SHAW BANKRUPTCY.

Press, Volume XLIX, Issue 14841, 5 December 1913, Page 5

SHAW BANKRUPTCY.

OFFICIAL ASSIGNEE v. TIMARU PROPERTY CO.

THE CASE CONTINUED. Tho case of the Official Assignee in tho estate of Walter Shaw v. Timaru Property Company was continued yesterday at the Supremo Court before Mr Justice Denniston. In reply to his Honour, Mr Myers said that the £18,000 mentioned in a return put in the previous day was tho value of tho assets handed over. Some of the properties mentioned in the return had been sold at prices not less than those put down in the statement. Mr Skerrett said he would De ablo to show that the value of the equities according to the plaintiff's own evidence was £12,704 only. SALES OF PROPERTY. Edward Charles Martin, accountant, recalled, stated that, he had particulars of four of the properties sold by tho defendant company which formed part of those included in the agreement of December 21st. The prices were:—Lot 32, in table of values, house in Wai-iti road. Govemmtnt valuation £845, sold at £1200 (reserved by Shaw). Lot 26, new brick house "Wai-m road. Government valuation £2180, sold at £2200; lot 16, Hertnan's farm, Government value £585, sold at £700; lot 12, Costello's house, £1775, sold at £2100. He did not know whether thero had been any other sales. To Mr Skerrett: He didn't know that Costello's property was vacant until sold, and that there was an expenditure of £181 prior to the sale. The system on which he prepared his valuations was to take the properties at their face value according to the purchase price. Among the face values were the face values of three second mortgages. Included in the purchase price paid by the company was the total value of .he properties in tho fast schedule of the agreement excludmK the mortgages. The total wa. £ Mr ß9 ikerrett said that therein of £14,500, the value of the town and suburban properties on a credit basis, with £8875 value of the farm lands on terms, added to the £22,500 made a total of £48,273 gross value of all properties in tho agreement of sale. His Honour said the £22,511 included the farm lands. Mr Skerrett said that sum represented the purchase price of the properties on the plaintiff's valuation. The £22,511 was the sale evidence of the value of the properties mentioned in tho first schedule. Deducting £1100 deficiencies on the second mortgagetaken in at their face value, the deficiency being according to the basis of the Government valuation, which left £47,173, that being the gross value of the properties, according to the plaintiff's valuation. The witness, continuing, said that Mcd-l's second mortgage was for £475, the Government valuation of the property was £975, and the first mortgage was £750, which left a .deficiency of £250.

Mr Skerrett said that Bartley's first mortgage was for £245, Government valuation £300, _econd mortgage £62, deficiency £7. The Government valuation of Roxburgh farm was £3450, first mortgage £2561, second £1850, deficiency. £961. The total deficiencies were £1218, which he took at £1100. From the gross value of the properties, the amount of the first mortgages (£32,431) had to be deducted, which left £14,742, which represented the total value of the equities. The witness concurred in this, but said that he added 15 per cent, to the Government valuations of the properties, and allowed for the second mortgages at their face values.

Witness, continuing, said that the valuations were based upon the assumption that the purchasers would complete.- He did not. know the values.oft the properties would' be affected if the .purchasers complete. Mr Skerrett said there was a difference of nearly £2000 between the two classes of values cash and credit, cash values being £12,780, and terms values £14,500, that made a difference of. £1720. In order to reduce the balance of £14,742 to'a cash basis, there would be required a deduction of £1720 off the town properties.

Mr Skerrett claimed that on that basis some deduction should be made from the £8875 value of the farm landsl Mr Myers objected to that deduction. ■ Mr Skerrett said that apart from that the value of the equities would be £13,000. The witness said thero were £32,400 mortgages over the property in the agreement for sale. He did not know whether there wero £10,000 to £__\u00 in mortgages falling due within two years of the execution of the agreement. The amounts he stated for income and deductions were averaged for a year.

