Therefore, many lenders now structure their facilities to avoid guarantees by listing parties as co-borrowers.  However, a new line of cases may have extended the principles of unconscionable conduct to parties other than guarantors.

Relevant Facts

In Bank of Western Australia Ltd v Abdul & Anor [2012] VSC 222 (Abdul), the Bank of Western Australia (Bankwest) advanced funds under five separate facilities totalling approximately $18 million (inclusive of interest). 

Four of the facilities were extended to corporate borrowers of which Mr Abdul had control. Mr and Mrs Abdul (Abdul Companies) guaranteed these facilities.  The fifth facility was extended to Mr and Mrs Abdul personally (Abdul Facility).

Even though the Abdul Companies did not hold the Abdul Facility, Bankwest was aware of the purpose of the loan. It was to fund a business conducted within the Abdul Companies’ operations.

The borrowers defaulted on the loans and Bankwest demanded payment of all sums owing to it.  The demands were not paid and Bankwest began proceedings to recover the funds.

The Garcia Principles and Unconscionable Conduct

There is an established principle of equity that applies to a wife who is a volunteer guarantor for a loan facility. It states that she will not have given a valid and enforceable guarantee if there is little or no evidence to suggest that:

• she was able to understand what she was signing,
• the document was explained to her,
• she was able to obtain independent legal advice.

This principle stems from the four-pronged test put forward by the High Court in Garcia v National Australia Bank (1998) 194 CLR 395.

This article provides a summary of the principle. 

Garcia Principles applied by the Court to Abdul

1. Understanding the Effect

   There was no evidence to suggest that Mrs Abdul understood the nature of the documents she was signing. She was not involved in the running the Abdul companies. At most Mrs Abdul completed administrative tasks.  The Bank did not ask her to examine the documents in any detail. The evidence suggests she had a large pile of documents placed in front of her with tabs to show where she should sign.  The fact that she had previously signed guarantees did not indicate she understood what the guarantees meant.

2. Voluntary Transaction

   It is an existing principle that where the wife has an interest in a company through a shareholding, and where her husband conducts the business and she has no real involvement, a guarantee given by the wife over the company’s debts is involuntary. The evidence suggests Mrs Abdul did not have any real part in running the companies and therefore her guarantee must have been voluntary.

3. Husband and Wife Relationship

   Bankwest knew Mr and Mrs Abdul were husband and wife. Therefore, it was likely Mrs Abdul would trust her husband in matters of business. And that Mr Abdul may not have explained commercial matters fully to his wife.

4. Lender did not take Steps to Explain the Transaction

   The evidence suggests Mrs Abdul received the documents in a large pile; she was just was told where to sign. She did not have the documents individually explained to her. There was no evidence that the lender instructed her to seek legal advice on the documents.

The court in Abdul therefore held that in relation to the Abdul Companies, Mrs Abdul (as a traditional guarantor on the facilities) had not given a valid and enforceable guarantee. As a result it could be set aside on the grounds of unconscionable conduct.

Extending the Garcia Principles

Later cases suggest that the High Court’s position in Garcia need not only apply to traditionally-structured guarantees. Facilities with different structures that in substance amount to unconscionable guarantees could also be included:

For example, consider the position of Santow JA and Campbell JA in Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413:

“Here the lender lends under a transaction where the money is intended to go to the husband, though framed in terms rendering husband and wife jointly liable as co-principals.  Such a situation may, in the eye of equity, involve a transaction of guarantee or, as sometimes described, constructive suretyship.”

Further, Nettle JA in Narain v Euroasia (Pacific) Pty Ltd (2009) 26 VR 387, followed this reasoning (though noted the court’s position in Elkofairi that it wasn’t for an intermediate appellate court to extend the Garcia principle):

“Were it not for Elkofairi, I should have thought that it was open to this court to construe Yerkey as capable of application to instruments apart from suretyship which operate to a wife’s husband’s advantage or confer a voluntary benefit on him.”

The Abdul Facilities

The court considered the position of Mrs Abdul in relation to the Abdul Facility, as a co-borrower, not a guarantor.  As noted, Mr and Mrs Abdul used the facility to fund further operations of the Abdul Companies.

