A COMPLICATED MORTGAGE.

Gisborne Times, Volume XLV, Issue 3979, 12 July 1915, Page 6

A COMPLICATED MORTGAGE.

AN INTERESTING GISBORNE CASE.

JUDGMENT BY MR JUSTICE COOPER. At the Supreme Court, Gisborne, last week, tho Registrar (Mr W. A. Barton, S.M.), read the judgment of His Honor Mr Justice Cooper in the case of John Coleman (as liquidator of G. R. Buscke and Co., Ltd., in liquidation) (Mr Nolan) v. Charles Frederick Buscke, John Coleman, John Alexander Lucas, Joseph J'olm Martin and Henry Martin (Mr Coleman), which was hoard at the recent j session of the Supreme Court at Gisborne. The application was to have a mortgage of chattels dated .7th July, 1914, from the G. R. Buscke Co., Ltd., to the defendants declared null and void as against the liquidator of the company. His Honor, alter reviewing the facts said: On the 7th July, 1914. this company, having taken over the chattels, etc.', purchased by G. It. Buscko from the liquidator of Clayton and Buscke, Limited, and the liability of G. It. Buscke on tho promissorv notes, executed a mortgage of chattels to the defendants to secure tho payment of the promissory notes. It is admitted that the chattels which are sot out in the schedule to this mortgage are the same chattels assigned to G. R. Buscke. This mortgage incorrectly recites that, bv tho agreement of the Ist December, *1913, the private company which G. it. Buscke undertook to form agreed to “give to the mortgagees a mortgage or security over such assets.” The mortgage was registered under the Chattels Transfer Act on tho 17th July, 1914. On the Ist October, 1914, G. R. Buscke and Co. went into voluntary liquidation and the plaintiff was anoointed liquidator. It is admitted that from its formation, and at the commencement of liquidation, it was in possession of the chattels,' and subject matter of the mortgage. The provisions of the Bankruptcy Act, 1903, applies to the liquidation of a company (section 216 Companies Act, 1908), and the question is whether the mortgage is void as against the liquidator of the company. It is not suggested that the mortgage is within sub-section 1 of section 79 of the Bankruptcy Act. The defendants, as guarantors of Buscke, were merely sureties from the duo payment of the promissory notes, and sureties are not I think creditors within subsection 1 : In re Langston©, ex parte official liquidators 16 N.Z.L.R. 206, 216; in re Mills 58 L.T. 235, 871. The di'etum to the contrary of Vaughan Williams, J. in re Paine (1897) 1 Q.B. 122 was not followed in Langston©’s Cose by the Court of Appeal.

Sub-section 3 does not apply to cases within sub-section 2 and need not be considered: Ire Marsh 12 N.Z. L.R. 456; Williams and Kettle v. the Official Assignee of Harding 27 N.Z. L.R. 871. And it is the effect of subsection 2 which the Court- has to consider. The mortgage by the company to the defendants was an instrument by

way of security within the meaning of sub-section 2, and, as it was executed on the 7tli July, 1914, and the liquidation of the company commenced on the Ist October, 1914, it was executed within period of four months mentioned in the subsection. the commencement of the liquidation being equivalent to an adjudication in bankruptcy. It is, therefore, avoided as against the liquidator unless it comes within the exceptions stated in subsection 2. To bring an instrument within this exception the terms of the exception must, in my opinion, be strictly complied with, for the sub-section avoids for the benefit of unsecur'd o'editor; all instrumens of security v.hnhrtme under the definition of instrument in The Chattels Transfer Act. 1903, and which are not, in fact, within tao exception. The instrument under which the defendants claim the chattels is an instrument under The Chattels Transfer Act. To bring it within the exception the defendant must establish that they did at the time of is execution in fact advance i o.iev to the company, or (hat- they have alter its execution and before the liquidation of the company commenced, advanced money, or that they in fact sold goods to the company at or alter its execution, or that the purchase money of goods sold to the comp.n.v before the execution of the nstrum.vnt remains unpaid. They have railed to prove any of these conditions. They sold no goods to the company ImC ■•' the execution of the security bv the company, nor have thev supplied any goods to the company. They paid no money to the company bofore the security was exectited, and they have advanced to the company none since. There were eight promissory notes made by Cl. R. Buscke and endorsed by the defendants. Two of them fell due before the formation of the company. All of them were the property of the liquidator of Clavton and Buscke, having been taken 6y such liquidator in payment for the goods sold by him to Buscke. The first was for the amount of £309 16s 7d and was duly paid by Buscke. The second which was due on the 4th June, 1914, was for £315 3s, and this lias been paid to the holder, in part by G. R. Buscke, in part by defendants. The third which was for £320-9s od and which was due on September 4, 1914, has been wholly paid to the holders by the defendants, who wore liable to do so upon their endorsement and under their guarantee to the liquidator of Clayton and Buscke. The liquidation commenced on tho Ist October, 1914, and all the other notes were then current. Two of them are not yet due. The company had no intorI est in any of thorn, and thev as I have I said, were the property of the liouij dator of Clayton and Buscke. The position of tho defendants is, that they were and are guarantors to the liquidator of Clayton and Buscke. for the due payment by Buscke of those notes, that the company, although there was no prior contract to that effect with tho defendants, having bought out Buscke, undertook to in-

damnify the defendants but no advances have* been made by tho defendants to tho company, tho payments to tho liquidator of Clayton and Buscko or to the holder of the promissory notes being direct payments to tho defendants to sucli liquidator or holders. The defendants proper course was to have taken and registered in terms of the agreement of the agreement of the Ist December, 19.13, a security from G. R. Buscko over the chattels before the formation of the company would have bought subject to such security, and as G. R. Buscko had not beeomo bankrupt, the security would have been a perfectly valid one. Bub I am unable to hold that'the instrument which the defendants elected to take from the company falls within any one of the exceptions in subsection 2, and ns it was executed loss than four months before the comliquidation commenced it is, in my opinion, void as against tho liquidator of the company. His Worship said his Honor had intimated he had not determined the question of costs, as ho thought that probably somo arrangement bad been made between the parties. Tf not the parties’ counsel could send him a memo as to their opinion regarding costs, and lie would consider same. Mr Coleman said no arrangement had been made, and it was agreed to prepare a memo as suggested.