CATCHWORDS Bankruptcy - bankruptcy notice - whether notice claims a sum of money in excess of the sum to which the petitioning ereditor is entitled pursuant to judgment of Supreme Court - notice based on Court of Appeal order varying order of Supreme Court - order of Court of Appeal omitting reference to interest wheras order of Supreme Court specified interest - whether bankruptcy notice defective -—- necessity to incorporate documents by reference - no defect in notice. Bankruptcy - service of petition - necessity for strict compliance with the rules - whether petition ending up in the physical possession of the debtor is personal service - relief from non complaince with the rules. Bankruptcy - secured creditor - mortgage by third party to petitioning creditor - debtor acting as guarantor under the mortgage -— third party holding security on trust for the debtor - petationing creditor having no knowledge of trust - whether petitioning creditor a secured creditor. RE: JAMES LOUIS FLORANCE EX PARTE: TURIMETTA PROPERTIES PTY. LIMITED NO. F 309 OF 1979 LOCKHART J. 17 SEPTEMBER 1979 / IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE No. P 309 of 1979 OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY RE: JAMES "LOUIS FLORANCE EX PARTE: TURIMETTA PROPERTIES PTY, LIMITED ORDER JUDGE MAKING ORDER: LOCKHART J. WHERE MADE; SYDNEY DATE OF ORDER: 17 SEPTEMBER 1979 THE COURT ORDERS THAT: The petition be adjourned to a date to be fixed by arrangement between counsel and my associate for the purpose of hearing any application hy the petitioning creditor to amend the petition following the delivery of my reasons for judgment. ak ed Be at SPIT A NN kee ae iy Nata ARLE ECL ah tape Laan bean beattlin ARine Shel erated abe tate Kata peer = ah weet od Steet % RS en ee eos A A eet "« ard Oe ae tae Pep eee "~, -_ IN THE FEDERAL COURT OF AUSTRALIA ) GENERAL DIVISION . y BANKRUPTCY DISTRICT OF THE STATC ) NO,P309 of 1979. OF NEW SOUTH WALES AND THE ) AUSTRALIAN CAPITAL TERRITORY ) RE: JAMES LOUIS FLORANCE EX PARTE: TURIMNETTA PROPERTIES PTY. LIMITED -REASONS FOR JUDGMENT / ] September 1979 CORAH: LOCKHART 3, This is a petition for sequestration of the estate of James Louis Florance ("the debtor"). The debtor opposes the petition on grounds which may be summarised as fallows:- 1. That the bankruptcy notice upon which the petition is based is invalid by reason of the following: (a) It claims a sum of money in excess of the sum to which the petitioning creditor is entitled pursuant to its judgment in the Supreme Court of New South Wales; and (b) It wrongly states the nature and basis of the petitioning creditor's entitlement to interest on the judgment by stating that the petitioning creditor is entitled to interest on the sum of $461,522.73 at the rate of $22.00 per centum per annum; 2. That the petition was not served on the debtor; and 3. That the petitioning creditor is a secured creditor of the debtor, and the petition filed by the petitioning creditor is in the form of a petition by an unsecured creditor. The security alleged by the debtor is a mortgage given by Louis John Holdings Pty. Limited ("Holdings") to the petitioning creditor to secure the debt claimed in these proceedings. Holdings holds the property the subject of the security upon trust for the debtor and George John Knight absolutely. The notice of intention to oppcse the petition filed by the debtor contained another ground of opposition to the petition, namely that the debtor had signed an authority under s. 188 of the Bankruptcy Act 1966 ("the Act"); therefore the petition ought to be adjourned until after a meeting of the creditors of the debtor had been held. As this ground related to adjournments of the petition, it was not pursued at the hearing of the petition. The facts are in a narrow compass. By a contract for sale of land dated 26 October 1973, the petitioning creditor agreed to 'sell to Holdings certain land at Mona Vale, New South Wales ("the land") for $625,000.00. On the same day, Holdings executed a declaration of trust which provides as follows:- " DECLARATION OF TRUST made this Twenty-sixth day of October One thousand nine hundred and seventy-three by LOUIS JOHN HOLDINGS PTY. LINITED a company duly incorporated under the provisins of the Companies Act 1961 (as amended) and having its registered office C/- L.Stapleton & Co., 4 Fisher Road, Dee Why, in the State of New Soulh Wales hereinafter called "the company" WHEREAS on even date herewith the company entered into and executed a Contract of Sale for the purchase from TURIMETTA PROPERTIES PTY. LIMITED (formerly calied HARRIS CHOCOLATES PTY. LIMITED) a company duly incorporated and having its registered office at 46 Prince Alfred Parade, Newport, of all those pieces or parcels of