§ [NO. 99.] COMMITTEE.
§ Order of the Day for the House to be put into Committee read.
§ LORD REDESDALE,
in moving that their Lordships go into Committee on the Mortgage Debentures Bill, said, he desired to explain that this measure had originally come before them as a Private Bill. But it appeared to him that the measure was of far too important a character to be properly considered a Private Bill—he had taken the liberty of bringing it up as a Public Bill. In that form, if its provisions were found to be dangerous or objectionable, they would be more open to the revision of Parliament than if they formed part of a Private Bill. Under these circumstances, not as adopting the provisions of the Bill with any great confidence, he proposed it as a public measure, taking the provisions of the company which originally promoted the measure as the basis of the Bill. There were some of the clauses which he thought demanded the attention of their Lordships.
§ Moved, That the House do now resolve itself into a Committee upon the said Bill.
§ LORD PORTMAN
thought the thanks of the House were due to the noble Lord the Chairman of Committees for stopping the progress of the Bill as a private measure. It was another new move for facilitating the lending of money to the prejudice of the heir. He thought that many of its provisions required the cautious attention of the House.
§ EARL GREY
said, he could assure the noble Lord that the Bill had been most carefully considered by the Committee which sat upstairs. There was nothing in it which would give any powers to the owners of settled property which they did not at present possess. The object of the Bill was to afford facilities to the owners of money on the one hand, and the owners of land on the other, to make arrangements for their mutual convenience; and it pro- 1049 posed to sanction the formation of companies for the purpose of carrying out such arrangements; and they were authorized to issue mortgage debentures when they were shown to have capital sufficient to cover such securities. The majority of the Committee of their Lordships' House were satisfied with the securities provided in the Bill, and there was no reason to believe that they would be found insufficient. With respect to the necessity for some such measure, he might observe that trustees now experienced the greatest difficulty in finding eligible securities upon which to invest money under the strict terms usually contained in settlements. On the other hand, it was not an easy matter for landowners to obtain loans when they needed them. From various causes the great Insurance Companies now invested their money in other than landed securities, and consequently the amount available for the wants of the landowners was constantly diminishing. Unless some further facilities were afforded to trustees, there would be a continually-increasing difficulty in obtaining loans upon landed security; and if the clause relating to trustees were struck out, the Bill would be wholly inoperative. He agreed with the Chairman of Committees that it was not right that such large powers should be given by a Private Bill, and the thanks of the House were due to the noble Lord for having introduced this measure. He thought trustees might invest trust money in land through the intervention of large companies, whose operations were carefully guarded by Acts of Parliament, even more safely than through the intervention of law agents. The expense which would be saved was also a very important object.
§ LORD OVERSTONE
agreed with the noble Earl that it was extremely desirable that every facility should be given for the obtaining of money upon the security of land; but, at the same time, he felt most strongly that Parliament ought to watch legislation on this subject very carefully, and not to encourage the formation of companies which might not deserve public confidence. He had several objections to the present Bill. The first was, that the debentures to be issued by these companies would go forth to the public as mortgage debentures, whereas they were in truth nothing of the kind. They were merely acknowledgments of debt on the part of a public company. His second objection was, that the indirect consequence likely 1050 to arise from these transactions was, that they would give rise to a wholesale system of registration. But registration would not give to the holders of these debentures any additional legal security. Thirdly, he thought their Lordships would never sanction the proposal that trustees, who were authorized by the parties creating the trust to lay out their money only on the best security, should be authorized by Parliament to invest it in debentures of this kind. The company itself must pay a full rate of interest to its subscribers; then how could they afford to pay interest upon mortgage debentures as well, except by borrowing money on inferior classes of mortgage security? He held in his hand an advertisement of the Land Investment Society, sanctioned by the high character and position of a noble Duke (the Duke of Marlborough), which advertised that they were ready to lend money upon landed security, or upon houses in the course of construction, either with or without a deposit of the lease; and then followed another advertisement by the same company, stating that they were prepared to issue mortgage debentures upon the security of houses in the course of construction with or without deposit of the lease. With regard to trustees who were empowered to invest in land, they were bound to invest in security of the best class. If trustees invested in these mortgage debentures their only remedy would be against the company, and if the company failed to pay, their only remedy would be to come in with the other holders of debentures upon the assets of the company. If the assets of the company were insufficient, the claim must ultimately be made against the trustees themselves. He did not think that such transactions were a proper way of discharging a trust—certainly the Bill gave no adequate protection for those whose benefit the trust was created. The noble Lord said, that if this clause were struck out the Bill would be virtually destroyed. Then, what other inference could be drawn than that this was a most objectionable Bill? He trusted his noble and learned Friend on the Woolsack would apply his acute and sagacious mind to this Bill, and say whether its provisions could be safely and properly carried out.
