in The last half OF the
tenth century.
The manner in which this was done
can be illustrated in the following way:
Some merchant who had accumulated a
little money wished to oinvest it in foreign
trade, but did not care to undertake the
arduous task OF foreign journey. He
would therefore intrust his goods TO an
agent, say the Captain or owner of
ship, or it might be some well-known
trader. Generally it was some person
we'll acquainted with the market i'll
which the trading was 10 be done. At
first it was not the custom for the agent
himself to invest any thing in the vent
ure, but he would agree TO undertake the
Journey and dispose of the goods for one
fourth of the profits. The agent took the
money under the distinct agreement to
proceed TO certain markets and trade
there with it and 10 pay the merchant
owning it three-fourths of the profits.
Later the agent also invested some of his
capital and borrowed more from other
merchants, agreeing TO share with them
in the profits in some manner de-
termined by the relative amounts of
money each adventured.
Now the liability of the lenders or own
ers was limited in this case to the amount
OF goods or money intrusted to the agent.
They were not lending him the money
outright, but became actual shareholders
in the enterprise. Ii he made no profit
or lost his goods, the merchants would
lose on what they had advanced. But at
the same time he was not authorized to
make any engagements binding on those
who supplied bis capital, beyond the
amount they had intrusted TO him. Here
then, was the precursor OF our modern
joint stock company, or corporation,
institution, which endured 800 years,
that is longer than the modern corpora
tion has existed, was swept away by an
other, and only recently revived.
There is no traceable connection be-
tween the ancient limited-liabiity COM
pany aud our modern partnerships, al
though the institution describ bed above
developed into something somewhat re-
sembing them. The agent would at a
later time be SO trusted by the merchants
that he was allowed to make arrange
nents beyond his instructions. Thus lie
could make engagements which were
binding on the partners 10 supply certain
goods in the future or during the next
season.
The modern English and American
partnership, With unlimited liability
however. probably grew from the custom
of members OF the same family conduct
ing their business IN common IN the same
shop and living together. some old
phrases aud tho word company itself
m-panis-those who eat bread to-
gelher) indicate this origin. In the form
ula of the time a partnership was COM
posed of men who have one bread and
one wine" Since they lived together,
and wore not infrequently blood rela-
tlOns, or persons who voluntarily as
sumed similar relationship. it was natu-
raj 10 hold that their property was all re-
sponsible for the debts OF the concern. So
that when any claim was made upon the
partnership it could be satisfied by any
and all OF the property of any and every
mOmber.
In England this form of partnership
superseded all others. and displaced that
form which was much like the Italian
hlniied-liability companies described
above. 1t did this so completely that the
hmited-Ilability principle fell into disuse
and Was forgotten, only to be hailed as q
new discovery when the needs of modern
commerce and the example of national