land situate al Mona Vale in the Shire of Warringah Parish of Narrabeen and County of Cumberland being the residue of the land in Certificate of Title Volume 3903 Falio 75 and the whole of the land in Certificate of Title Volume 5017 Folio 34 and the whole of the land in Certificate of Title Volume 7199- Folio 118 and the residue of the land in Certificate of Title Volume 7244 Folio 186 after excluding therefrom the land affected by G341473 the said land being situate in the County of Cumberland Shire of Warringah Parish of Narrabeen AND WHEREAS the company entered into and executed the said Contract of Sale as Trustee for GEORGE JOHN KNIGHT of 76 Sydney Road, Warriewood, in the State of New Sauth Wales, Company Director, STEVEN VUKOBRATOVICH of 218 Powderworks Road, Elanora Heights in the State of New South Wales, Company Director, and JAMES LOUIS FLORANCE of 35 The Corso, Manly, Solicitor, ian equal shares as tenants in common hereinafter called "the beneficiaries" WITNESSETH AND THE COMPANY HEREBY DECLARES as Follows:- l. That the recitals hereof shall be and form part of the operative part of this Declaration of Trust. 2. That the company hereby declares that it entered into the said Contract of Sale as Trustee for the said beneficiaries in equal shares as tenants in common. 3. That the company made payment of deposit on the said Contract of Sale hereinbefore recited out of moneys belonging lo the beneficiaries beneficially and in equal shares as tenants in common. 4. _The balance of purchase money will be provided out of moneys belonging to the beneficiaries beneficially and in equal shares as tenants in common. 5. The company hereby declares that it will hold the said land and all profits rents incomes accruals arising thereout as Trustee for the said beneficiaries in equal shares as tenants in common and it will upon request by it transfer the said land to the beneficiaries in equal shares as tenants in common or in accordance with their direction. 6. The company is not in liquidation has not assigned its estate or property for the benefit of any of its creditors and it is not in receivership. 7 Annexed hereto and marked with the letter "A" as a photostat copy of the said Contract of Sale referred to." Steven Vukobralovich ceased to be a benefificiary under the trust. A first mortgage over the land is held by Ampol Finance Limited. Payment of the mortgage debt secured thereunder has been guaranteed by the debtor, Mr. Knight and Mr. Vukobratovich,. Holdings executed a memorandum of mortgage dated 27 June 1974 over the land in favour of the petitioning creditor as mortgagee to secure the sum of $275,000.00 together with interest which, in the events which happened, amounted to 22% per annum. Interest was payable by equal quarterly instalments on the 27th days of March, June, September and December, the principal being repayable on 27 June 1977. The obligations of Holdings under the mortgage were guaranteed by the debtor and by Mr. Knight, who joined in the memorandum of mortgage as guarantors. Default occurred in the payment of interest and, by statement of claim filed in the Supreme Court of New South Wales on 19 November 1976, the petitioning creditor sued Holdings, the debtor and Mr. Knight to recover the principal and interest amounting in allt te $366,101.00. The rs petitioning creditor treated all interest not paid by Holdings to it at the time provided for payment as an accretion to the principal. In the course of the hearing of the action before Sheppard J. the time passed for the repayment of the principal, and a further statement of claim was filed and consolidated with the earlier statement of claim under which the petitioning creditor claimed the sum of $460,773.00 together with' interest pursuant to clause 17 of the mortgage. Sheppard J. gave judgment in the consolidated proceedings and on 15 February 1978, judgment was entered in the following terms:- NJUDGHENT That:- 1. Each defendant pay to the plaintiff the sum of $432,545.50. 2. The sum of 4275,000 or so much thereof as remain unpaid from time to time to bear interest from this date until payment at the rate of 22% per annum, 3. Interest to run at rate of 10% per annum in lieu of 22% per annum on the sum of $275,000 or so much thereof as shall remain unpaid from time .to time provided monthly payments commencing 1 calendar month from this date are made by the defendants. 4, The defendants pay the plaintiffs casts. 5. Stay of proceedings for 28 days on usual terms. This judgment takes effect on 15th February, 1978." The debtor and Mr. Knight appealed lo the court of appeal of New South Wales from the decision of Sheppard J. and the petitioning creditor cross appealed. On 14 December 1978 the court of appeal dismissed the appeal and upheld the cross appeal, the order of the court of appeal being in these terms:- i "THE COURT ORDERS THAT: 1. The Appeal be dismissed. 