MORTGAGE LAW

Southland Times, Issue 22074, 22 July 1933, Page 6

MORTGAGE LAW

COURT’S JUDGMENT POSITION OF GUARANTOR ARREARS OF INTEREST (Per United Press Association.) Wellington, July 21. The Court of Appeal has delivered judgment in an originating summons brought under the Mortgagors’ Relief Act, 1931, and heard before it on July 5. The Chief Justice, Sir Michael Myers, said at the conclusion of his written judgment: “If the contention on behalf of the mortgagor is right, namely, that his application is to be heard taking into consideration only his own position and leaving the guarantors out of the consideration altogether, a serious injustice might be done to the mortgagee. Where the security of a mortgage is supported by the guarantee of a third party, it is only reasonable to assume that the mortgagee would not have made the advance at all to the mortgagor without tire additional security of a guarantee, and it well may be, in some cases, that the guarantee is the principal security, or at least a security upon which the lender mainly relies. If then, the position of guarantors is not to be taken into consideration an order might be made in favour of the mortgagor for the remissfon of arrears of interest and for a reduction of future interest and for other relief, the effect of which would be to relieve the guarantor at the expense of the mortgagee and to deprive the mortgagee of his real security. We can find nothing in the principal Act or its amendments which justifies this contention on behalf of the mortgagor. In our opinion, whether the matter comes before the Court on the application of the mortgagor alone, or on the applications of both the mortgagor and the guarantor, the financial position of the guarantor is a matter that should be investigated by the commission under Section 10 of the Amending Act, 1931, and it is also a relevant matter to be taken into consideration by the Court under Section 8 of the principal Act. This answers the first question asked by the originating summons, and it is really the important question involved and the only one that requires to be specifically answered. The Court has a discretion on the question of costs. In all the circumstances, we think, in fairness that the Public Trustee should pay something towards the costs incurred by the defendants in connection with this originating summons, and that amount we fix at 20 guineas.” Judgment was entered accordingly. On April 4, 1928, a farmer resident near Fordell, Wanganui, mortgaged to the Public Trustee certain freehold lands owned by him to secure £6500 advanced by the Public Trustee out of the common fund, which moneys were to be repaid on April 4, 1933, by the same instrument. Two friends of the mortgagor, one a neighbouring farmer and the other a company manager of Wellington, guaranteed repayment of the principal and performance of the covenant mortgage. On February 7 last the mortgagor applied for relief under the Mortgagors Relief Act. His application was referred to the Wellington Mortgagors’ Liabilities Adjustment Commission which recommended amongst other things a reduction of interest to 1 per cent., and postponement of the Public Trustee’s right to enforce repayment for a period of two years. Those recommendations were filed, but no order was made in the meantime by the Court. On May 5, the Public Trustee served notice on the guarantors demanding payment of the principal and arrears of interest within one month and giving notice of his intention at the expiration of that period to enforce his powers against them under the mortgage. Subsequently the guarantors themselves filed an application to the Court for relief, basing their application on the ground that as the mortgagor had applied for relief, they could not, because of the terms of the guarantee, be called upon for payment.