during the currency of the guarantee. If the borrower is a brewer, insuring a number of houses, all the requirements regarding single houses apply equally to his proposal, except that the houses must be "tied" to him, and must be sufficiently numerous to provide trade for his brewery. The value of the brewery itself should be practically disregarded as a rule.

Trade and Manufacturing Premises.-Turning now to trade and manufacturing premises we are met by problems which demand more foresight and discrimination. It is not sufficient to be satisfied that the business carried on is at the time profitable, or may in all probability become so by the introduction of more working capital. It is necessary to inquire whether the premises are suitable for other businesses, so that they may readily find a tenant or purchaser in the event of their being vacated for any reason. It is necessary to consider the state and trend of the trade or manufacture generally, and even those of other trades or manufactures upon the products of which the trade or manufacture in question depends to a greater or less extent. For instance, contracts may have been entered into to supply goods at a fixed price when the prices of materials were low. Even a small rise in the price of these may have disastrous effects-a sudden rise in the price of paper a few years ago seriously affected the profits of the printing trade. The conclusion to be deduced seems to be that small businesses had better be left alone, or at least treated more rigorously than larger concerns, as they seldom possess sufficient resources to enable them to survive a period of depression, or to obtain a large enough average of results. In any event the guarantee of mortgages should not be undertaken at a low premium; and a substantial and adequate margin of value should be maintained. In fact, the amount should not be fixed without considering the auction or forced sale value of the premises as estimated by the valuer, and the amount guaranteed should be less than this.

Potential Securities.-There is another class of loan which perhaps requires more care than all the others, namely, where the security does not at present exist, but is to be created by the help of the loan. In transactions of this nature the most exhaustive reports should be obtained from architects, valuers, quantity surveyors, and others. A full estimate of the expenditure should be made, including, in addition to the cost of the building, the amount of the architect's fees, the ground rent (if any), interest on the loan, and the insurance premiums for say two years, as well as legal and other expenses. The balance of these, over and above the amount of the loan, must be provided in cash actually deposited in bank or satisfactorily arranged for by unquestionable subscription and underwriting of capital, or the undertaking of some wealthy institution to furnish the money. The stability of the contractors must be undoubted, private inquiries being made and banker's references obtained when desirable. The classes of property usually associated with transactions of this nature are theatres, music halls, hotels, blocks of flats, or blocks of offices and shops. All the benefits of the builder's contracts, including the right to the materials upon the premises, should be included in the security. The risk is very great in these cases, and a heavy premium should be charged until the property has become a going concern, producing an income more than sufficient to pay all outgoings.

Mortgage Insurance Policy.-Dealing with the provisions and conditions in a mortgage insurance policy the primary ones are the payment of the premium to the insurance company and in return the guarantee to the lender. The policy should, however, impose a number of duties upon the mortgagee, so as to prevent him from relying upon the policy to protect 13

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him from loss to the detriment of the insurance company. These duties should include an obligation to give immediate notice of default by the mortgagor in complying with any of the covenants in the mortgage deed; a provision for suitable notice-say six months-of intention to claim payment of principal, such notice to run from the date on which the notice is given, which must be subsequent to the date of the default itself, but the interest on the loan to be payable in the meantime by the company, though only at the reduced and not at the penal rate; a provision for proof of title, if title has not been guaranteed, and for any defect in this respect as well as any depreciation due to the act or default of the mortgagee, or due to fire, being a reason for abatement or deduction from the sum assured; for the mortgagee dealing with the security as requested by the company and appointing the nominee of the company as receiver. There must also be clauses providing for the proposal being made the basis of the contract, to prevent collusion or laxity; for rateable contribution by the company under its guarantee with any other similar guarantee held by the mortgagee over the same security; and for the reference of disputes to arbitration, in order to avoid vexatious actions at law. In addition to the conditions above mentioned there must be power on the part of the company to discontinue the policy or to raise the premium on giving a year's notice, so that the lender may have time to call in his money and to claim upon the company in the event of default in repayment, and further power on the part of the company, in the event of default, to call for a transfer of the security to its nominee after suitable notice; while the policy for the convenience of the lender should in the first place remain in force for a number of years, usually five, if there is no adequate reason for disturbing the loan, and thereafter from year to year, subject to a year's notice of discontinuance.

DEBENTURE INSURANCE.-Mortgages are usually associated with security belonging to private individuals, whereas debentures are most frequently granted by joint-stock companies, and comprise a specific charge or mortgage of all the immovable security and a floating charge over all the liquid assets, such as stock, work in progress, loose tools, book debts, cash, etc., which in England would take priority over the claims of ordinary creditors, but would not take priority over a specific charge on the liquid assets, or a bill of sale unless there were contrary and over-riding provisions in the trust deed regulating the issue of debentures or in the debentures themselves. By the law of Scotland, however, moveable property with the exception of insurance policies cannot be specially pledged for the security of debenture holders unless delivery can be given, there is therefore no such thing as a floating charge. The result is, that ordinary creditors rank equally with debenture holders on all assets of the company, with the exception of such heritage as may be specially conveyed. Consequently debenture issues are less common in Scotland, and when a company does borrow on debenture it often happens that it gives no special security.

