Securities

Question 1

Duncan v McDonald

Answer 1

INDEFEASIBILITY

This case involved an underlying void contract due to forgery of a FIXED SUM MORTGAGE.

The court held that the security interest was nevertheless validated because the mortgage was registered.

Held registration of a fixed sum mortgage gives indefeasible title over the charge but does not impose any personal obligations on the defrauded person (true RO cannot be sued).

Held you get indefeasible title immediately upon registration (Frazer v Walker applies to mortgages because they are an interest in land).

Held that bank gets worthless rights where the mortgage is not registered.

Question 2

Westpac Banking Corporation v Clark
2010, SC (NZ)

Answer 2

INDEFEASIBILITY

Solicitor forged a ALL OBLIGATIONS mortgage and westpac granted the loan.

Court held that the security interest is not validated because the mortgage referred to over “anything you owe” which did not apply to client because was forged (you is not them).

Recognised that bold drafting by bank may preclude this and allow their charge to be validated regardless of such circumstances.

Question 3

Coltart

Answer 3

Holder of an option to purchase has a right to redeem.

Question 4

Tart v Tart

Answer 4

Tenant has a right of redemption

Question 5

Peace v Morris

Answer 5

Unconditional contract has a right of redemption (comes off purchase price).

Question 6

Kreiglinger v New Patagonia Meat

Answer 6

RIGHT OF REDEMPTION / CLOGS

Wool brokers lent money with a condition that they get ROFR over all sheepskin sold by the company. The company paid off the loan.

Held that wool brokers still entitled to their right of first refusal because it formed no part of the mortgage transaction (it was in substance different). There is no principle that prevents the doctrine of clog because the collateral advantage was created at a different time than the equity of redemption.

Set out three categories where doctrine of clogs applies: where collateral condition is unconscionable, penal or repugnant.

It is essential, in any case to which the rule is said to apply, to consider whether or not the transaction is in substance a transaction of mortgage.
–> held that if the clause was part of a seperate transaction between the same parties, it would not be considered a clog.

Question 7

Jones v Morgan

Answer 7

Morgan’s were unable to make payments for building contract to develop farmhouse in to nursing home. Jones, their neighbour gave them a loan in 1994 secured by a mortgage over the farm buildings. The loan was not enough to cover all expenses so in 1997 negotiated to sell some of farm land, needed approval of Jones, Jones gave consent conditional to extra condition that he gets purchase money and a half share/interest in the retained land.

Held that the 1997 condition made after he 1994 mortgage was not in substance and in fact independent to the original bargain and therefore SI can extent to the collateral.

Held that would be artificial to regard 1997 and 1994 agreements are independent because the 1997 agreement sought to give effect the intention of the 1994 mortgage.

Question 8

Lockwood Buildings Limited v Trust Bank Canterbury
1995, COA (NZ)

Answer 8

MORTGAGEE TRESPASS

Showroom became fixture of land that Trust Bank had mortgage over. The Bank had security over land and then Lockwood trespassed and removed the showroom reducing value of land.

Held that Trust Bank can sue Lockwood for trespass.

Regards position of a mortgagee to be analogous to that of a reversioner. Therefore even though mortgagee does not have possession or immediate right to possession they can nevertheless sue in trespass for a loss suffered as the result of a permanent damage to the reversion.

Lockwood committed a trespass by removing the show home which permanently damage Trust Banks security in a manner causing it loss.

In light of this it is possible Cousins v Wilson may be decided differently because a purchaser similarly has economic interest like mortgagee.

Question 9

JS Brooksbank
2009, COA (NZ)

Answer 9

INVALID SI

JS supplied wool to company which went into receivership. JS accidently supplied some wool to company before conditions of the supply agreement were met and receivers took control of it.

held cannot claim security over the wool because delivery was made prior to appellant receiving cleared funds it had occurred by error hence, respondent company had not obtained possession and appellant retained title to mistakenly delivered wool.

COA held that PPSA did not apply as it wasn’t a conditional sale and secured no performance of an obligation.

Conversion claim was unsuccessful.

ANZ security interest had not attached to the wool (not a valid colleterial advantage).

Mere possession does not give rise to a SI in the context of a mistaken delivery.

Question 10

Bloodstock
2006, COA (NZ)

Answer 10

ATTACHMENT

NZB owned stallion called Generous. NZB entered into conditional sale agreement to lease Generous for 3 years and then at end of the period they can purchase (titled remained with NZB until the purchase). Leasee granted security over all its assets to Glen, defaulted on obligations and receivers claimed possession of Generous. A few years earlier leasees of Generous had granted Lock a security over all their present and after acquired property.

Held that Lock has security over Generous.

Glen had not registered security - so Lock held priority.

Held that the moment Glen got rights in new property the security attached to that property as well.

Question 11

Portacom NZ
2004, HC (NZ)

Answer 11

Under section 16 leases are deemed to create security interests - therefore can attach to a perfected SI as after acquired property.

Question 12

Polymers International Limited v Toon
2013, HC (NZ)

Answer 12

FINANCING STATEMENT

Test of “seriously misleading” is whether the error would prevent a registration being disclosed by a properly formatted search in the relevant searchable field - this is objective (does not take into account any subjective knowledge).