Mrs Abdul was a volunteer, given that Mr Abdul controlled the Abdul Companies. Her inclusion was merely to secure the facility by her personal liability. Further, there was no evidence that she obtained legal advice, nor had the documents been explained to her above and beyond what was done for the Abdul Companies.

The Court decided that in substance, if not form, the Abdul Facility was identical to the Abdul Companies. Therefore, Mrs Abdul’s liability as borrower under the Abdul Facility was void due to unconscionable conduct.

Conclusions

The principle from Bank of Western Australia Ltd v Abdul & Anor shows that a party to a loan who giving a guarantee (notwithstanding the legal form of the loan) will still be able to access the equitable remedy of unconscionable conduct as previously defined in Garcia. 

Therefore, it is important for lenders to be wary of co-borrowing husbands and wives. This especially applies when there is an unfair balance of power between the parties. Lenders should look beyond the structure of a borrowing company into the roles performed by each party. 

The best step to prevent unconscionable conduct unravelling a facility is making sure the transaction parties get independent legal advice.

You can find the full case for Bank of Western Australia Ltd v Abdul & Anor [2012] VSC 222 here. 

Please contact our office if you would like assistance structuring a secured loan facility.

Related articles:

Unconscionable Conduct: Can a Lender Protect Itself?

Court Reduces Amount Guaranteed by Volunteer Wife

This publication is for your general information and interest only. It is therefore not intended to be comprehensive, and does not constitute and must not be relied on as legal advice. You must seek advice tailored to your specific circumstances.

The post Guarantees Tagged Unconscionable: What Can Lenders Do? appeared first on Elliott May.

Mortgagees are generally required to take steps to ensure a borrower is able to service the loan. Whether by investigating an exit strategy or seeking assurances through a declaration. However, the steps required need to be determined on a case-by-case basis as potential red flags can put a mortgagee on notice that further inquiries need to be made.

By way of illustration, in 2013 the New South Wales Court of Appeal handed down the decision of Provident Capital v Papa [2013] NSWCA 36. This declared that a mortgagee could rely on the documented assurances of a borrower alleging their ability to repay the debt. 

However, a year later in First Mortgage Managed Investments Pty Ltd v Pittman [2014] NSWCA 361 the same court held that the mortgagee had a duty to investigate a borrower’s ability to service the loan. This despite receiving both verbal and written pledges regarding their ability.  

Both cases help explain the necessary steps mortgagees are expected to take. And the factors that should prompt further inquiries.

Relevant Facts

The Papa case

In Papa (read our full summary of the Papa decision), Provident Capital advanced a $700,000 loan to Mrs Papa secured over her home.  Some of the loan funds were to be used to support her son’s struggling gym. And as such, Mrs Papa signed a “Borrower’s Declaration to Purpose” declaring the loan was for business purposes. She also executed a Self-Certified Income Declaration confirming her ability to repay the debt “without hardship”.  Her son failed to make the promised repayments and Provident Capital commenced recovery proceedings against Mrs Papa.

The Pittman case

The later case of Pittman involved the respondents, Mr Pittman and Mr Webster. They guaranteed and secured a number of high value loans over their only significant assets – their three properties.  Ms Locke, a friend of the respondents, received the loan amounts. Ms Locke had interests in a number of property developments. 

Subsequent to these loans, Ms Locke organised a loan with First Mortgage Managed Investments (‘FMI’) secured over the respondents’ properties. In this instance the respondents themselves appeared as the borrowers.  The respondents signed a declaration stating the loan was for business purposes. 

The respondents also provided FMI with a Statement of Personal Particulars. Ms Locke completed this and falsely advised that the respondents’ combined annual income was about $470,000.  FMI also received an Asset and Liability Statement which did not support the reported income.  Additionally, Mr Webster and Mr Pittman both told FMI in a telephone conversation that they would receive a financial benefit from the proposed development Ms Locke was undertaking.  The respondents defaulted on the loan and FMI began recovery proceedings.

The borrowers contested both loans. They claimed that the mortgages were “unfair” under the Contracts Review Act 1980 (NSW).

What Steps are Necessary?

