LLOYD'S BONDS, the name given to a species of securities introduced by 31r. John Horatio Lloyd, the eminent barrister, and much employed by railway and other com panies, whose power of borrowing money on mortgage or bond is derived from and limited by acts of parliament. A Lloyd's bond is an admission under seal of a debt being due by the company issuing the bond to the person in whose favor it is executed, with a covenant to pay the sum due at a time fixed, and to pay interest at a certain rate from the time of issue until payment. The covenant is made by the company, their successors and assigns, with the obligee, his executors and administrators; so that a Lloyd's bond on the face of it is not assignable, and is not, properly speaking, a negotiable instrument. The value of it consists in its converting a simple contract or ordinary debt into a spe cialty debt, by which the holder gains a preference over ordinary creditors; and in its enabling the holder, armed with this preference, to raise money upon the faith of the debt, either by assigning his interest in it, or by depositing the bond as a security for advances. A valid Lloyd's bond, as a security, appears to be inferior to a deben ture issued under statutory authority in no respect except that its validity can be put in question.
As railway and other companies which have come into existence under parliamentary authority have no powers except those which parliament has conferred upon them, their power of borrowing is limited to the amounts and must be exercised in the manner which parliatnent has prescribed. By the act 7 and 8 Viet. c. 85, s. 19, it is declared illegal for them to grant any loan-notes, or other negotiable or assignable instrument, in security of money advanced, except so far as they arc authorized by statute. In general, they have statutory authority to borrow only when a certain portion (usually the whole) of their capital has been subscribed, and a certain portion of it has been paid up. And the statute 8 and 9 Viet. e. 16 (the companies' clauses consolidation act) provides that their power of borrowing must be exercised under the authority of a general meeting. Previous to the introduction of Lloyd's bonds, these restrictions upon borrowing really limited the liabilities of companies. They were severely felt by companies whose works
were being made or being extended; which often were in need of money, which it was impossible or impolitic to raise by means of calls, and whose borrowing powers had not come into operation, or could not conveniently be resorted to. 3-1r. Lloyd relieved such companies from their difficulties, and to a certain extent defeated the intentions of par liament by taking advantage of the fact that companies, if they were prevented from borrowing, were not prohibited from getting into debt in any other way, and granting acknowledgments of their indebtedness in any form except perhaps that of a negotiable instrument. For work done, for goods delivered, for anything except money advanced, the directors of a company might grant admissions of indebtedness; anti Mr. Lloyd sup plied a form in which such admissions would becoine ahnost as binding on a company as statutory- debenture, in which they could be sufficiently marketable, in which they could be conveniently granted by directors on account of all the important objects for the sake of which they could desire to borrow to any extent, without the sanction of a general meeting of the shareholders. The only drawback upon the usefulness (for their purpose) of Lloyd's bonds has been, that they have only been negotiable at high rates of discount; but this has not prevented companies from using them, in many cases to a dangerous extent. There are instances in which lines have been, for the most part, made hy means of Lloyd's bonds; and they have constantly been used simply as a colorable means of eluding the statutory restrictions upon borrowing. On the other hand, they have been of considerable service to companies in the first period of their existence: and that, on the whole, they are thought to have been useful may perhaps be inferred from their implied recognition by statute; the regulation of railways act, 1868 (section 3, sched. I, No. 13), directing the amount due on "Lloyd's bond and other obligations not included in the loan capital statement," to be set forth as an item in the "general balance sheet," which, under this act, every company requires to prepare half-yearly.