Confirms that a misspelt name is seriously misleading because it is a searchable field.

Question 13

Service Foods
2006, HC (NZ)

Answer 13

FINANCING STATEMENT

Service Foods granted security over food supply and proceeds from sales. Westpac registered financing statement that they had security interest over all present and after acquired property.

Held not seriously misleading because the information on the type of security is not a searchable field. Therefore does not inhibit the ability to find the statement.

Held that was is misleading is the ability to find a statement, not the contents of the statement.

Statements that are over broad does not negate ability for the state to be searched and found.

Question 14

Partners Finance v Richmond
2019, HC (NZ)

Answer 14

FINANCING STATEMENT

Financing statement over a Bulldozer was classified as a good: other, rather than a good: motor vehicle.

Held this is seriously misleading. Used Polymers test - held that was misleading because under the goods: other search field the identification number of the bulldozer was not found.

Held that having knowledge is irrelevant.

Question 15

Gray v Royal Bank of Canada
1997, SC (UK)

Answer 15

NEMO DAT

Mr Smith owned van with perfected SI over it. He sold van to Gray and security remained. Gray then made arrangements with M who would pay off security and lease the van. M fraudulently grants another security over the van. M sells van to H, who then granted security interest to bank.

Held that Gary (who is still the owner) is not subject to the banks SI.

Accepted that nemo dat reasoning applies.

Held that H had a fair right of possession which is good against all the world except the rightful owner. Therefore the SI is valid but subject to Gary’s ownership. Therefore, Gray wins.

(if anyone else made claim against the van, the bank would win).

Question 16

Spittlehouse v Northshore Marine Inc
1994, COA (not NZ)

Answer 16

SECTION 53

S contracted to buy boat from N, finance company had perfected SI over all of N’s inventory. Title was to pass to S upon full payment, when they had paid 90% N defaulted to finance company and they took possession of boat. Court imposed a trust to give plaintiffs boat and N appeals.

(S unsecured creditor as only had contractual right to boat).

The section 53 exception applies as held that the agreement to sell was in the ordinary course of business as lots of people make essentially conditional sales, especially for expensive goods.

Held that section 53 “sold” should be interpreted in a non technical way - “sold” includes agreement to sell. Therefore, S wins and once last payment made then will take free of SI.

Question 17

Orix v Milne
2007, HC (NZ)

Answer 17

SECTION 53

Nicholson purchased a road paver from Milne. Orix had SI over Milnes equipment.

Held that section 53 applies to N.

Meaning of “Ordinary Course of Business of the seller” two step process:
(1) Determine ordinary course of dealing of sellers business (modified by StockCo).
(2) Determine whether the sale was made in the ordinary course of that business.

Held that selling paver was in ordinary course of business even if it only happened once a year and done infrequently. Because this was a usual transaction N can take advantage of section 53.

Held that section 53 applies to equipment and inventory.

Held that section 53 does not exclude applicability to people due to their knowledge of the law (e.g., solicitors or people aware of PPSA).

Question 18

Estevan Credit Union v Dyer
1997, QB (UK)

Answer 18

SECTION 53

Friend said he would buy 13 second hand cars to help
him raise money to pay off a debt. This was not held to be in ordinary course of dealing because although normal for dealers to clear out old stock that was not the purpose of this sale. It was half his inventory and unusual arrangement of sale.

Held that sales in the ordinary course of dealing of a business include sales to the world at large, but not private sales between individual buyers.

Held that it was a unusual transaction so cannot take advantage of section 53.

Obiter comment that had the purpose been to please SP then may be willing to allow exxcpetion.

Question 19

Gibson V StockCo
2012, COA (NZ)

Answer 19

SECTION 53

StockCo brought 4000 cattle ready to be milked prior to the appointment of receivers from P and then leased cattle to N (P son).

P then used money to purchase new farms.

Held that StockCo did not acquire cattle free from banks SI because was not within section 53 exception for ordinary course of dealing. Therefore the cattle are subject to SI which continued to StockCo and can be repossessed.

The sale was a result of a sudden change of business strategy and section 53 cannot be construe to include this as it would defy its purpose.

Held that the ordinary course of business of P at the time was substantial dairy farming operation, which involved production and sale of milk solids and also some buying and selling of calves/cattle etc - in particular sale of surplus cattle. But did not include selling 4000 cattle that are ready to be milked.

Held ordinary course of dealing is an objective test.

Question 20

Pettyjohn

Answer 20

OVERDRAFT PROCEEDS

ACC had SI over heard of cows - farmer decided to sell all the cows and buy new more expensive ones. All proceeds from the sale went to loan account to repay debt and new cows were funded from readvances from the bank.

Held that can depart from equitable position that you cannot trace proceeds from an overdraft if what the old thing and the new thing are used for are close and substantial in nature and function.

Held that the formalities of the transaction may be important in some instances. In this case the transfer of funds between bank account and loan account was automatic (PettyJohn did not purposely use the proceeds to buy new cows). In obiter said had they sold cows and deliberately made decision to deposit money into loan account to pay off debt may be different.