The Papa case

In Papa, the court held that the mortgagee had met its commitment to ensure Mrs Papa could service the loan.  Notably, Provident Capital’s only evidence of Mrs Papa’s ability to service the debt was the signed Self-Certified Income Declaration.  The court found that “no inquiries were made of Mrs Papa, or anyone else, to verify her income or capacity to meet her loan obligations”.  Provident Capital also required, and Mrs Papa provided, a declaration stating that she had received independent legal advice on the loan and security documentation.  These factors combined allowed Provident Capital not only to rely on Mrs Papa’s assurances that she could repay the debt, but to rely on her declaration that she received effective independent legal advice on the loan documentation.  As the court stated, “that the legal advice was inadequate was not Provident’s fault.”

The Pittman case

In Pittman, as in Papa, FMI also required a statement, which the respondents provided, that Mr Webster and Mr Pittman had obtained independent legal advice on the loan documentation (though the advice obtained was neither adequate nor independent).  The borrowers provided FMI with their apparent annual income. And a pledge they would receive a financial benefit from the proposed development. Therefore, it appeared that FMI had done everything necessary to ensure the borrowers could service the loan.

What Puts a Mortgagee on Notice?

What are the red flags that should prompt a mortgagee to make further enquiries?  In Pittman, two major factors stand out regarding the borrowers’ ability to service the loan. 

Independent legal advice lacking

Firstly, the court held that FMI ought to have known that the legal advice provided to Mr Webster and Mr Pittman was not independent.  FMI knew, having had prior dealings with Ms Locke, that she had previously retained the firm to which she subsequently referred Mr Webster and Mr Pittman.  Regardless of whether FMI was aware of Ms Locke’s presence in meetings between the respondents and the firm, they should at least have been aware of the potential for a conflict of interest. And this would have put them on notice that the respondents were not receiving adequate legal advice.

Not able to service the loan

Secondly, the court held that FMI ought to have known that the respondents would be unable to repay the debt, except through the sale of the security property.  FMI relied on a brief conversation with both Mr Webster and Mr Pittman, in which the respondents stated they were receiving a financial benefit from Ms Locke’s proposed development.  However, FMI did not seek any evidence of the respondents’ legal interest in the development.  FMI also relied upon the respondents’ falsely reported income provided by Ms Locke. However, the Asset and Liability Statement alone should have revealed the impossibility of the respondents earning $470,000 per year.  Accordingly, the court determined that it was inappropriate for FMI to rely upon both of these statements. Further, it would have been aware of these issues had it conducted even the simplest due diligence inquiries. 

There were a number of other minor factors to which the court pointed. These suggested inappropriate and unfair action by FMI. These factors included FMI failing to question why Ms Locke received the excess funds not used to pay off the existing mortgages over the security properties. Particularly as she wasn’t a party to the agreement. And why did FMI not investigate the borrowers’ evidently limited commercial experience further?

Red Flags Concerning Borrower’s Ability to Service the Loan

Mortgagees should obtain well-drafted declarations from the borrower. In this way a mortgagee can ensure that a loan contract is fair in terms of its serviceability.  However, mortgagees should always be wary of potential red flags that may arise during the transaction. 

Potential red flags may include:

• receiving instructions, directions or other correspondence from a third party not noted in the loan documentation,
• parties offering security while receiving no financial benefit from the transaction. For example, relatives or friends offering their property as security,
• entering a transaction that is unusual for the particular borrower,
• when there hasn’t been independent legal advice; mortgagees should be wary of undue influence or other potential issues that can arise in the provision of legal advice.

As can be observed from the above cases, the line between a fair and unfair transaction can be a fine one.

Related articles

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Private Lenders: What is the Future of Small Business Loans?

This publication is provided for your general information and interest only. It is not intended to be comprehensive, and does not constitute and must not be relied on as legal advice. You must seek specific advice tailored to your circumstances.

The post Service the Loan: How Much is Enough When Assessing Borrower’s Ability? appeared first on Elliott May.

Importance of lenders requiring borrowers and guarantors to obtain independent legal advice once again confirmed by the courts in National Australia Bank Limited v Wehbeh & Anor [2014] VSC 431.