§ THE DUKE OF MARLBOROUGH
said, the principle of the Bill seemed not to be well understood. The second clause of the Bill explicitly declared what the nature of the instrument should be by which the 1051 transactions of the company were to be carried on. It was to be a deed under the common seal of the company, duly stamped and signed by two directors, than which it was difficult to conceive a document of a more formal character. It would be, in every sense, a mortgage issued by the company, taking the form of a debenture. The real security which these companies offered to the public, and on which the mortgage debentures were issued, consisted of the property vested in them by virtue of the loans they made. Then there came an additional security in the shape of the company's guarantee fund, over and above all the other securities, and consisting of the property invested in Consols, Exchequer Bills, cash at the bankers, and finally, the uncalled share capital of the company. These companies would not depend for their income upon the small difference between the interest they paid for money and the interest they received on advances. Their profit would be derived from the commission charged on their transactions. Their advances would be made upon the report of competent surveyors and valuers, who would take into account all the circumstances of the property which constituted the security. It could not be fairly said that a company regulated by the provisions of that Bill was a company of a speculative character. Safeguards were provided by the measure against the aggregate amount of the debentures issued by a company at any one time exceeding the aggregate amount of the securities which it held. He thought that the country was indebted to the noble Lord the Chairman of Committees, for the suggestion that the measure should be treated as a public, and not as a private Bill; but he could not approve the alteration in the Bill which the noble Lord had suggested, because, if adopted, he believed it would render the measure nugatory.
THE LORD CHANCELLOR
said, that there was no necessity for an Amendment of which notice had been given by the noble Lord the Chairman of Committees, because the trustees contemplated by the terms of that Amendment already possessed power to invest their funds as proposed. This question of the investment of trust monies was, however, one of great importance. Many of their Lordships were doubtless aware that the rules of the Court of Chancery on the subject were most careful and most cautious. Their general principle was this—trustees who were au- 1052 thorized to lend money on real estate were forbidden to lend more than two-thirds of the value of the security. In the case of leaseholds the proportion was only one-half. Whether or no the powers of trusts hereafter created should be enlarged was a question worthy of consideration; but for his own part he could not consent to any enactment that would alter the provisions of any existing trust. At the same time, he felt bound to state that he had found, in his judicial capacity, that the greatest hardship and inconvenience often arose from the limited powers conferred upon trustees. Trustees were naturally and properly desirous to be safe, and, consequently, they were averse to laying out their money except upon securities expressly within the terms of their trust. Generally speaking, there was even an indisposition to exercise the powers which they actually possessed, and to keep to a course of investment about which there could be no possible anxiety. If, for example, they had power to invest their monies in the public funds or on mortgage, they would argue that there might be some little danger in adopting the latter course, whereas there was none in buying Consols. The result was that trustees were frequently disinclined to look out for eligible mortgages; and a limited income was often thus considerably reduced, or, at least, not improved, because the trustees did not choose to incur the risk of making a more profitable investment. So strongly was this evil felt, that in 1859 an Act was passed (the 22 & 23 Vict. c. 35), which provided that wherever a trustee was not forbidden to invest trust monies on real security in any part of the United Kingdom, in Bank of England or Bank of Ireland Stock, or in East India Stock, it should be lawful for him to do so. It was doubtful whether that enactment referred to existing or future trusts, for there were conflicting decisions on the point; but the Act was a precedent for Parliament to interfere to enlarge the powers of trustees. With regard to companies under the present Bill, the security offered had been correctly stated by the noble Duke (the Duke of Marlborough); but the reason urged by the noble Lord (Lord Overstone) against permitting trustees to invest in this kind of security was conclusive—that no assignment would be made to them of any portion of the company's assets, and he would consequently have no direct or personal remedy. All that he could do would be to 1053 call upon the company to realize its assets, to call up its unpaid shares, and to make an equal distribution amongst the whole body of its debenture-holders, and they would only rank with the whole body of creditors under similar circumstances. He thought that it would be most undesirable to permit trustees to invest trust monies in securities of that kind.
THE EARL OF DONOUGHMORE
observed, that every day the difficulty of obtaining money on the security of land was becoming greater, on account of the many other ways in which money could now be invested, and he thought that the clause which enabled trustees to lend money for the improvement of land would be highly beneficial.
§ Motion agreed to.
§ House in Committee accordingly.
§ On Clause 32 (Investment of Trust Money on Mortgage Debentures).
§ LORD PORTMAN
said, this clause enabled trustees to do what they were positively forbid doing under settlements, and he moved that the clause be omitted from the Bill.
§ After a few words from Lord CRANWORTH,
THE LORD CHANCELLOR
suggested that the clause should now be negatived, in order that it might be brought up in an amended form on a future stage.
§ Clause negatived.
§ Amendments made.
§ The Report thereof to be received on Tuesday, the 14th Instant, and Bill to be printed, as amended. (No. 107.)