2. Cross-Appeal be allowed. 2s Judgment of the Supreme Court of New South Wales be varied so as to increase the amount of the Judgment te the sum of $461,522.73. 4, The appellants to pay the costs of the Appeal and Cross~Appeal and to have a certificate under the Suitors [fund Act with respect to the Cross Appeal." The petitioning creditor applied for the issue of bankruptcy notices against the debtor and Mr. Knight. A notice directed ta the debtor was signed on 18 January 1979 by a deputy registrar in bankruptcy and issued that day. It was served on the debtor on 7 February 1979, The relevant part of the bankruptcy notice states:- "To: JANES LOUIS FLORANCE of Kalianna Crescent, Beacon Hill, Solicitor, WHEREAS TURIMETTA PROPERTIES PTY. LIMITED having its registered office at 46 Prince Alfred Parade, Newport an the State of New South Wales (hereinafter referred to as "the judgment ereditor") has claimed that Lhe sum of $461,522.73 together with interest thereon at the rate of $22.00 per centum per annum from 15th February, 1978 which at the date of issue af this Notice amounts to $93,189.65 making a total of $554,712.38 is due by you to it under a final judgment obtained by it against you in the Supreme Court of New South Wales on the J5th day of February, 1978 as varied y a final order of the Supreme Court of New South Wales, Court of Appeal on 14th December, 1978 being a judgment and a final order the execution af both of which have not been stayed: THEREFORE TAKE NOTICE that within Fourteen (14) days after service of this notice on you, excluding the day on which this notice is served on you, you are required -- (a) to pay the sum of $554,712.38 so claimed by the judgment creditor to the judgment creditor, or (b) to secure the payment of the sum referred to in the last preceding paragraph to the satisfaction of the Federal Court of Australia or the judgment creditor (or its agent whose name and address are Glenn David Eggleton of Clayton, Utz & Company, Level 23, Tower Building, Australia Square, Sydney) or compound the sum so specified to the satisfaction of the judgment creditor (or its agent):..." tir. Downes, who appeared for the debtor, submitted that, although the order of the Court of Appeal varied the order of Sheppard J. by increasing the sum of $432,545.50 to $461,522.73, it said nothing about the amount on which interest is to be paid, and, as the bankruptcy notice claims interest at the rate of 22% per annum on the sum of $461,522.73, it is invalid. He submitted that the bankruptcy notice should nave claimed interest on the sum of $275,000.00 as it is the sum specified by Sheppard J. on which tunterest is to be paid at that rate as no provision for the payment of interest is made by the order of the Court of Appeal. tic. Stowe, who appeared for the petitioning creditor, submitted that the bankruptcy natice correctly states the interest due notwithstanding that the order of the Court of Appeal did not specifically deal with interest. He submitted that ta properly construe those orders at is necessary to refer to other documents which are incorporated by reference. The first order of the Court of Appeal dismissed the appeal, hence it is necessary to refer to the notice of appeal to see what is being deall with. The second order allowed the cross appeal, thus requiring reference to the terms of the notice of cross appeal. The third order varied the judgment of the Supreme Court which necessarily requires reference to the terms of that judgment. The cross appesl saught two orders: first, that the judgment against. the debtor and Mr. Knight be varied by increasing the amount thereof to $491,517.00, and second that the amount of the judgment carry interest al the rate of 22% per annum, reducible to 20% per annum on prompt monthly payments. Me. Stowe submitted that the provision for the reduction of interest to 20% was incperative as default haa already occurred before the date of the making of the order of the Court of Appeal so there was no prospect of the interest rate being otherwise than 22%. -10- In my opinion Hr. Stewe's submissions are well Founded. It is obviously necessary to look at the judgment of the Supreme Court itself so that one can see what the judgment of the Supreme Court is that the court of appeal varied. By allowing the cross appeal (order 2) in my opinien it is permissible, indeed necessary, to look at the notice of cross appeal ta see what is being allowed. A reading of the first three orders of the court of appeal together with the notice of cross appeal and the terms of the order of Sheppard J. leads to the conclusion that the bankruptcy