CO882-(6-8) — Page 208

PUBLIC RECORD OFFICE

Reference :-

C.O. 882

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ALLY WITHOUT PERMISSION OF THE BE REPRODUCED PHOTOGRAPHIC- COPYRIGHT PHOTOGRAPH-NOT TO

PUBLIC RECORD OFFICE, LONDON

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may say that I think the security requires strengthening, and I therefore proposé the following in substitution for it :-

I suggest that the payment of the annuities be secured by a contract "running with the land," so as to be binding on all subsequent holders, in other words, by a rent-charge." I think this contract-security is, in principle, preferable to a mort- gage, even in first rank, for the following reason:-

One of the incidents inevitable to a mortgage is the possibility of having under the law of the Colony to protect the mortgage, by purchasing the estate, in other words, of having to take over the estate; or, if the estate is sold for more than the mortgage debt, of having the principal repaid before the due date. This incident is absent from the contract-security, which provides only for the payment of the annuities, by attaching automatically to each successive holder of the land. The complete repayment of the principal sum before the due date is not contemplated under any circumstances. This essential difference between the two forms of security makes, in the case of an unencumbered estate the contract security a better security for a Government, which wants neither to have the estate on its hands nor the principal sum repaid before due date, except in the manner pre-arranged by means of the sinking fund.

The question then arises whether the same principle holds good in the case of an encumbered estate. I think the answer is yes, because, as the only point is the payment of the annuities and not the repayment of the principal sum before the due date, and as the contract provides for the payment of the annuity by any holder of the land, the security is absolutely independent of the mortgagees, whether one or many. The question of ranking for the principal sum before the mort- gagees does not arise. If the mortgagee seizes and buys he becomes liable to pay the next and succeeding annuities: if another person buys he also becomes similarly liable, for the land is sold subject to the charge, and the possession of the land cannot be severed from this liability.

But, as the nature of the security is to throw a charge upon the land, the ques- tion must be considered not merely from the lenders' point of view, but also from that of the mortgagee's.

We must consider whether the consent of the mortgagee is necessary to the creation of the charge. It undoubtedly interferes with his rights. If the charge were a heavy one it might seriously affect his position, as, in the event of seizure and sale, it might deter purchasers from coming forward. His consent to the creation of the charge must either be given or the necessity for it removed by legislation. We therefore come to the practical question: which of these courses should be adopted having in view the nature and magnitude of the proposed charge.

The case for the planters is that the charge is small, certainly not much greater than the normal annual expense of the "stables" that it will not merely improve the estate but will save it from stopping work; and that if there were a sale it would be an inducement to purchasers to come forward and not a deterrent. The circumstances would seem, therefore, to justify a provision being introduced into the Ordinance making the mortgagee's consent unnecessary. But in order to safe- guard the mortgagee a provision should, I think, be inserted (as was done in the case of Ordinance No. 4 of 1898, Article 10) allowing a mortgagee or other privi- leged creditor to dissent from the charge being created within a certain time.

The contract-security, therefore, appears to be acceptable, as it provides for the payment of the annuities in case of transfer of the estate.

But the payment must be punctual; and we have, therefore, to provide remedies in case of non- payment.

The maintenance charges of an estate are now the subject of a preferential right which is granted to the bailleur de fonds by the entrecoupe contract, or open- ing of credit for the faisance valoir. If there is a mortgagee his consent is essen- tial. In addition to this privilege by contract, there is also the privilege for labourers' wages created by law: the money necessary for the payment of wages is included in the entrecoupe advance. The annuity should be given a first rank over all charges of whatsoever nature, whether preferential by law or otherwise. It does not appear likely that this condition will jeopardize the obtaining of a loan by an estate, because the annuity is essentially a maintenance charge in its nature: it will practically replace the annual stable expenses which are now included in the faisance raloir, to the preferential rank of which the mortgagee usually gives his consent.

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In the case of an estate which works without an entrecoupe advance, the annuity should be a preferential charge on the crop and proceeds, as in Ordinance No. 4 of 1898; Articles 3 and 4. There must also be an ultimate right to seize and sell the estate. In this case I think it might be well to give the Governor power to determine whether the sale shall be subject to the rent-charge, or whether the proceeds are to be devoted to paying off the balance of the loan.

Two points require special consideration.

1. What is to happen in the case of morcellement? The parcelling of estates is usually into such small portions that there is practically no land on which the contract could continue to run, and it is impossible to subdivide the rent-charge. I do not see any way of dealing with the difficulty except by making it a condition of the loan that the estate shall not be parcelled out unless the whole amount due to Government is repaid. There is no doubt that this will be a serious interference with the rights of the mortgagee. But as he has a right to dissent to the creation of the rent-charge, he is amply protected. It may be that this condition may induce some mortgagees to dissent; but the question seems to be more a practical one than one affecting the principle of the bill, as it is likely to have an important bearing on the amount of the loan which the Government will require to meet applications for advances.

2. What is to happen if an estate goes out of cultivation? In the case of an encumbered estate the mortgagee would necessarily seize and sell in which case the payment of the annuities is secured. In the case of an unencumbered estate or of one which the mortgagee has himself bought, the Government must have the power to seize and sell. As the contract is to be essentially a real and not a personal contract, it must be expressly provided that this power to seize and sell shall be exercised if the cultivation of the estate is not maintained, and not merely for failure to pay an annuity. But as I have already suggested, I think the Governor should have power to allow the sale to be subject to the rent-charge or not.

Since drafting this memorandum I have come across the English "Land Improvement Act, 1864,” 27, 28 Vict., c. 114. I find that the plan I have suggested is the one adopted by that Statute. Its provisions, stated very shortly, are these-money may be borrowed for improvements of land-which include the making of permanent tram- ways (Article 9, vi.), the loan is secured by a rent-charge (Articles 49, et seq.), with priority over incumbrances by mortgage or otherwise (Article 59): mortgagees having a right to dissent within one month (Article 18).

If the loan is sanctioned there are many provisions in the Act which should be adopted.

I therefore beg to recommend that the following cable be sent to the Secretary of State:

Security on crops alone does not appear practicable without provision dealing with transfer of estate. Procureur-General proposes advances repayable half- yearly annuities 10 years, secured by contract running with the land analogous to rent-charge created by Improvement of Land Act, 1864. Regular payment of annuities to be secured: first, by making annuity rank first among privileged main- tenance charges; second, by privilege charge on crop and proceeds, as in Ordinance No. 4 of 1898, Articles 3 and 4; third, by right to seize and sell.

F. T. PIGGOTT, August 28, 1902.

43014

SIR,

(No. 265.)

No. 16.

Procureur-General.

MR. CHAMBERLAIN to GOVERNOR SIR C. BRUCE.

Downing Street, October 31, 1902. I HAVE the honour to acknowledge the receipt of your despatch, No. 343,

of the 12th September last,* on the subject of the proposed loan for the purchase of tramway plant to be sold to planters, and to refer you to my despatch, No. 235, of the 23rd September,t forwarding copy of a letter from the Crown Agents on the subject of the loan.

No. 15.

† L.F.

I have, &c.,

J. CHAMBERLAIN.

‡ No. 14.