Relevant Facts

In 2008, NAB (Bank) registered a mortgage over Mr and Mrs Wehbeh’s Greenvale property. This was to secure the repayment of a home loan. And also to secure the performance of Mr and Mrs Wehbeh’s obligations as guarantors under a guarantee provided to the Bank for a business loan that was made to a company, 888 Investments Pty Ltd (Company). Mr Wehbeh and a business partner were the only directors and shareholders of the company.

In mid-2010, Mr and Mrs Wehbeh separated. Shortly thereafter, repayments towards the home loan stopped. The repayments on the business loan also ended. Because of the loan defaults, the Bank served the parties with default notices. However, the borrowers continued to be in default of their obligations under the loan transactions. The Bank commenced proceedings against Mr and Mrs Wehbeh, as mortgagors, to recover possession of the Greenvale property and judgment for the debt owed under their guarantees.

In 2012, the Bank obtained summary judgment against Mr Wehbeh. However, Mrs Wehbeh defended the claims made against her.

Main Issues

The Court found that the Bank had established its right to possession of the Greenvale property. As well as its entitlement to judgment on the debt outstanding in relation to the guarantee of the business loan.

Therefore the main issues that the Court had to consider were the two defences raised by Mrs Wehbeh:

• unconscientious dealing in relation to the home loan and,
• undue influence in relation to the guarantee provided for the business loan.

Unconscientious dealing defence in relation to home loan

In relation to the home loan, the Court had to determine whether Mrs Wehbeh was under some form of special disability or a situation of disadvantage which the Bank had unconscientiously taken advantage of. Previously the courts have granted relief against an unconscionable dealing in circumstances where the consideration from the stronger party (such as the Bank) does not flow to the party under the disability, but rather to a third party.

In this instance, the Court found that consideration did flow from the Bank directly to Mrs Wehbeh. She used the home loan in question to discharge a pre-existing mortgage over the Greenvale property held by another financier, Perpetual.

The Court noted that Mr and Mrs Wehbeh had re-financed their home loan a number of times with various banks. Further, it appeared that Mrs Wehbeh understood the nature and effect of those past transactions. There was no substance to Mrs Wehbeh’s assertions that she was under some form of special disability or disadvantage. Such as lacking experience in the type of home loan she entered with the Bank. Or that her will was overborne by her husband causing her to enter the home loan.

Undue influence defence in relation to guarantee of business loan

In relation to her guarantee of the business loan, Mrs Wehbeh argued that the Bank should have known that she reposed trust and confidence in her husband when she entered the transaction. She also stated she did not receive benefit from the transaction. And that she did not properly understand the nature of the transaction.

Garcia decision influential

In determining whether it was unconscionable to enforce the guarantee provided by Mrs Wehbeh, the Court took into account the Garcia decision. The Court considered whether the:

1. surety (guarantor) understood the purport and effect of the transaction;
2. transaction was voluntary (in the sense that the surety obtained no benefit from the contract the performance of which was guaranteed);
3. lender is taken to have understood that, as a wife, the surety may repose trust and confidence in her husband in matters of business and therefore to have understood that the husband may not fully and accurately explain the purport and effect of the transaction; and
4. lender took its own steps to explain the transaction to the wife or to find out whether someone else had explained the transaction to her.

Whilst Mrs Wehbeh alleged that she did not understand the effect of the transaction, that she was a volunteer to the transaction, and that the Bank knew she was married to Mr Wehbeh and would repose trust and confidence in him, the Court noted that she did not allege that the Bank had failed to ascertain whether an independent person had explained the transaction to her.

In this case, the Bank had received and relied upon a certificate provided by Mrs Wehbeh’s solicitor, Mr Raso. Therefore it is clear that she had been adequately advised as to the nature and effect of her obligations as guarantor.

The Court therefore found that Mrs Wehbeh did receive independent legal advice before she signed the document. Furthermore, the Court held that it is the knowledge of NAB that characterises whether its behaviour is unconscientious and in this instance, NAB understood it to be that Mrs Wehbeh received independent legal advice regarding the guarantee.