notice correctly states the amount of interest due by the debtor. It is not a case of looking at documents extraneous to the order of the Court of Appeal as an aid to construction of that order; rather the task is necessary to identify the subject matter of the order itself. In Re Wimbourne; Ex parte The Debtor (1979) 24 A.L.R. 495, I dealt with a case somewhat similar to this sa Far as the present point is concerned in that the High Court varied an order of the Supreme Court of New South Wales. At p. 499 I said: "It is well established that to determine whether the debtor served with the bankruptcy notice could be misled the court may look at facts extraneous to the notice itself. -li- There are many cases where bankruptcy notices have been held to be invalid as they require payment of part of a judgment debt, leaving any balance that may be due to be subsequently claimed. The very ground of invalidity necessarily presupposes that the true facts as to the amount of the judgment debt have been considered by the court and measured against the facts stated in the bankruptcy notice: see for instance Re Jack; Ex parte C, V. Holland (Holdings) Limited (1959) 19 A.B.C. 2683 Re Munson; Ex parte Peputy Commissioner of Taxation; (1977) 29 F.L.R. ; Re Schierholter; Ex parte Geis; (1978) 19 A.L.R. 113," Accordingly this ground of attack on the bankruptcy notice fails. Hr. Stowe submitted that if, contrary to his first submission, the bankruptcy notice was held to be defective, it was saved from invalidity by s. 306 of the Act on the ground that it constilutes an "irregularity" within the meaning of sub-section (1) of s. 306 and substantial injustice has not been caused by the irregularity and, if there is any injustice, it can be remedied by an order of this court. It was submitted on behalf of the petilioning creditor that, following the delivery of judgment by the Court of Appeal, but before the making of orders, the court requested counsel for the parties to settle the terms of appropriate short minutes to embody the reasons for judgment. ~12- Mr. G. D. Eggleton, solicitor for the petitioning creditor informed the debtor of his calculation of the amount due under the judgment, namely $461,522.73. The calculations were based upon the premise that the rate of 22% per annum interest applied to the whole of the judgment and was not merely limited to the sum of $275,000.00 as the principal, Short minutes of order prepared by Mr. Eggletan were sent ta the debtor, Mr. Eggleton deposed to the fact that the short minutes were signed for or on behalf of all parties and tendered to the court of appeal on 14 December 1978 which then made orders in accordance with the short minutes submitted, I have already mentioned that the notice of cross appeal sought an oider that the judgment carry interest at the rate of 22% reducible to 20% on prompt monthly payments. One of the grounds of the cross appeal was that Sheppard J. erred in ordering that only part of the judgment debt carry interest and that there was no sound ground for depriving the petitioning creditor of iunterest on the balance of the judgment debt.The cross appeal was allowed. I have read the reasons for judgment of Hutley J. A. and Mahoney J.A., with whom Moffatt P. agreed, and in my opinion it is clear from those reasons that the court intended interest to run on Lhe whole of the judgment debt and not part thercof, namely $275,000.00. ~13- The' tests that determine whether s, 306 can apply were referred to by me in Re Wimbourne (supra) and I need not refer to them further. The debtor, who is himself a solicitor, played an aclive role in the proceedings before Sheppard J. and the court of appeal. He was represented by counsel on the hearing before Sheppard J. and before the Court of Appeal. Also, he was present in court when the appeal was argued. In my opinion it has not been established tht the debter could have been perplexed or misled by the bankruptcy notice appearing in the form in which it did, assuming for present purposes that it was defective. Hence, if the bankruptcy notice is defective it is a proper case for the application of s, 306. This is the point relied on by the debtor to support grounds 1 (a) and (b) in the notice of intention ta oppose the petition. For the reasons I have given it fails. It was contended by Nr. Downes that the petition was not served on the debtor in accordance with the Bankruptcy Rules 1968, although it is not disputed that he received the petitionsome three days after it is alleged by the petitioning creditor that he was served with the -14- petition. Clarice: Irene Ward swore an affidavit in which she deposed to the following:- "1. On Friday the 23rd day of March 1979, at 3.30 in the afternoon I served James Louis Florance with the within petition by delivering to a female employee, Miss Lumsky, apparently aver the age of sixteen years an official copy there... 