To Mr Hosking: Shaw kept no journal, and witness could only go by Shaw's cash-book, to ascertain what waa due to-Trevurza. There were no comr plete sources of information. In making up the balances ho allowed interest at the rate of six per cent. In the statement prepared for the official assignee, the assets showed there would be a dividend ot over 10s in the £. The total of trust claims against Shaw's estate was £50,900. Trevurza's liability to Shaw was £15.000. allowing £2000 for costs, etc., and £2000 for interest, making £4000, there would be a balance of £11,000, that left a difference between Trevurza's balance and the total liabilities. Witness had been endeavouring since to'find out what had become of that money. To Mr Myers: Shaw's assets would o^S™ 0 to ._ m o r e than £5000 or i-5000. He did not know what the amounts of the first mortages were. McGill, one of the mortgagees, was a substantial man. As far as he was able ho followed up other accounts m Shaw's books to ascertain what Irevurza's debit was. Ho made outside enquiries as well. _Mr Myers put in copy of the transfer of April 15th, also copy of the memorandum of association of the company. Mr Myers said ho would also put in a statement showing the amounts actually paid by purchasers of properties in the first schedule to Trevurza before the execution of the agreement. Tho case for the plaintiff then closed.

MOTION FOR NON-SUIT.

Mr Skerrett said he would move that on the evidence of the plaintiff the suit be dismissed. The suit stood in an exceptional position because the whole of the evidence connected with the transactions had been fully brought before the Court, and there was very little which could be added to by way of explanation by the defendant. It was a circumstance in the case that no accusation of fraud or moral turpitude was really made against any of the parties to the transaction. His Honour: Not directly. Mr Skerrett said that Mr Myers in opening, was noticeably cautious ' in sugtra-ting any act of immoral conduct or impropriety of conduct against any of the parties concerned in the transaction. It was quite true Mr Mvers used the expression unconscionable, but he could not understand the sense in which Mr Myers used it. He observed also that Mr Myers did not apply for any amendment of his statement of claim. The principles of law Upon the matter were quite clear an_ the only difficulty would be in tho application of those principles to the facts. In moving for a non-suit he would assume the law wherever doubtful to be against himself and would submit that nnon the most liberal construction of tlie principles Mr Myers had wholly failed to establish any case. The principles he relied upon were these. It was a clear principle that mere in- j adequacy of consideration was not J