Conclusion

The Court was not satisfied that Mrs Wehbeh had established all the necessary elements required under the defences she raised. In conclusion, given the above findings, the Court held that the bank was entitled to possession of the Greenvale property and to judgment for the debt she owed under the guarantee.

Related articles

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Lender Fails to Insist on Independent Legal Advice

Service the Loan: How Much is Enough When Assessing Borrower’s Ability?

Guarantees Tagged Unconscionable: What Can Lenders Do?

Guarantee Provider Must Obtain Independent Legal Advice

Asset Lending Not Necessarily Prohibited By Public Policy

Solicitor’s Certificate: Do These Cure Undue Influence?

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This publication is provided for your general information and interest only. It is not intended to be comprehensive, and does not constitute and must not be relied on as legal advice. You must seek specific advice tailored to your circumstances.

The post Guarantee Provider Must Obtain Independent Legal Advice appeared first on Elliott May.

In the matter of National Australia Bank Limited v John Albert Rose [2016] VSCA 169, the Victorian Supreme Court of Appeal held that a guarantor was not required to repay loans totalling more than $8 million because the bank failed to comply with the Code of Banking Practice.

Outline of Facts

In 2007, Mr Rose and Mr Rice entered into a joint venture arrangement to acquire investment properties through companies they jointly controlled. Mr Rose contributed cash towards the purchases. And Mr Rice arranged for various loans from National Australia Bank Limited (‘NAB’) for over $8 million. Mr Rose guaranteed the loans made by the NAB.

Signing of guarantees

Mr D’Angelo, a senior business banking manager at NAB, visited Mr Rose’s home with loan documentation for signing. These meetings would last 15 to 30 minutes. Mr D’Angelo would provide oral summaries of some of the documents. Also he would point Mr Rose to flagged pages for signing. Mr Rose did not read the documents.

Assuming Mr D’Angelo followed his standard procedure, he would ‘look at’ the cover page of each guarantee with Mr Rose and explain the liability of a guarantor should the borrower default. However, Mr Rose could not recall being told of this or having the cover page of the guarantees brought to his attention. Mr Rose signed the guarantees without seeking legal or financial advice. Also, he was unaware that he had guaranteed the entirety of each of the loans. If Mr Rose had been told he should seek legal advice, he would have done so, and not entered into the guarantees.

Default on loans

In 2010, the purchasing companies defaulted on the loans. Thereafter NAB sought the outstanding balance of the loans from Mr Rice and Mr Rose under the guarantees provided. Mr Rose counterclaimed for damages for breach of the Code of Banking Practice (‘Banking Code’).

The guarantees signed by Mr Rose included a warranty by NAB that it would comply with relevant provisions of the Banking Code. One of the provisions is clause 28.4(a).

This required NAB to provide prominent notice of various matters prior to taking a guarantee, including:

• a statement that the guarantor was assuming financial risks,
• a recommendation that he obtain independent legal and financial advice, and
• a promise not to take a guarantee without leaving such notice and other documentation with the guarantor until the next day.

Such warnings appeared on the cover page of each guarantee signed by Mr Rose. And similar statements also appeared on the signing pages.

In 2015, the trial judge ruled that NAB had failed to provide Mr Rose with prominent notice under clause 28.4(a). However, NAB appealed this decision. It contended that the trial judge focused on what Mr D’Angelo did or did not say to Mr Rose, as opposed to the written notices on the document.

Issue for Determination

The Court of Appeal was required to consider whether NAB breached its contractual warranty to provide prominent notice as required by clause 28.4(a) of the Banking Code. Also whether the NAB has an obligation to ensure that a guarantor is aware of and understands the matters referred to in clause 28.4(a).

Decision in favour of guarantor

The Court found that NAB’s obligation under the Banking Code is to give the guarantor notice of the matters referred to in clause 28.4(a). This needed to be conspicuous in the context in which it was provided. The majority of the Court affirmed the trial judge’s conclusion that NAB failed to provide Mr Rose with prominent notice in accordance with clause 28.4(a) of the Banking Code.

In reaching this decision, the Court took into account the circumstances in which Mr Rose signed the guarantees. This included the brevity of the meetings with Mr D’Angelo and the length and number of the documents involved. Also, it noted that NAB did not leave the documents with Mr Rose for his review.