2. At the time of service I said to the person served, "Are you authorised to accept service of these documents on behalf of James Louis Florance?" She replied "Yes, JI am his secretary and I am authorised to accept these documents on behalf of James Louis Florance - He is in conference at the present time.." Rule 15 provides, that unless otherwise ordered by the court under sub-section (2) of gs. 309 of the Act, - ",...(b) service of a creditor's petition shall be effected on a debtor by delivering to the debtor personally an official copy of the petition and a copy of the affidavit or of each affidavit veryifying the petition..." Mr. Stowe submitted that the debtor had in fact been served persenally in accordance with rule 15, if not by the process server, then by Mr. Florance's secretary on 26 Harch, He contended that this satisfied the requirements of the rules as the petition was delivered to the debtor woe ne eee em em en ee ee ee ne ee ee ee eee ee ee ee personally, albert by his own secretary. He submitted that the petition must end up by being physically delivered to the debtor, as it was in this case. The vequirements of the rules as to service of bankruptcy petitions must be strictly complied with. The fact that the debtor's secretary handed him the petition some three days after she had received it from the process server engaged by the petitioning creditor does not constitute personal service of the petition upon the debtor. The fact that the petition came to his notice and into his hands does not mean that he was served personally with the petition. Nr. Stowe referred me to a number of authorities tosupport his submission especially Pino v. Prosser and Hassan 1967 V.R. 835 and Re Woodley; Ex parte Bank of New South Wales 1971 Australian A.L.R. 155, In Pino v. Prosser and Hassan McInerney J. considered a motion to set aside a writ. It is sufficient to say that his Honour was considering a different question to the one before me and different rules, namely the Rules of the Supreme Court of Victoria relating to service of iniliating process, ~-16- Re Woodley was a case where a bankruptcy notice and a bankruptcy, petition each came to the attention of the debtor. the petitioning creditor failed ta prove compliance with rv. 121 of the Bankruptcy Rules, namely that the notice had been served on a person aver 16 years, and r. 16 (b) namely that the affidavit of service of the petition did not annex a copy of the petition. Lucas J. held that these were technical defects which could be cured under r. 195, In my opinion neither of these cases supports Mr. Stove's splubmission that the petition was served personally on the debtor, Mr. Stowe submitted that if it were held that the debtor had not been served personally with the petition, r. 195 of s. 306 operated to excuse non compliance with the requirements as to service. The petition did come to the attention of the debtor on 26 Narch. He has appeared in these proceedings and was represented by counsel, There is nao evidence of prejudice or injustice suffered by him because of the defective service. In my opinion this is an appropriate case to celieve the petitioning creditor from the consequences of non-compliance with the Rules as to service of the petition: see R. 195. If s. 306 were applicable, and in my opinion R. -17- 195 is the more appropriate vehicle for granting relief, the section would/ operate to prevent any relevant invalidity. Mr. Stowe contended that the debtor ought not to be allowed to submit that service of the petition was defective whilst at the same time arguing the case on its merits, In my opinion this submission fails. The debtor is entitled to come to the court and contend con the hearing of the petition that service of the petition was defective, although there doubtless are some cases when this course cught not to be countenanced. Accordingly I am satisfied that, although the petition was not duly served upon the debtor, the defect is curable and does not vitiate the proceedings. The third ground on whieh the debtor opposes the petition is that the petitioning creditor is a secured creditor of the debtor and is precluded from proceeding in bankruptcy withoul giving up or valuing its security. The petition alleges in paragraph 3. that the petitioning creditor does not, nor does any person oan its behalf, hald any security over the debtor's property for the payment of the judgment debt. Accordingly, if the petitioning creditor is in fact a secured creditor of the debtor, either the petition must be dismissed or the petitioning creditor must seek leave ta amend the petition to comply with