enough to set aside an executed contract any more than it was a defence to the enforcement of an executory contract. If the inadequacy of price was so gross as to amount in itself to evidence of fraud then the onus was cast upon the defendant to explain the transaction, and* to show it was entered into without surprise, fraud, or oppression, and without any undue .advantage taken of the vendor. Inadequacy of price so gross as to shock the conscience, it was commonly stated, was enough to set aside the transac-l tion. but the true rule was that it I changed the onus of proof, and cast, upon the person setting up the transaction to show its bona fides. Where there was gross inadequacy of consideration and evidence of surprise and oppression created by or concerned at or known to the person taking advantage of the transaction; or thero wero circumstances showing that the person taking advantage of the transaction, knew that the party was dealing on grossly unequal terms, and took advantage of that circumstance then the Court would set aside tho transaction. He would ask the Court to draw tho inference that the doctrine he had quoted was a branch of the law of fraud, and that no relief could be granted against a person who acted bona fide, and with-; out knowledge of tho disabilities or incapacities of the person with whom he was contracting. His Honour: You do not admit gross inadequacy. Mr Skerrett: No. "THE COMET OF THE SEASON." Reviewing the circumstances of the case itself, Mr Skerrett said that the circumstances must be looked at not in the light of after discovered events. To the parties Shaw was a successful young solicitor in comparatively largo practice, and indicated every 6ign of affluence. It was truo he proved to bo the comet of a season, but whilo he remained in the firmament of Timaru he was a particular bright astral body, and when tho comet passed it left'a tail or train of disaster or misery. It was not what Shaw was, but what ho appeared to be to those who negotiated with him that was the important tact. Mr Tripp, an astute practitioner of Timaru, regarded Shaw as a solvent person up to tho day before his bankruptcy. There were no circumstances of surprise and no lack of the opportunity of deliberation. The negotiations wero commenced in August, 1012 and ™ C V J_* co " clu .ded until December 21st. Ihe suggestion of tlie amount to bo be paid camo from Shaw, and he •fc-i _ an aT ! x " ot y that the matter should be completed. Thero was affirmative evidence that no one of the Shaw V th ° real P° sition of His Honour: Shaw himself alleges nothing against them. +„ i r __? ker , rctt: There <* n b © no doubt that _»jaw s evidence relieved all these gentlemen concerned. There was neither legal nor moral obligation on these persons to suggest that Shaw should w e - an r lndo Pendent adviser, ther Honour: I quite agree with you ''THE REAL QUESTION." Mr Skerrett said the real question was whether there was any evidence at ail that the bargain was an unconscionable one. The transaction was a bulk sale of 34 or 35 properties, all subject to mortgages, and including some second mortgages. The amount ot the mortgages was some £32,000, falling due at various times after the date of purchase. Such a sale in bulk at anything less than a very large discount was a business impossibility. In the farst place the property could only be purchased by men of considerable means or credit. It involved a-great deal of worry and anxiety and skill to work out the salvation of the properties. Imne, being a land agent, was in a suitable position to handle such a proposition, and looking at the transaction in its inherent nature alone, it would be impossible for any person to ask the Court with reason and justice to infer fraud. At the very most the value of the property, according to. the plaintiff's witnesses, was £13,000-^thoi company gave £7500, or over 12s in the £1. ' The properties overe bought by the company on the basis of the option of October 18th. The company were not concerned with the adjustments between Shaw and Trevurza,, and there was no evidence whatever of any payment made by Shaw to the knowledge of the company prior to December 21st which would have reduced the encumbrances mentioned in the schedule and so increase the value of the assets sold to the company. It was admitted that Trevurza was the vendor; he owned the equities. Counsel was not concerned with Shaw's position, but he had no right to prevent the selling of the equities, although no one would" be likely to purchase unless a settlement were first effected between Shaw and Trevurza. All the Official Assignee could do would be to attempt to set aside the transaction between Shaw and Trevurza. He had.nothing to do with the transactionoetween Trevurza and the company. The company had been in possession of the properties since December last- and there would* bo many difficulties involved if an attempt were to be made to restore the properties to their former positions. He did not understand the second branch of Mr Myers's case/ that the transfer of April was .a fraudulent deed. His Honour said that depended upon the first branch of the case. Mr Myers said if the agreement was one in which the Court would not grant specific performance, then • the second branch of his case would hold. Mr Skerrett contended that the deed was not a fraudulent one as against creditors. Shaw had no interest in the property under the Land Transfer Act, and no assignment by Trevurza could affect Shaw or his creditors. There was no eagerness on the part of the company to complete their titles, which would indicate they had no suspicion there was anything wrong. His Honour said it might be argued the company did not desire to have the ' transaction made public.

