LEGAL LIABILITY

New Zealand Herald, Volume LXXIII, Issue 22574, 12 November 1936, Page 17

LEGAL LIABILITY

GUARANTORS' POSITION MORTGAGE LEGISLATION CONTRACT OBLIGATIONS Former mortgagors or lessees of properties are now receiving notices in many instances informing them that tinder section 54, sub-section (2) of the Mortgagors and Lessees Rehabilitation Act they have certain obligations under their contracts. The sub-section referred to states:— "Where no application for the adjustment of the liabilities of any guarantor under this Act is filed on or before January 31, 1037, his liability under the guarantee shall be deemed to he discharged on that date unless there has been served on him on or before December 31, 1936, a notice from the mortgagee, lessor, or other person to whom he is liable, specifying the nature and extent of his liability and containing a statement to the effect that an application for the adjustment of his liability under this Act may he filed not later than January 31, 1937." In respect of mortgages it is explained that it has been the practice for the past 10 years or so to insert in mortgages a clause providing for nn.v subsequent purchaser of the property entering into a direct covenant with the mortgagee guaranteeing payment of .principal and interest. If the deed of covenant were not obtained the only recourse the mortgagee might have would be against the original mortgagor and the properly in the event of any default. A somewhat similar condition applies to leases. Mortgagees and lessors, more particularly those who are trustees, are therefore sending out notices to guarantors in terms of the sub-section quoted. It would be particularly dangerous for trustees, it is pointed out, to omit to cover themselves in the circumstances, for it might otherwise be considered a breach of trust if tbev were neglected. Some mortgaged or leasehold properties have changed hands many times, and so solicitors are engaged in searches of title deeds to ascertain the names of guarantors. Au immense amount of legal work is involved in respect of some large Auckland trust estates because of the effect of the legislation.