Business
credit applications giving a right to mortgage must be in the legal form of a
deed to justify registration of a mortgage on default. The High Court ruled invalid a mortgage
registered by supplier United Steel Ltd over a Shirley Road property owned by Christchurch
managing director Andrew Thorn.
Mr Thorn’s company
Thorn Engineering Ltd was put into liquidation by the High Court in late
2016. Supplier United Steel is owed some
$28,700. The High Court was told Thorn
Engineering opened a credit account with United Steel when sourcing steel from
that company. United’s standard credit
contract required Mr Thorn sign as guarantor.
The contract gives United the right to register either a caveat or a
mortgage over any property owned by Mr Thorn should his company default. Hearing of liquidation proceedings against
Thorn Engineering, United unilaterally registered a mortgage over a Shirley
Road property in which Mr Thorn holds a half share. United claimed it executed the mortgage on
behalf of Mr Thorn, relying on a power of attorney contained in the credit
agreement.
Justice Nation said the
Property Law Act requires anyone signing by power of attorney to be appointed
by deed if the document they are signing is in the form of a deed. United’s credit application giving it the
right to act as attorney for Mr Thorn was in the form a simple agreement, not a
formal deed. It could not be used to
support United’s claim it acted on behalf of Mr Thorn with an electronic filing
of a mortgage against title to Shirley Road.
United’s credit agreement does allow it to lodge a caveat claiming an
agreement to mortgage, Justice Nation ruled.
Thorn
v. United Steel Ltd – High Court (8.08.17)
17.098