Mr Hosking said it was essential that tho plaintiffs, to establish their case, must rely upon fraud. Tho propert jea were under the Land Transfer Act, and were now in the name of the company, subject to a caveat lodged by the Official Assignee. Under tho Land Transfer Act, it was decided that actual fraud and not technical fraud must be proved to upset the title. He relied upon the registration of April, and it was for the other side to snow how the provisions of the Act could be got ever if they did not allege fraud. Regarding the alleged want of pofessional advice, Mr Hosking asked what would be the use of 6uch advice when Shaw himself would not disclose his true position to anybody, and when he sought advice only misled his advisers. At this stage, the Court adjourned till tho afternoon. When the Court resumed, Mr Hosking continued his argument. Tre- j vurza, he said, had obtained his release of what was duo by him to Shaw, and as far as Trevurza was concerned the case was ono to set aside that release. If Shaw himself were bringing tho action, he would have to prove that ! Trevurza had taken undue advantage i of him, and had got a bargain which ho should not have got. Tlie Official Assignee was in no better position than Shaw was to pursue the claim. When Trevurza returned from Auckland, Shaw offered him £7000 spread over a series of years with no security. That was refused, and then Shaw offered £7100 worth of equities affecting specific properties over which Shaw held a lien, the balance of the equities to bo transferred by Trevurza to Shaw. Trevurza wanted £9500, of which £1300 was to bo cash, the balance to be made np of equities valued at £8200. Shaw refused that offer; if he had been in the position alleged, ono would have thought he would have accepted it. His Honour said there was no direct evidence of fraud as between Trevurza and Shaw. Continuing, Mr Hosking said that the arrangement with Trevurza was in the nature of a compromise. The other matters affecting Trevurza wero. based on tho terms of the agreement. It was said that an undue responsibility regarding undisclosed liabilities was cast upon Shaw inasmuch as Trevurza's amount of those liabilities was limited to £20, which had obvious reference to a sum of £60 recently discovered. Trevurza refused to have anything to do with those liabilities, but gave way to the extent of £200. Shaw was the party who wanted to get tho matter through at the end, and not Trevurza. He submitted that no case had been established against Trevurza. Mr Myers, in reply, said it had been decided that in agreements for sale and purchase the Court would not enforce specific performance when no provision was made for interest to the vendor, and when the buyer entered into possession. Mr Hosking said that Trevurza was the vendor. Mr Myers replied that Shaw was as much a vendor as Trevurza. ' Whether Shaw sold his equitable lien to Trevurza or the company was immaterial, for the company got the benefit of the property. Tho company could not have obtained a decree for specific performance, either against Trevurza or Shaw, for the reason he had mentioned. Under the agreement the company would get more in five years by way of income than the total sum paid to Shaw. That was a circumstance which'should have caused the company to make enquiry, for Shaw was getting practically nothing out of the transaction. The company was getting £18,000 worth of property for £7500 and then there were to be big deductions.. The defence had whittled down the value of the property according to a method which was quite fallacious. The market value was in most cases greater than the Government values, yet the latter were taken by the defence. Further, no account was taken of the personal responsibility of tho mortgagees, and there was. nothing to show the company had suffered loss on account of the default of the mortgagors. Shaw, as a result of the transaction, was making a loss of not less than JE-500, and was to be debited with liabilities which wera really Trevurza's and not Shaw's. There was £300 for commission due by Trevurza to Imrie, which Shaw had to pay under the agreement. Any* business man dealing with. Shaw should have been put upon enquiry, and it was a matter of surprise that such an agreement was concluded.

His Honour said that Shaw was anxious to conclude the agreement for a reason that h© dared not mention — namely, that he had been using trust moneys. Would that be sufficient to upset the arrangement? Mr Myers, said it would if the consideration were inadequate. Shaw's very keenness was a matter that should have raised suspicion. Shaw could have got rid of Trevurza easily enough had it not been for the fact that he was embezzling trust moneys. He submitted that the agreement was a monstrous or cruel agreement, so far as Shaw was concerned. There was the desperate financial state of the man to be considered, and Imrie must have known of that. Mr Trevurza's solicitors knew that Shaw was in a bad state financially. In any case the fact that a man entered into such an agreement must have been sufficient warning that he was in a desperate condition. Trevurza was to lose only £500, for he was: to get £2500 back of his £3000, whereas Shaw was to lose heavily. No man in, his senses, unless he was in desperation, would have made such an arrangement, and a solicitor who made such an arrangement must be in dire dsitress. The agreement was one which would shock tho mmd of any business man reading it. No security was provided, and that in itself was an extraordinary feature. If the Court came to tho conclusion that the consideration was not grossly inadequate, then the matter was at an end. But in a case where a man was asked to show his books and refused,