When considering an application to guarantee an issue of debentures it is necessary to pass in review not only the recent history and present condition of the particular undertaking about to make the issue, but also the general state of similar and allied undertakings, the possibility of expansion, the competition of rival undertakings or combines, the possession of more or less valuable patents and customers, whether the assets are easily realisable, the proportion of the immovable to the liquid assets, and the comparative magnitude of the undertaking itself. In every case care should be taken to see that there is sufficient working capital, while those concerns

which have a large proportion of liquid assets should be cautiously dealt with and vigilantly supervised. There should always be in the trust deed a covenant on the part of the borrowing company that the liquid assets shall be maintained at a certain fixed minimum. A check to see that this condition is complied with is to be found in the yearly accounts; and in many cases where the liquid assets form a large proportion of the whole property of the company a half-yearly or even a quarterly certificate under the hands of a director and the chief official of the company, stating approximately the amount of the liquid assets in detail, should be demanded.

Among the other conditions in the trust deed there should almost always be a payment to a sinking fund of suitable amount, varying with the wasting nature of the security, which may be applied in redeeming debentures, or invested in securities outside the business, or in paying the premium on a sinking fund policy, or to a certain proportion sunk in increased permanent assets. The guaranteeing company should always insist on acting as sole trustees for the debenture holders, and stipulate in the trust deed for power to enter upon possession of the property directly default occurs in respect of any of the covenants therein, or if the borrowing company should go into liquidation, whether voluntarily or not, or if judgment should be obtained against them and an execution is about to be levied upon their goods. In addition to the foregoing provisions the trust deed should include a covenant to assign after-acquired property, if this is essential to the conduct of the business in the opinion of the guarantors, also a charge upon the uncalled capital, and the whole assets of the undertaking, both present and future.

The question of instructions to the valuers and auditors is a most important one. In the first place, the reports should be absolutely private and confidential both on the part of valuers and auditors on the one hand, and of the guaranteeing company on the other. Secondly, the valuer in each case must be selected with great care, on account of the great variety of the securities submitted, requiring special expert knowledge. The questions put to the valuer should be carefully framed with reference to the particular circumstances of each proposal. The same applies to the instructions of the auditors employed, who should not be the auditors of the borrowing company.

When these reports are received it is necessary to consider what proportion of the value may be guaranteed. In fixing this the nature of the security must be taken into account, that is to say, does it consist of an undertaking whose assets are chiefly liquid and perhaps of an uncommon kind, possessing, it may be, a large "going concern" value, but only a small "break up" value; or does it consist of a well-established industrial or commercial business possessing valuable land, buildings, plant, and machinery, or good class ships engaged in a profitable trade.

Premiums.-There are several considerations which regulate the rate of premium chargeable for the guarantee of debentures. The first is, that the borrowing company will not pay more than the difference between what may be regarded as the current rate of interest (which is largely influenced by the Bank rate of discount) and the rate of interest which would suffice to attract the necessary capital without the guarantee. The second is, that the guaranteeing company can, as a rule, say from their experience what rate they require as a minimum to provide for their expenses, to cover the actual average risk, and to provide a profit for their shareholders. Thirdly, a guarantee is more hazardous in some cases than

in others, notably those in which the break up value of the property is small, which calls for an increase in the rate, but, on the other hand, it is usual in these cases to guarantee a smaller proportion of the value, with the effect of keeping the variation of the rate of premium within comparatively small limits. The fourth factor is competition, which is not meantime perhaps very keen. But whatever the rate of premium may be, it is absolutely necessary to stipulate that a portion of it, say one-third or one-half, should be commuted into a single payment and paid to the guaranteeing company on completion. This single payment is calculated upon the total amount guaranteed and for the whole term of the debentures, or at least for the term of ten years. The reason for this commutation is to provide a fund out of which losses may be met, since good business has a tendency to leave the company, whereas inferior business has a tendency to remain. This is analogous to a well-known fact in life assurance, namely, that policies on lives above the average are more frequently surrendered than policies on under-average lives; and Life offices take care to protect themselves against this deterioration of their risks by retaining a large proportion of the premiums paid. Another essential stipulation is the payment of a sinking fund to be applied in redeeming debentures, or invested in securities outside the business of the borrowing company, the object being to provide against depreciation of the security and to facilitate a renewal of the guarantee, if required, at the expiry of the period for which it is granted. It goes without saying that an excessive rate of interest should not be guaranteed, and that an excessive discount to investors or underwriters should not be allowed.

