ADVANCES TO COMPANY

Poverty Bay Herald, Volume LX, Issue 18058, 7 April 1933, Page 11

ADVANCES TO COMPANY

MOTOR-CYCLE BUSINESS CLAIMS ON SECURITIES QUESTION OF PRIORITY The Court of Appeal in Wellington has been engaged in the hearing of a case, Charles Edward Dempsey and Frank Cummins Litchfield and the National Bank of New Zealand against Traders’ Finance Corporation, Limited. This was an appeal from a decision of Mr. Justice Ostler. The respondent is an incorporated company, registered in Auckland, whose business, among others, is to finance the sellers of motor vehicles in the principal towns of New Zealand, by advancing moneys to vendors of motor vehicles on hire purchase agreements, in consideration of assignments to it, bv way of mortgage, of these hire purchase agreements. In 1927 a company called Bruce and Bai. Limited, was registered in Palmerston North, and engaged in the selling of motor-cycles under hire purchase agreements. Bruce and Bai gave a debenture to the National Bank, and this was replaced in 1928 by a new debenture to tho bank, for £2OOO. charging tho company’s undertaking and all its property. ASSIGNMENTS TO CORPORATION The respondent, company, through its local agents, knew of the issue of this debenture, but had no knowledge of its contents. In 1927 the respondent company commenced to finance Bruce and Bai, and continued to do so until August, 1930, by which time it had advanced approximately £6500, and for which security had been taken by assignments of a large number of hire purchase agreements. The respondent company also banked with the National Bank, and tho course of business it adopted was to obtain payment by the bank’s branch at Palmerston North to Bruce and Bai, or its nominee, upon production to the bank of tho documents of title, including the assigned biro purchase agreement. After this course of -business had been pursued for nearly three years Brace and Bai got into financial difficulties and made default to the bank, which then put in a receiver under its debenture and claimed that its debenture over-rode the securities of tho respondent company. The appellants Dempsey and Litchfield were receivers under the debenture. DECISION GIVEN AGAINST BANK ; Tho matter was contested in tho Supreme Court before Mr. Justice Ostler in August last. His Honor held that tho securities of the respondent company were superior to tho debenture of the bank and ordered the bank to account to it for all tho moneys received under the hire purchase agreements, and ordered also an inquiry as to the damages which the respondent company had suffered by reason of the dealings of the appellants with re-possessed chattels. In the court this week, Mr. Johnstone, for the appellants, submitted that appellants’ debenture must he given priority over the later security of the respondent company because the respondent had notice of the bank’s debentures •rvhen its own security was executed. Even though the National Bank acted as banker for both parties, there was no obligation upon it to adviso tho respondent of the contents of the debenture. Once having had notice of the fact that a debenture had been issued, it was the duty of respondent to inquire as to its terms. The respondent company must be deemed to have had constructive notice of the fact that the bank’s debenture was a first charge on the assets of the company concerned, as respondent had not taken the trouble to inquire into the contents of the debentures. Further, it was contended that registration of the debenture under the Companies Act was statutory notice of its contents. Counsel said that the trial judge had’ taken a view of tlio conduct of the bank which was quite unjustified by the evidence. The bank, tile trial judge had said, although an agent, had procured an advantage for itself by allowing tho company to represent to respondent that it had power to charge its assets. The bank, however, was also acting independently in the transactions and was under no obligation to do anything more than it did. The company, once would have expected, would have taken the ordinary business precaution of ascertaining particulars of the bank’s security. j The court was adjourned.