then it was the duty ol a possible purchaser to hold off. Mr -Ivors entered into a long legal argument, and said that Sha-w was at the mercy of Trevursa and tho Property Company, and had to accept -whatever terms tlffey chose to exact. His Honour: Becaiise he had been swindling his clients. Mr Myers said it did not matter what caused Shaw's plight. 3lr Kinnerney said that the power of a Court of Equity to enforce trusts where circumstances warranted its interferenoo was not affected by registration under the Land Transfer Act, and if tlie bargain was an unconscionablo one it could no more be protected by registration than a registration by a trustee of trust property in his own name. His Honour: There is no trust here. Mr Kinnerney said that Trevurza held tho property subject to the charge to which Shaw was entitled in respect of moneys paid for its acquisition. In any case the company could not by an act of registration acquire a better title than Trevurza possessed. MR SKERRETTS REPLY. Mr Skerrett, in reply, said there wore two main objections to Mr Myers's lino" of argument. Fraud must bo clearly proved, and that had not been done, and tho argument was based on cricumstances which were not within the knowledge of any of the porsons negotiating. Mr Myers had simply picked out little things and said thoy were suspicious, and should have put tho defendants on their gunrd. The plaintiff alleged that- the value of the property was £18,000, but he had shown that the value was £13,000. It was said that tho defendants were put upou enquiry, but what more could they do than they had done? On Decomber 18th enquiries wero mado as to Shaw's position, and they were satisfactorily answered by Shaw. Tno conversation was only to satisfy the solicitors that Shaw could givo _ a release of what he alleged was owing to him by Trevurza. Shnw himself m his evidence acquitted all of haying any knowledge of his desperate plight or'that he had been embezzling tru*J> moneys. There was no evidence, to show'that Tm'rio knew .tt 'tic plirrh.-. of Shaw. The distress of Shaw dwelt on by counsel for the plaintiff was unknown sto the others, and the necessity for outside advice did not exist. In the cases quoted knowledge of the inequality existed. Mr Skerrett added that the Court could not set aside tho transaction without besmirching the reputations of those gentlemen engaged in it and no Court of Justice would do that except upon clear, cogent, and convincing grounds. It was not to be done by inferences, no matter how ingenious, of astute counsel. It required something mere solid us a basis. It required that fraud should be proved as clearly and completely as a charge of crime. » Mr Hosking said the enquiry of tho i solicitors before the agreement was. signed was to ascertain whether Shaw alone was competent to give tho release to Trevurza. He said he was, and the answer was accepted. His Honour said that ono.of the harshest -arts of tho agreement was tho fact that Shaw was to get so little cash, and that he was not to bo entitled to interest, while tlie company might sell tho land to another company, and he would have to wait all that time. If he got cash tho money would havo been earning interest. Mr Skerret said it had been stated that Trevurza's solicitors knew that Shaw was receiving deposits. Tho only person Shaw said he had told he was receiving deposits was Mr George Raymond. Shaw said he told Mr Raymond that if he got rid of Trevurza'*i matter ho would be all right, and sub-sequently-he told Mr Raymond he had got rid of his deposits. Counsel stated that Mr Raymond strenuously denied that any reference was mado on any occasion by Shaw to him that Shaw was receiving deposits. Mr Myers, in reply to Mr Skorrett's argument, said that the latter's contentions were based on the asstimption 'that actual fraud,:-was' in question..;'„ _ ..„ . His Honour-said he_ would not like to giye off-hand an opinion on a point of so much importance. Ho took it, however, that the argument would really be" the argument on the main point. Mr Skerrett said he proposed to call some evidence. He would ask whether the statement' of claim disclosed .any cause of action. He regarded that question as one of crucial importance. His Honour said counsel was entitled to get that at 6ome stage of the proceedings. Ho agreed,that fraud must be clearly but the plaintiffs said they did not allege fraud. The hearing was then adjourned .until the morning*.