LIABILITY UNDER A GUARANTEE.

Otago Daily Times, Issue 19270, 6 September 1924, Page 16

LIABILITY UNDER A GUARANTEE.

AN INVERCARGILL CASE

VERDICT FOR DEFENDANT.

On August 23, at Invercargill, his Honor Mr Justice Sim hear a case in the Supreme Court in which Joseph Orchiston claimed that Emil Schlaefer was liable under a guarantee. Mr J. B. Callan appeared for plaintiff, and Mr H. Maoalister for defendant.

His Honor, in giving judgment, said. — “The question to be determined in this case is whether or not the defendant has been discharged from his liability under a guarantee which ho gave to the plaintiff on the 23rd November, 1917. That guarantee was in the following terms’, io Joseph Orchiston, Inspector of Telegraphs, Wellington, —In consideration of your advancing the sum of £IOOO, at my request, to Ursula Beatrice Rudkin, wife of Ernest Rudkin, of Milburn, farmer (hereinafter referred to as the mortgagor) on the security of a memorandum of mortgage of leasehold sections .... and deed of mortgage of equity of redemption of sections .... I the undersigned Emil Schlaepfer, of Sumner, sheep farmer, hereby guarantee to you the payment of the said sum of £IOOO at the time and in tho manner provided for payment thereof by the said memorandum and deed of mortgage together with interest at the rate and payable at tho times as therein, also provided should the mortgagor make den fault in payment of the same or any interest thereon or any part therof respectively, and I also guarantee to you the payment of any other moneys that may become due or payable by virtue of the said memorandum and deed ot mortgage and tho due observance and performance by the said mortgagor of the mortgagor’s covenants therein .expressed or implied, and I hereby declare that this guarantee shall be a continuing guarantee so long as the said sum of £IOOO or any interest thereon or any part thereof respectively or any other moneys shall remain owing on the security or by virtue of the said memorandum and deed of mortgage notwithstanding that in the meantime the time for payment of the said moneys may have been extended or other concession with respect to tho same granted to the mortgagor by you without reference to mo.’ “The principal sum of £IOOO secured by the mortgages referred to in the guarantee was payable on tho Ist of May, 1921, and interest was payable thereon at the rate of £5 per centum per annum. On the 16th of March, 1920, the mortgagor, Mrs Rudkin, executed a conveyance and transfer to one Stephen Kenny of her interest in the lands comprised in the said mortgages, and subject to such mortgages. On the 2lst of October, 1921. a document was signed by Kenny and the plaintiff, by which the term of the deed of mortgage was renewed or extended to tho Ist day of November, 1924, and the rate of interest was increased to £7 per centum per annum from the Ist day of May, 1921. This document contained the following covenant by Kennv: ‘And I, Stephen Kenny, of Waitahuna, farmer, the present mortgagor under tho said deed of mortgage, do hereby covenant with the mortgagee that 1 will repay the principal sum of £IOOO secured by the said mortgage on the Ist day of November, 1924, and will pay interest thereon in the meantime at such increased rate payable on the half-yearly dates mentioned in the said mortgage for the payment of interest, and will observe and perform all the covenants and conditions contained* or implied in the said mortgage and on the part of the mortgagor to be observed and performed.’ A similar document was signed at the same time by Kenny and the plain*tiff in connection with the memorandum of mortgage. “It was contended on behalf of the plaintiff that ns the defendant approved of the proposed extension before it was made, he must be taken to have assented to the way in which it was effected. What happened was than on the 7th of September, 1921, the plaintiff’s solicitors wrote to the defendant’s solicitor in these terms: “Rudkin to Orchiston (mortgage) Schlaepfer to Orchiston (guarantee). Referring to our notice of the 22nd: June we have to advise that we are negotiating with Mr Kenny (the present owner) for an extension of the above mortgage for three years at 7 per cent. Although under the terms of the guarantee it is unnecessary for us to refer the matter to Mr Schlaepfer we shall be glad to know that such extension has your approval. To this the defendant’s solicitor replied on the oth of September in these terms: ‘Your letter of tho 7th inst. to hand. On behalf of Mr Schlaepfer we approve of the proposed extension.’ The defendant was not informed that it-was proposed to release Mrs Budkin from her liability under the mortgages, and the extension could have been carried out in such a way as to retain her hability. If she had joined ,as hse might have done, in the covenant for payment, she, as between herself and Kenny, would have been a surety only, but that would not have affected the defendant’s liability under the guarantee. There would have been still a debt owing by Mrs Budkin to the plaintiff, to which the guarantee wouTrt have extended. Rut there is no such debt now, and the Court is not justified, I think, in saying that the defendant, by approving of the proposed extension, must be taken to have consented to the release of Mrs Budkin, and to have agreed that his guarantee should extend to the new debt which was to be created between Kenny and the plaintiff. “It was contended also that, as the defendant had been the original purchaser from the plaintiff of the property, his position was different from that of an ordinary surety. But the answer is that his liability depends on the terms of his contract as surety, and under that he is not liable. It was contended also that the defendant was not prejudiced by the release of Mrs Rudkin. It is not clear that he has not been prejudiced, but even if that be so, it does not affect the question of his liability. “The result is that the defendant is not liable under the guarantee, and is entitled to judgment. Judgment accordingly with costs according to scale and disbursements for fees of Court to be fixed bf the Registrar.”