Although Mr Rose could have read the various documents prior to signing if he wished, it was found that NAB had dealt with him on the basis that he had no need to do so. In the circumstances, the Court held that Mr Rose was not given prominent notice in accordance with clause 28.4(a) of the Banking Code and because of this breach, Mr Rose suffered loss in the amount of the guarantees and was entitled to set off damages.

Related articles

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Unconscionable Conduct: Can a Lender Protect Itself?

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Lender Fails to Insist on Independent Legal Advice

Misleading and Deceptive Conduct Alleged Against BankWest

Solicitor’s Certificate: Do These Cure Undue Influence?

This publication is provided for your general information and interest only. It is not intended to be comprehensive, and does not constitute and must not be relied on as legal advice. You must seek specific advice tailored to your circumstances.

The post Guarantor Relieved of Obligation to Pay Due to Bank Error appeared first on Elliott May.

In the matter of Donnelly v Australia and New Zealand Banking Group Ltd [2014] NSWCA 145 the court held that a borrower who voluntarily engages in risky business is not entitled to call upon equitable principles to be redeemed from the consequences inherent in taking those risks.

Background

Mrs Donnelly and her husband drew down HK$4,105,056.00 (about AUD600,000) under an “Expat Mortgage Loan Facility”. ANZ Asia Ltd (the Bank) granted it to them on 12 June 2008. The loan agreement contained a “clawback clause”. The clause entitled the Bank to convert the currency of the borrower’s liability from Hong Kong Dollars to Australian Dollars. This clause operated where, as a result of exchange rate fluctuations, the borrower’s liability when converted to Australian Dollars exceeded 85% of the assessed value of the security property.

After the loan was made, the Australian Dollar depreciated sharply against the Hong Kong Dollar. Therefore the Bank exercised its right under the clawback clause. The Bank converted the borrower’s indebtedness to approximately AUD730,000. This was about AUD130,000 more than the original value of the loan.

The Bank then commenced proceedings in the New South Wales Supreme Court against Mrs Donnelly. It sought for possession of the security property and judgment for the debt.

Decision at Trial

Mrs Donnelly alleged that the Bank had engaged in conduct that was unconscionable under equitable principles. This argument was based on the Bank’s purported failure to inform Mrs Donnelly that deterioration in the value of the Australian Dollar against the Hong Kong Dollar would adversely affect her interests under the loan facility.

The trial judge rejected her defences and entered judgement for the Bank against Mrs Donnelly in the sum of $879,685.55. The judge also made orders for possession of the security property. In short, the court held that the Bank had not acted unconscionably. 

Mrs Donnelly appealed this decision.

Decision on Appeal

Defence on appeal

Mrs Donnelly relied on the following to support her defence on appeal:

• the loan facility documents were signed at the ‘urging and direction’ of a representative of the Bank;
• the Bank’s representative failed to inform her that a deterioration in the value of the Australian Dollar against the Hong Kong Dollar would cause an increase in her indebtedness;
• no independent financial or legal advice was offered before signing the facility;
• an indemnity that Mrs Donnelly signed was not the subject of any ‘explanation as to its meaning or relevance’;
• the Bank’s representative misrepresented to her that the currency of the loan could only be changed with her consent.

The principles of unconscionable conduct

Macfarlan JA stated the authoritative principles of unconscionable conduct expounded in Kakavas v Crown Melbourne Ltd [2013] HCA 25:

“ … equitable intervention does not relieve a plaintiff from the consequences of improvident transactions conducted in the ordinary and undistinguished course of a lawful business. A plaintiff who voluntarily engages in risky business has never been able to call upon equitable principles to be redeemed from the coming home of risks inherent in the business. The plaintiff must be able to point to conduct on the part of the defendant, beyond the ordinary conduct of the business, which makes it just to require the defendant to restore the plaintiff to his or her previous position.”

