Ticking
the wrong box on a contract mortgaging a dairy herd cost lenders over $200,000
for conversion. Choosing to take
security over only identified branded stock precluded the lenders from seizing later
additions to the herd.
Waikato sharemilkers, a Mr Thompson and
Ms Macbeth, were bailed out when they defaulted on a $260,000 bank loan. Three Helensville farmers refinanced the
sharemilkers’ debt, paying off the bank and taking a new mortgage security over
the herd. Security was taken over some 330
head of stock, identified by number and tag.
Standard form mortgage agreements give the option of also taking security
over “after acquired” stock. This option
was not selected.
When the sharemilkers later defaulted on
their refinanced loan, they challenged the lenders’ actions in taking all stock
found on the farmed property and on a run-off near Raglan. Stock born or otherwise acquired after the mortgage
security was signed included some 40 heifers and six bulls. In the High Court, Justice Lang ruled the
lenders had no authority to seize this after-acquired stock. They were liable for damages in
conversion. The value of the converted
stock was $77,650. The sharemilkers were
also entitled to some $161,000 for lost milk production which would have been obtained
from the animals wrongly taken. This
total of some $238,600 was well in excess of the $26,600 Justice Lang ruled was
still owing to the lenders as a shortfall on the sale of mortgaged stock validly
seized in satisfaction of the debt. The
lenders were named as Allan Roy McCollum, Nancy Margaret McCollum and Terence
Neil Walker.
The sum of $26,600 still owed on the
mortgage was determined by Justice Lang after making allowance for two items. First, the stock seized was purchased
personally by the lenders at a price which Justice Lang ruled was below the best
price reasonably obtainable. When
valued, the herd was incorrectly assumed not to be on a national database, when
it was. Secondly, the lenders were required
to give credit for milk production between the date the herd was trucked to their
farm and the date the Waikato sharemilkers were paid for the stock purchased.
McCollum
v. Thompson – High Court (28.01.16)
16.029