BANK SUED

Evening Post, Volume CXVII, Issue 49, 27 February 1934, Page 11

BANK SUED

frXud alleged

GUARANTOR'S CLAIM

FAILURE 0? COMPANY

Allegations of fraud against the Commercial Bank of Australia, Ltd., and its manager, Edwin Percy Yaldwin, were made at the Supreme Court today in a case in which Frederick. William Moore, merchant, of Wellington, is claiming £1481 10s 2d, with interest, from the bank, Yaldwin, Athol Pierard, bacteriologist, of Wellington, and Sidney John Hammond, builder, of Wellington. The claim is made against the defendants jointly and severally. Counsel for the plaintiff made it clear in his opening address that there was no charge of fraud against Pierard and Hammond, who,' as guarantors, w-erq sued for a contribution. The case' is being heard by the Chief Justice (Sir Michael Myers). The plaintiff is represented by Mr. H. F. O 'Leary. Mr. P. B. Cooke, with Mr. H. J. V. James, appear for the bank,.Mr. G. G. G. Watson for Yaldwin, Mr. A. T. Ybungfor Pierard^and Mr. S. G. Stephenson for Hammond. Opening. the case for tho plaintiff, Mr. O'Leary said that Moore was and had.been for a number of years a merchant in Wellington, his main business at the present time be,ing a limited company known as Moore, Wilson, and Co., of which he was the predominating sharcholdei. The present claim arose out of a business known as the Unique Advertising Sei vico (N.Z.), Ltd., a company formed and incorporated in 1927 and now in liquidation. It was formed by a man named Davics, who was no longer in the country. ' PURPOSE OF THE COMPANY. Tho company was apparently formed for a dual purpose^ said counsel, the first being the acquiring from Duvics of an advertising patent—a proposal to advertise on shop flooring—and also to conduct a cash order business. Appaieutiy the patent side of tho business was not developed prior to liquidation, but the cash order side was put into opeiation and was appaiently conoentiated on by tho controllers of the, company.^ Shortly, the method or manner of carrying out its business was this: tho company held itself out as a company which would help anyone who was desirous of puichasing commodities for which that poison could not immediately pay in cash. The person dcsinng assistance applied for and was allotted a minimum 5s share in the company, foi_ which he paid cash. This entitled-him to assistance to the extent of 20s for each Is invested in shares, so that on taking out his initial share he was entitled to assistance up to £5. When he applied foi assistance an advance was not made in cash, but an ordei was given for the \alue of the goods he wished to buy." The order was made out on a fiim previously selected by the company Tho firm in due course presented the order to the company and leeeived its face value less 12i per cent rtt was that allowance fiom which, m the main, it was intended to make profits. Then: the applicant, who was by that time a shareholdei in the company was e\pccted to lopay the loan at tho rate of Is per week. Tho whole loan would theiefoie be paid off in twenty weeks, AFFAIRS OF THE COMPANY. The oiigmal bankers of tho Unique Advertising Company, said counsel, wcio the Bank of New Zealand, but in Septembei, 1928, the bankcis weie changed fiom tho Bai k of New Zca J.md to the defendant bank, the Com meicial Bank of Australia, Ltd. At that time a debcntuio was taken by the Commercial Bank over the whole of the undertakings of tho company, and at the same timp Messrs. Pierard and; Hammond, along with.J. P. Davies, entered.into a guaranteo with tho bank for any indebtedness by way of ovcidraft or otherwise incurred by the company with the bank, with a limit of £2000. The fiist balance sheet of the company available to the plaintiff was for the year ended June 30, 1928 It showed that a large portion of the capital had disappeared pven by that time, and tangible assets weic not coveiing the liabilities. It showed a profit of £1382, but it was amended for income ta\ puiposes and showed a profit of £270. A dividend amounting to £1159 was paid, so that if the balance sheet that was prepared for the Tncome Ta^ Department was correct tbo dividend for that year was paid out of capital. In that balance-sheet goodwill had increased from £8000 to €11,000, there were no reserves for bad debts, and there was no deprecia turn.. The next balance-sheet available was for'the- year ended Juno 30,1929^ an.d it showed that the position of the company had become worse. ; Coudscl then proceeded to explain how Moore Tiad become involved in the matter, and the evidence that he would give in that respect. MOORE'S ALLEGATIONS. Moore, said counsel, would tell the Court that prior to May, 1930, the Unique Advertising Service was abso lutely unknown to him. J. P. Davies, its managing director, was someone whom ho had never known or never heard of. In May, 1930, Moore was a customer of the Commercial Bank of Australia, both personally in his own private account and in business. He would tell the Court that towards the end of May, ,1930, he' was called upon by Davies, and as a result, of what Davies had said to him ho calledto' see Yaldwin. Moore visited Yaldwin, he thought, within twenty four hours of. the visit that was jpaid to him .by Davies. Mr.'Mooro would tcllthe Court, said ioun>cl, that he explained to Yaldwin that.he had called as a result of the interview with Davics. He told Yaldwin that Davics had said that he (Yaldwin) had sent Davies to him and that Yaldwin admitted ho had told Davies. Mooic said that Davies had asked him to guarantee tho account of the Unique Advertising Company with thr Commercial Banlc, and had asked Yaldwin why he had sent Davies to him. Yaldwin the plaintiff would say, told him he had sent Davies because ho had a business proposition that was too good an opportunity to miss, and that he was giving Moore tho fiist oppoitunitj in a good proportion Mooio then asked for details as to the finanical standing of the company and similar details. He would say that Yaldwin explained the business of trading in cash orders; he told him how the business was conducted. Yaldwin produced a balance-sheet which it could only be inferred was the balance-sheet for the year 1928-29 and Yaldwin, Moore- would say, extracted figures from the balance-sheet,to show what a sound financial position the company was in. He (Yaldwin) said that he knew from his own knowledge that the business was satisfactory. Moore inquired as to tho officials of the company, and was told that they were reliable and that there was nothing to fear in executing the guarantee. £2 12s 6d from £3000. When Moore expressed his ' doubts, counsel continued, Yaldwin replied that there was nothing to worry about and here was a chance to get in on a good thing. Yaldwin said that to his know-