the requirements of the Act and the Rules relating ta the presentation of petitions by secured creditors including the requirements of s. 44 (3) and (4). It is common ground that, if I should find in favour of the debtor on this point, I should adjourn the matter to a date to be fixed sa that counsel can consider my reasons for gudgment and address on the question whether leave to amend the petition, if it is sought, should be granted or the petition dismissed. The basis -of the claim of the debtor that the petitioning creditor is a secured creditor is that, although the mortgage was granted by Holdings to the petitioning creditor to secure payment af part of the purchase price of the land and although the debtor and Mr. Knight joined in the mortgsge as guarantors, Holdings holds the land, pursuant to the declaration of trust of 26 October 1973, upon trust for the debtor and Nr. Knight. Henee, so the argument goes, the very security to which the petitioning creditor can look, in the eventof non payment of the debt secured by the mortgage by the company is the land owned beneficially by the debtor ~-19- and Mr. Knight. Mr. Downes relied in support of hzs contention upon the decision of the High Court in Harvey & Ors. Vv. Commercial Bank of Australia Limited (1937) 58 C.L.R. 382. In Harvey's Case a company, P. Bird Pty. Limited, was indebted to the bank. Philip Bird who, was the registered proprzetor of certain land, had executed an indenture declaring that he held the land upon trust far the company. Subsequently he executed a mortgage of the same land to the bank to secure the moneys owing by the company to the bank. The mortgage to the bank was registered, but the bank did not know of the declaration of trust in favour of the company. The bank in its proof of debt in the subsequent liquidation of the company did not give up or give credit far the value of its security. The liquidator rejected the proof of debt; but on appeal to the Supreme Court of Victoria it was held that the fact that the company was the beneficial owner of the land the subject of the security in favour of the bank did not make the mortgage a specific security on the property of the company with the meaning of s. 194 of the Insolvency Art 1928 (Vict.). It was held that the bank's proof of debt should be admitted by the liquidators, On appeal to the High Court the decision of the Supreme Court was reversed, U ! The researches of counsel did not disclose any case in which the decision of the High Court in Harvey's Case had been referred to. Mr. Stowe sought to distinquish Harvey's Case on various grounds. He submitted first that the facts of Harvey's Case and those of the present case are materially different as in Harvey's Case the mortgage was granted by a guarantor to secure repayment of the principal debtor's obligation, whereas in the present case the mortgage was granted by the principal debtor to secure the principal debt which was "secured" by the guarantee of the debtor whose obligation under the guarantee constituted a debt upon which the petitianing creditor relies. He referred tio the definition of "secured creditor" in s. 5 of the Act which defines that expression as "in relation to a debtor, means a person holding a mortgage, charge or lien on property of the debtor as a security for a debt due to him from the debtor." Mr. Stowe submitted that payment by the debtor or the enforcement of the mortgage against the assets of the debtor, they being acknowledged to be in equity the assets of the debtor and Mr. Knight, would not finally discharge ihe obligation owed to the petitioning credilor as was the case ~21- in Harvey's Case. The debt would not be finally discharged as, having paid the petitioning creditor or, having suffered a diminution of his assets through the enforcement of the mortgage in favour of the petitioning creditor, the debtor would be entitled to enforce the principal debt against Holdings by right of subrogation. He submitted alsa that tne debtor's assets would not, on an accounting basis, be diminished by the taking of the mortgaged property by the petitioning creditor in satisfaction of the principal debt. Any such diminution in the debtor's assets caused by the taking of that property by the petitioning creditor would be immediately balanced, albeit by a different form of asset, by reason of the debtor's right of subrogation against the principal debtor, so that on a net basis the debtor's assets would remain unchanged. Mr. Stowe submitted that Harvey's Case could be distinguished on another basis namely that, whilst both cases have in common the fact that the passing of the equitable interest in the mortgaged properly was unknown to the petitioning creditor, in Harvey's Case the court was considering