NEW MORTGAGE BILL EXPLAINED

Stratford Evening Post, Volume IV, Issue 225, 3 September 1936, Page 5

NEW MORTGAGE BILL EXPLAINED

CONSIDERED NECESSARY

Final Article By Mr. E.S. Rutherfurd.

PQWER OF. EXEMPTION .?.smoH~~ This is the fourth and concluding interview with -The Post by Mr E. S. Rutherfurd. In this interview Mr Rutherfurd considers the new legislation is necessary to cleanup the unsatisfactory position existing between the mortgagee and the mortgagor.

It was mentioned in a previous interview that the question has frequently been discussed during the past five years as to whethen relief legislation was necessary or not, and if it was necessary, on whom the loss should fall.

In considering the recessity or otherwise of the various forms of relief that have been granted since 1931 by Act of Parliament, and in particular by the present Bill, it is necessary to consider the state of affairs brought about by .the moratorium legislation from 1914 to 1927. As mentioned in a previous interview, the Government passed a measure in 1914 prohibiting mortgagees from* demanding repayment of their mortgages during the war and for a period of six months thereafter. A moratorium was proclaimed in England about the same date but the British Government very' wisely lifted the moratorium a few months later 'whon they found the panic of war conditions had passed over. Rising Prices. The New Zealand Goverhment, on the other hand, were not so wise and in spite of rising prices and general prosperity as a result of the commandeer of our produce by the Imperial Government, they allowed the moratorium to continue for thirteen years. The result was that property cwners, instead of having to set aside moneys for repayment of their mortgages, were able to ignore their mortgagees altogether and to purchase ad. ditional properties on the usual small deposit system thsn in vogue. Instead of reducing, therefore, their 1 obligations whilst times were good, they did the very" opposite, that is to say, they inucrred fresh obligations. This had the jesult of creating whilst prices wore good, an orgy of speculation in land, especially in farm lands, and combined with the purchase for cash by the Crown of large areas of land for the purposes of repatriating returned soldiers, the price of land rose out of all proportion to its income earning capacity. When the present depression commenced in 1929 -the mortgage debts had' increased enormously since the commencement of the original moratorium in 1914. The Coalition Government, therefore, in 1931, were faced with a problem very much more serious than It would have been if there had been no previous restriction on the rights o? mortgagees to obtain repayment of their mortgages. Interest in Full. On the ground of public welfare and the necessity of increasing, if possible, the volume of our primary produce, it was cosidered necessary once more to restrict the rights of mortgagees, not only to obtain repayment of the principal moneys secured by their mortgages, but also to receive in full the interest secured as ■well. As already stated, numerous measures were passod between April, 1931, and the date of this Bill, which tf.nded to restrict more and more the powers of mortgagees and lessors to enforce the rights which their securities or leases gave them.

The system of interfering with mortgagee's rights appeared to have become a 'happy huirtihg-ground tor experimental legislation, and has had a most usettling effect both on mortgagors and mortgagees. The Rural Mortgagors' Fi'nal Adjustment Act and the present Bill both represent an honest attempt on Hhe part of the Government in power at the time to bring finality to this class of legislative assistance and interference.

It must be sincerely hoped by all

those who have the interests of the

country at heart that the present , measure will be the last attempt by any Government for many years to come to interfere with the contractual relations of one section of the community with another section. It has often been said that it is better that a law'shouTcT be certain than it should plo can then shape their conduct, and the plans for the future, in the expec. ; " tation that what should come to pass will come to pass. Tho continuous tampering by legis-

lation, however, with the contractual rights of parties has made the prospect of fulfilment of any particular bargain extremely problematical, and has given statutory encouragement to the idea that if any particular bargain is inconvenient it can in most circumstances be repudiated.

It is open to question whether he'

losses suffered by one section of the

community should by Act of Parliament be loaded on to the shoulders of another section of the community.

The general rule of law is that loss should) remain whereitEallfc unless there is some special reason, such as negligence, for altering that rule.

e '• For* instance,' if I slip' on a banana, skin and collide with some person on the footpath, causing him serious bodily injury the law does not make me responsible for his injuries, notwithstanding the fact that, the person injured has not been glilty' of any negligence and is in no way responsible for his injuries.

Allows Loss to Remain.

The legislation, however, that we have reviewed has shown a distinct tendency not to allow the loss to remain where it originally fell, but to distribute it amongst various persons who had business relations with the persons who incurred the loss.

It will be acknowledged of course! that the financial difficulties of a certain section of the community, and of the farmer in particular, .w.ere due to causes beyond their control. On the other hand, however, it can be said with a good deal of force that if it was necessary To rehabilitate, for the sake of the communiiijy as a whole, a certain section of the community, namely, the mortgagor section, it should be the responsibility' of the whole community, namely, the State, to bear the cost of that rehabilitation. If it is necessary to indirectly subsidise the farming community by reducing their obligations to a limit where they can pay their way comfortably, that subsidy' should be given by the State and not by those persons who have invested their savings on mortgage of land instead of in gilt-edged securities. This is especially so in the case of mortgagees who have lent actual hard cash, as compared with mortgagees who have merely allowed their proiits on sales to remain- on mortgage.

The subsidy could be satisfactorily arranged by the State issuing Govern, ment Stock carrying a low rate of interest for a long term to those mortgagees fop sucih pa.-t of their* mortgages as represent cash actually advanced, and Which have been remitted by legislation.

It is to be hopau* that for the sake of the peace and welfare of the community the present Bill will be the Isst attempt by the Government to interfere with the contracts of its subjects, because until the prospect of future interference is entirely removed, there is little chance of the lender and the borrower dealing with one another with that confidence and trust which is essential in all business relationships.

Sauce for the Goose . . ;

It is to be hoped that tjhe Govern-* ment will not ignore that what is sauce for the goose is sauce for the gander, and that they will not exempt from the operation of ihe provisions of the Bill any Crowu nior-gages or Crown leases.

The present Bill gives the Government power, by Order in Council, to exempt from the operation of the Bill any class or classes of morTgages and lease«s. The National Expenditure Adjustment Act passed in April, 1932, removed from the operation of That Act all leases administered by a Land Board. It is a well known fact that Crown and particularly Education leases, frequently secured rentals which are base don wartime values, with the result that although the rent theoretically was based on the unimproved value it frequently resulted in the confiscation of ihe lessee's improvements.

The Government in the present Bill have expressly recognised the principle that if the mortgagor owns livestock which are free of mortgage he is nevertheless to be allowed interest on the value of that stock in computing the productive value of the land.

Similarly, if, as for instance, an Education lease contains a rental which represents an exorbitant rate r,f interest in the unimproved value of the farm, it means that the Crown is charging interest also on the value of the improvements iviiich have been effected by the lessee himself.

In conclusion, I am of opinion that the present Bill is necessary to clear up once and for till the present unsatisfactory position between mortgagor and mortgagee, which position has been brought about partly by Jjjft unexampled booms and slumps* siWe) fl§l4, and partly by the legislative interference during that period. ~