B.—l [PT. ll].

XV

The Audit Office, Wellington, 25th May, 1926. The Public Trustee, Wellington. Renewal of Mortgage. I am in receipt of your memorandum of the 13th instant on the above subject, which seems to indicate that there is a clearly defined difference of opinion between yourself and the Audit Office in regard to the legality of the Board's action in renewing the mortgage by an amount in excess of three-fifths of the valuation. As a very important principle is involved, I referred the correspondence to the Solicitor-General, and am to-day favoured with his reply, a copy of which I enclose for your information. G. F. C. Campbell, Controller and Auditor-General. Public Trust Office, Wellington, 14th June, 1926. The Controller and Auditor-General, Wellington. Renewal of Mortgage, £.1,300, C: T. Imlah, Kaupokonui. Your memo. 25/5/26 : AVith reference to your memorandum quoted above covering a copy of an opinion dated 24th ultimo from the Solicitor-General regarding the renewal of mortgages to the. Public Trustee, I have to point out that section 34 of the Public Trust Office Act, 1908, provides that the Public Trustee may invest all capital moneys (inter alia) " In advances by way of mortgage on the security of any real estate held in fee-simple in New Zealand, and free from encumbrances, to an amount not exceeding three-fifths of the estimated value of such estate according to a valuation approved by the Board." In advancing moneys from the Common Fund of the Public Trust Office the requirements of the statute are carefully observed. No loan is granted for an amount in excess of three-fifths of thg Government valuation, which is before the Investment Board when the application is considered. In my opinion, however, the position is quite different where the Board is not advancing any new moneys from the Common Fund, but is merely authorizing the extension of the term of a mortgage by means of a memorandum of variation. It is considered that in a case where the Public Trustee is satisfied that the security is being farmed or managed, in a satisfactory manner, that no deterioration has taken place, and that the security is in as good a condition as when the loan was originally granted, it would be a meticulous literalism to the words of the statute to require the mortgagor to refund a portion of the advance merely because a revision of the values in the district had caused the margin shown to be reduced below the amount of the loan. In such cases the Board has followed a businesslike course, and if it is satisfied that the interests of the Public Trust Office are fully protected it has granted a renewal of the mortgage. It may be pointed out in this connection that there is nothing to prevent the Board from allowing the mortgage to run on as overdue for an indefinite period, and, this being so, there seems to be no real objection to granting a renewal for a fixed term. The justification for doing so is found in the wording of section 34 of the Public Trust Office Act, 1908, which provides that an amount may be advanced not exceeding three-fifths of the estimated value of such estate, according to a valuation approved by the Board. The fact that in granting the renewal the Board has before it the Government valuation at which the loan was originally granted, and which still sustains the full amount of the loan, is, in my opinion, a sufficient compliance with the statute. My memorandum of the 13th ultimo which is referred to in the Solicitor-General's opinion was not intended to be exhaustive as regards the Public Trustee's powers in connection with the investment of Office funds. It is the duty of the Solicitor-General to make himself familiar with the powers of the Public Trustee before giving an opinion on such a subject, and in this connection I would refer to section 20 of the Public Trust Office Amendment Act, 1921-22. Although I do not admit that a renewal of the existing mortgage is properly to be regarded as a fresh advance of funds from the Common Fund of the Public Trust Office, nevertheless,-if it is held that such is the case, the granting of the renewal for an amount in excess of three-fifths of the latest Government valuation, may rightly be regarded as an exercise by the Public Trustee of the power conferred, by section 15 of the Finance Act, 1924. I am satisfied that the procedure adopted by the Public Trust Office Investment Board in this matter is in accordance with the dictates of common-sense and business practice, and that there is a sufficient compliance with the statute law bearing on the subject. I propose to regard the matter as closed. J. W. Macdonald, Public Trustee. The Audit Office, Wellington, 16th June, 1926. The Solicitor General, Wellington. Renewal of Mortgage, £1,300. Will you be so good as to refer to your opinion given to Audit in connection with this matter and say if you see any reason for modifying it in view of the explanation afforded by the Public Trustee ? In the opinion of Audit considerable importance attaches to the principle involved, and it would appear that it is essentially one which demands the literal interpretation of the terms of the Act, especially as the moneys under loan are trust-moneys in the hands of the Public Trustee. In the particular case under review the difference between the value upon which the Board first granted the loan and that furnished by special valuation for renewal purposes (not a valuation made during revision of the whole district, as stated by the Public Trustee) amounts to £470, and I consequently cannot concur in the views stated that there has been no deterioration in the value of the security.