MORTGAGE IN DISPUTE.

New Zealand Herald, Volume LXVIII, Issue 20889, 3 June 1931, Page 12

MORTGAGE IN DISPUTE.

\ CANCELLATION" SOUGHT. TESTATE OF A BANKRUPT.

PLAINTIFF NON-SUITED

A mortgage given by a Rotorua timber merchant last year to Messrs. Smith anil Smith, merchants, of Auckland, was th; subject of an action in the Supreme Court heard by Mr. Justice Ilcrdman yesterday. It. was alleged that this mortgage gavs Messrs. Smith and Smith, the defendants, a preference over oilier creditors which, by virtue of the Bankruptcy Act, rendered it fraudulent and void. Acting in ths estate of John Wrnthall, of Rotorua, bankrupt, the official assignee at Hamilton (Mr. !/ Hampson) sued Messrs. Smith and Smith (Mr. Finlay) asking for cancellation of tbj mortgage. It was claimed that on August 11, 1930, Wrat hall had signed a memorandum of mortgage in favour of the defendant company securing a sum of £306 and certain further advances on properties /named. AYrat ball was adjudicated bankrupt on October 3, 1930. Mr. Hampson said the estate was u Somewhat complicated one. At the end of last July the defendant company was pressing Wratliall for amounts owing. On I August 5 Mr. C. K. Smith, one of tin; directors of the company, got a mortgage drafted out by Mr. ' Urquhart, Wrathall's solicitor, and it was signed, but the next day Mr. Urquhart had thi;; mortgage cancelled in order to protect tho contractors for a house on the property, However, on August 11, Mr. Smith go:, a similar mortgage signed by WrathaH, and it. was this mortgage which was now attacked. / An Apparent Surplus. The official assignee at Hamilton, V. I!. Crowhurst, said that Wratliall had filed his own petition. His proved liabilities to unsecured creditors were. j £1212. The only assets were equities in a list of properties. There was £68951 owing to secured creditors, the estimated yvaluc of the securities being £9160. There would be an approximate surplus of £7OO in the estate, There was a claim stil.. to come from the liquidator of the Rotorua, Joinery Company. He had not been ablo to find buyers for the bankrupt's house;, at tho present time. ' His Honor: On paper this man is sol vent. Mr. Finlay: That is so, sir. I do not think there would be any contention about that.

Answering His Honor witness said he was not able to say that at the date of the execution of this mortgage bankrupt was insolvent. Evidence that bankrupt s affairs ucie ill " a terrible mess " when witness took them over 18 months before tho bankruptcy was given by George Urquhart, solicitor, of Rotorua. Ho thought tho valuations of the oflicial assigueo on Wrathall's properties were far too high, and that, if the mortgagees pressed the whole thing would go to them. He saic. the mortgage in dispute had been signer, without his knowledge and against hisi advice to Wrathall. • R. T. Smith, builder, of Rotorua, said that, on August 6, 1930, the previous Witness had told Wrathall not to givo any mortgage over tho Herewini Street, property as it would bo most unfair to the contractors who were building on that property. " Hopelessly Muddled." John Wrathall admitted in evidence that ho had hopelessly muddled the affairs of the Rotorua Joinery Factory and liis own private affairs. Ho said he had told Mr. Urquhart that the builders of the Herewini Street house must be paid whatever happened. A few days later he signed a mortgage to Smith and Smith on the distinct understanding that it was rot over the Herewini Street property, but over two others. In cross-examination witness said he had never considered himself insolvent. Mr. Finlay said the. mortgage had been obtained by Mr. C. K. Smith quite innocently, fairly and in the ordinary course of business, and lie wanted it sus. tnined.

The Auckland manager of the defendant company, Charles K. Smith, detailer various steps he had taken to obtain payment from Wrathall. Eventually Mr Urquliart prepared for him a mortgage over the Herewini Street property an security, but he did not get that mortgage. Urquliart told him the mortgage would have been no good as the contractors' lions took priority. A few days later he obtained another mortgage from Wrathall.

" In a case of this kind the transaction must lie fraudulent and proof must be giver from which that inference can be drawn," said His Honor. He was not at all satislied that the person who took the mortgage did so knowing that the other creditors would be prejudiced, nor had it been proved to his satisfaction that Wrathall was hot able to pay his creditors. Mr. Hampson agreed to accept a nonfnit and the question of costs was re IX'. vcd.