the matter in the context of the admission of the creditor's proof of debt, whereas in the present case the point at which the matter is being considered is the validity ~22- of the petition itself. He submitted that in the present case Lhere is, on the hearing of the petition, no question of considering whether the rules of bankruptcy as to the due administration of a bankrupt's property apply; but the question is whether the petition ought to be regarded as not complying with the provisions of the Act. Iii my opinion the distinctions which Mr. Stowe has sought to draw belween Harvey's Case and the present case are nol material. The petitioning creditor holds its mortgage over the land which is in law the property of Holdings but in equity the property of the debtor and Mr. Knight thus satisfying the first part of the definition of "secured creditor" in s. 5, namely that the petitioning creditor holds a mortgage on property of the debtor. It is true that the petitioning creditor took the mortgage from Holdings as security for its debt without knowledge of the declaration of trust; bul as both Holdings and the debtor have defaulted in their respective obligations to the petitioning creditor, it holds the mortgage as security for the debt due by the debtor as well as the debt due by Holdings, the former being the ancillary and the latter the principal obligation. If the petitioning creditor were, for example, to exercise its power of sale, sell the land and recover the whole of the principal and interest due under the mortgage, the debt of both Holdings and the debtor would be discharged. If the a petitioning creditor recovered only half of the moneys due toa it upon sale of the land, it would be entitled to sue the debtor, Mr. Knight 'and Haldings or any of them for the whole of the unpaid balance provided it did not recover more than 100 cents in the dollar. These and other examples serve to illustrate the point that the mortgage is in truth held by the petitioning creditor as security for the debt due to it by the debtur. In Harvey's Case Starke J. said at p. 387:- "Further the mortgage is security for the_ debt which the bank sought to prove. The debt due to the bank was the sum owing to il by the company on current account and otherwise. It was no doubt secured by the guarantee and collateral mortgage given to it by Philip Bird, but it was in truth a single sum of money, the payment of which by either the company or Philip Bird, the surety, satisfied the obligation to_the bank. (See Stock Motor Ploughs Limited v. Forsyth (1932) 48 CCLVR 120 at p. 134. Dixon J. said at p. 389:- "He gave the mortgage with the concurrence of the company. But the officers of the bank say that they were unaware that Philip Bird was not the beneficial owner of the land. The consequence of this transaction is that the company's debt to the bank is guaranteed by Philip Bird and the guarantee is secured by a mortgage to the bank over property of which he is the owner at law and the company is the owner in equity. If the bank have recourse to the guarantee and the mortgage by which it is secured, so that the liability ts satisfied out of the mortgaged property, then because the company is the beneficial owner of the property the debt owing by the company will be discharged finally, and Philip Bird will not have the surety's usual right -2h- to claim over against the company as principal debtor. In other words, the mortgage operates toa confer upon the bank the means of satisfying the debt owing by the company cut of what in fact is the property of the company." See also National Westminster Bank v. Official Receiver (1971) 2 W. L. R. 1477. Thus in the present case there is a single sum of money the payment of which by either Holdings or the debtor as surety will satisfy the obligation to the petitioning creditor. The critical fact is that the mortgage confers upon the petitioning creditor the means of satisfying the debi owing by the debtor out of what is in truth the property of the debtar, For these reasons in my opinion Harvey's Case applies to the present case so that the petitioning creditor is a secured creditor of the debtor. I shall stand over the further hearing of the petition to a date to be fixed by arrangement with counsel so that the petitioning creditor may consider whether it washes to apply to amend the petition to comply with the provisions of the Act relating to the presentation of petitions by TT en rer ET a cf RR ee ape Set Ae tn ee Ea eee secured creditors. t i] Accordingly the petztion is adjourned to a date to be fixed by arrangement between counsel and my associate for the purpose of hearing any application by the petitioning creditor to amend the petition following delivery of my reasons for judgment.