LIABILITIES OF GUARANTORS

Press, Volume LXXII, Issue 21976, 28 December 1936, Page 8

LIABILITIES OF GUARANTORS

—♦ EFFECTS OF RECENT LEGISLATION PRESSURE OF WORK IN LEGAL OFFICES PROTECTION AGAINST LOSS OF RIGHTS Particularly in its relation to the adjustment of liabilities of guarantors, the mortgage legislation passed during the last session of Parliament has been ’ most exacting in its demands during the last fortnight or so on lawyers, bankers, and others closely concerned with the investment of money in land. To lawyers, who are always busy in clearing up matters so that their clients may not be prejudiced by the legal holidays which run into the second week in January, the mortgage legislation has meant a heavy increase in responsibility and has necessitated the working of their staffs at a consistently high pressure. A good deal of overtime has been worked, and some of the larger firms of solicitors have been forced to employ part of their staffs into the holiday period. This work has been. made necessary by the provisions in the Mortgagors and Lessees Rehabilitation Act, 1936, which may discharge the liabilities of guarantors unless certain notice is served on them before the end of this month. The relevant provision states that where no application for the adjustment of the liabilities of any guarantor under the act has been filed on or before January 31, 1937, his liability under the guarantee shall be deemed to be discharged, unless he has been served on or before December 31, 1936, with a notice from the person to whom he is liable specifying the nature and extent of his liability, and warning him that he may apply to the Court of Review before January 31 for the adjustment of his liability. Loss of Protection Thus, in effect, the person to whom a guarantee has been given will lose this protection unless the required notice is sent out before the end of this month. Had the act been passed in its original form, another month’s grace would have been given in exceptional circumstances. The bill, as originally presented by the Minister for Finance (the Hon. W. Nash) contained a clause stating that if the Court of Review was satisfied that failure to serve notice on or before December 31 was unavoidable or for any special reason excusable, it could extend the time for service until January 31, 1937. But that clause was struck out from the bill. According to the act, it is also necessary to send these notices to original mortgagors, if the rights of the mortgagee are to be preserved until the Court of Review can consider making an adjustment. Where, for example, a mortgagor has _ sold the property secured, he remains a guarantor because of the continuance of the personal covenant to repay. Opinions have differed as to the need to send notices where there is the guarantee of the personal covenant given by the original mortgagor. Some solicitors have advised their mortgagee clients to send these notices; others have taken the view that nothing is to be gained by advising guarantors of their rights to seek an adjustment. One solicitor with whom a representative of “The Press” discussed the privileges conferred by the act remarked that the spirit of the legislation appeared to be that liability under the personal covenant should be abolished, and this might be the view of the Adjustment Commissions. It was, of course, impossible to say with certainty what the attitude of the commissions would be in dealing with guarantees under personal covenants, but he personally had advised his mortgagee clients to have the notices sent only if the security of the property mortgaged was doubtful, and there was a possibility of having to call on the original mortgagor under the personal covenant. Complexity of Work This attitude, it was found, was not uncommon, but other solicitors considered it their duty to advise their clients not to attempt to anticipate the attitude of the Adjustment Commissions. It was stated that one firm had sent out about 2000 notices to mortgagors because of the possibility that some had, without the knowledge of the mortgagee, entered into agreements for sale and purchase. The sending of notices would, thus, preserve for the consideration of an Adjustment Commission the right of the mortgagee to claim under the personal covenant—a right that otherwise might unwittingly be allowed to disappear. The complexity of the work that has fallen on solicitors, investment companies, bankers, and others to whom the act applies in taking steps to protect their right to seek adjustments can readily be realised. The actual sending of notices is a lighter task than obtaining the information on which they are based. It has involved a patient and thorough search of deeds held by solicitors to ascertain who are guarantors within the meaning of the act, the nature and extent of their liability, and the nature of the document or transaction out of which that liability has arisen. These details have had to be conveyed to the guarantor in the notice, and so much work has been required that some offices have been forced to employ extrsi typists. A solicitor in one large firm said that it had been necessary to work the staff overtime to prepare and dispatch of notices, but it had still not been possible to complete all the work before the start of the Christmas holidays. Temporary Respite The holidays for legal offices have brought only a temporary respite from the work caused by the new mortgage legislation. More detailed and more involved work will be placed before solicitors in the preparation of applications to the Court of Review for adjustment of liabilities. These applications may be filed in the office of the court by any mortgagee, lessee, or guarantor

before January 31, 1937, and every application must be accompanied by a complete list of all the creditors and debtors of the applicant, together with a statement of his assets and liabilities and of the securities held by any secured creditors. The time for filing these applications may be extended by the court in extraordinary circumstances. Additional work will be provided by the operation of the section of the act which allows mortgagees or lessors or any guarantor to apply for an adjustment of the mortgagor’s or lessee’s liabilities. This provision may operate if the mortgagor or lessee has failed to comply with any obligation under the mortgage or lease, and has not filed any application for adjustment. These applications, too, must be filed before January 31.