ledge the book' debts were good and that 110 difficulty would be found in realising them.

When the company went into liquidation there were Wellington debts amounting to £3000 which realised £2 12s 6d. .-... ; . ~ ;

Then apparently as Moore appeared to be hesitating Yaldwin suggested that, he should see Mr. Arcus, a Wellington accountant,' Whom he. described as the auditor of the company, but Mr. Arcus preferred not to give any advice. Mooice left it at that, and was not going to consider the matter further. Davies called upon him again, however, and he saw Yaldwin, who asked why he was hesitating in view of the money that could be made out of the guarantee. Moore told him ho was not satisfied that it would be safe. Yaldwin, it was alleged, then repeated very much what he had said on the first occasion.

Moore then asked why the bank was not satisfied with the account as it was, and Yaldwin, it was alleged, replied that Melbourne (presumably meaning the head office of the bank) were particular and did not like this type of account. Yaldwin said it was not an ordinary account like Moore's, and that the execution of the guarantee was wanted to satisfy Melbourne, Moore, still doubting, went away, Davies called upon him. again and after ho had seen him Moore telephoned. Yaldwin and said that ho would enter into the guarantee. Counsel-said that the inducement offered to Moore for the guaranteo was S per cent, on the amount guaranteed and a remuneration of £260 at the end of twelve months, it being anticipated that the guarantee would be required for that length of time. ; On June 9, 1930, the guarantee was executed, and Moore would, say that before . signing he vyas assured that the position of the company was undoubted, that there wa« no risk, and that it was only a matter of form, to satisfy Melbourne. 2 "THE INEVITABLE." On November 2,' 1631, the inevitable happened. The company went into liquidation and Moore was called upon to pay, and he duly paid. It Was contended by the plaintiff that Yaldwin, personally and on behalf of tho bank, had made statements well knowing ' them to be untrue arid/or negligently and/or .with a reckless disregard as to whether they were, true or false and/or with intent to deceive and mislead the plaintiff. It was further contended, as a second cause of action, that when the plaintiff signed ,the guarantee the defendants Pierard and Hammond wero also guarantors of the same account, and that the bank, in allegedly withholding from the plaintiff tho fact' that they had given formal notice of their withdrawal from the contract, had affected the position of the plaintiff to his detriment. Under this cause of action Moore sought judgment against Pierard and Hammond as co-guarantors and/or that the guarantee sliould.be set aside as void and the money refunded with interest. v

Moore, was then called to ithe Witness box and gave evidence along tho lines indicated by Mr. O 'Leary.

(Proceeding.)