CONTINGENCY INSURANCE. This branch of suretyship insurance includes a number of widely differing risks, such as title guarantees, guarantees against loss on shares arising from the calling up of the whole or part of the liability thereon, guarantees against loss arising from the forgery or theft of documents, guarantees against loss from missing beneficiaries. reappearing and claiming their share of an estate which has been or is about to be distributed, Admiralty bail bonds, etc. In mortgage and debenture insurance the guaranteeing company can sustain only an ultimate loss; in contingency insurance the loss, if any, is sometimes ultimate only and sometimes total. Title guarantees are so very varied in their nature, and sometimes so intricate and technical in their legal aspect, that a complete treatment of them in all their bearings would be beyond the scope of the present article. There are, however, a number of cases of fairly frequent occurrence. The first is that of Possessor Title. It occasionally happens that at the end of a long lease the sub-lessor or his representative is no longer in a position to demand the rent for the premises, and the tenant remains in possession without paying rent to any one, the freeholder or his successors having omitted to resume possession; or it may happen that the lessee has not paid any ground rent to the freeholder or his successors for a number of years on account of death, absence abroad, or other causes; or a mortgagee may have gone into possession and collected the rents of the property for a number of years without making any payment to the owner, or receiving any demand from and giving any acknowledgment to him; or the property of which the mortgagee has taken possession may have become so dilapidated that he has abandoned it, and the tenants remain in possession without any demand for rent; or an agent may have been employed to manage a property and remit the proceeds at intervals to the owner, who may have disappeared or died without leaving any instructions or a will or representatives who are aware of the position of affairs. The person in possession is, in England, to all intents and

purposes the actual owner of the property under these circumstances, and often a time comes when he wishes to deal with it, but he is usually unable to show a good marketable title. Therefore he or the purchaser or mortgagee, as the case may be, has recourse to a guarantee company for an indemnity against loss; and the company has to consider what risk it may run in giving the desired indemnity. These risks are largely determined by the provisions of the Statutes of Limitations, 3 & 4 Will. IV. c. 27, and 37 & 38 Vict. c. 57 (Real Property Limitation Act, 1874).

Sooner or later the possessor may wish to deal with the property by way of sale or mortgage, and the purchaser or mortgagee will require an indemnity against loss by reason of a superior title thereto being deduced by some one else within the periods allowed by the Acts above mentioned. The vendor or mortgagor in all these cases is usually quite willing to give his counter-indemnity; and this should always be insisted upon, if for no other reason than as a guarantee of good faith, even if the applicant himself should have purchased incautiously, the property having a defective title, or, knowing of the defect, has made a speculative purchase. When the vendors are the executors or administrators of a deceased possessor a direct indemnity cannot be obtained, but an attempt may be made to obtain a counter-indemnity from the beneficiaries.

When the application is made for a guarantee against loss, a full statement of the facts, verified by a statutory declaration of some one having a knowledge thereof, must be submitted to the company, and by them to their solicitors for a report upon the legal aspect of the defect in title. The statement should include information as to who are or were, and what is known of, the real owners of the property, the length of time during which the applicant or his predecessors have been in undisturbed possession, and that there has not for a number of years been any claim for rent. It is also necessary to see what light public records throw upon the ownershipfor instance, is the ostensible owner entered upon the assessment roll, and does he pay taxes and tithes. The loss consequent upon a successful claim in the above-mentioned cases would be total, but the policy should not cover any other defect than that specially considered, and should not enure for the benefit of the applicant.

In Scotland risks of this nature are affected by the Presumption of Life Limitation (Scotland) Act, 1881. Any defect in title is cured, by the operation of this Act, after thirteen years from the date when the title is made up on the part of the person entitled to succession or transmission; and on account of the complete system of registration in Scotland no one else can make up a title. For this reason, and because there is practically no leasehold property in Scotland, there is not much scope there for this class of guarantee insurance. The provisions of the Act are chiefly applicable to missing beneficiaries. It sometimes happens, however, that a person dies who apparently has left no heirs or next-of-kin, in which case the property passes by law to the Crown as ultimus hæres; but the Crown are usually willing to make a grant of the whole or a part of the property to any one who can show some claim upon or connection with the deceased, on being indemnified against any claim by any one who can prove a legal title, and against the costs of an unsuccessful claim.

Loss OF DOCUMENTS.-Another class of title risk is that which is constituted by the loss of documents of title, be they conveyances, assignments, leases, mortgages, life policies, deposit receipts, Bank notes, stock or share certificates, etc. In Scotland, where there is a complete system of land registration, this class of business is restricted; but in