The Court’s findings

The evidence suggested Mrs Donnelly did not have a perfectly clear understanding of the terms of the facility agreement. However, the Court of Appeal found that this was an insufficient basis for a claim of unconscionable conduct. As the above extract shows, a plaintiff has to point to some conduct on the part of the defendant which goes “beyond the ordinary conduct of business”. In this case, Mrs Donnelley’s allegations and evidence did not satisfy this requirement.

Also, the Court of Appeal found that the Bank had taken reasonable steps to inform Mrs Donnelly of the risk a depreciation of the Australian Dollar posed to her indebtedness to the Bank. The evidence presented by the Bank included the Bank’s usual practice of explaining the effect of exchange rate fluctuations to potential borrowers.

In addition, the Bank’s failure to recommend that Mrs Donnelly obtain independent legal advice was not unconscionable in the circumstances. In fact Mrs Donnelly’s personally chose not to seek such advice. The court also noted that Mrs Donnelly was sophisticated in her commercial dealings. She had entered the facility for the purpose of currency gains. As a result, all this contributed to a rejection of her defence.

Mrs Donnelly’s appeal was dismissed with costs.

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Bank Wins Despite Claims of Fraud & Unconscionable Conduct

Unconscionable Conduct: Can a Lender Protect Itself?

This publication is provided for your general information and interest only. It is not intended to be comprehensive, and does not constitute and must not be relied on as legal advice. You must seek specific advice tailored to your circumstances.

The post Courts Won’t Assist Borrowers with Imprudent Transactions appeared first on Elliott May.

In Provident Capital Ltd v Papa [2013] NSWCA 36 the New South Wales Court of Appeal found that a loan was not unconscionable simply because it was “asset lending”.

Background

The borrower mortgaged to the bank (Provident Capital Ltd) her premises as security for a loan of $700,000. A further $125,000 was advanced a year later. The mortgage secured an advance by the bank of $700,000. This was obtained primarily to assist her son in relation to equipment and working capital for a gymnasium business. The lender had required the borrower to obtain legal advice prior to proceeding with the loan.

The son assured his mother that the business was going well. This despite the business suffering from extensive financial difficulties. The broker acting in connection with the bank’s advance to the borrower was aware of these financial difficulties and the surrounding circumstances of the transaction.

The borrower defaulted on the loan. So the lender commenced proceedings for possession of the security property. The borrower claimed the loan was unjust under the Contracts Review Act. She also filed a cross-claim against her solicitor arguing that there had been professional negligence.

Trial Decision

In the Supreme Court of New South Wales, Fullerton J found in favour of the borrower. The Court reduced her liability under the loan by $500,000.  The contract was held to be unjust in accordance with the Contracts Review Act. Her Honour found:

• The knowledge of the dire financial circumstances of the son’s business, had been imputed to the lender through an agency relationship;
• The lender had failed to make adequate inquiries into the borrower’s ability to repay the loan and her reasons for investing in her son’s business

Both parties appealed the Supreme Court’s decision.

Court of Appeal Decision

1. Was the trial judge correct in imputing to the lender the knowledge of the financial difficulties?

To determine whether an agency relationship exists the court considers whether one party acted on the other party’s behalf. Reference: Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389. Macfarlan JA disagreed with the trial judge’s findings that an agency relationship existed between the lender and the introducer. However, if by interposing mortgage originators a lender has established a business structure that distances the lender from communications with a prospective borrower who is misled or taken advantage of, it may be relevant for the purpose of considering unjustness under the Contracts Review Act to have regard to a mortgage originator’s knowledge which it has not passed on to the lender.

2. Asset Based Lending

Pivotal to the trial judge’s reasoning were the following findings:

• the bank had failed to make any inquiries about the serviceability of the advances to the borrower.
• the bank was indifferent to the borrower’s ability to repay the loan.
• the bank’s main concern was whether there was adequate security available in the event of default.

The trial judge’s conclusions necessitated an analysis of the asset based lending issue. Macfarlan JA stated:

“It is apparent from [the] authorities that it can be relevant in the determination of whether a contract is unjust, and whether relief should be granted against a financier, under the Contracts Review Act that the financier has shown no interest in the borrower’s ability to service the loan. However the significance of that fact must be assessed in the context of all the circumstances surrounding the loan.

In my opinion, of particular significance will be the financier’s knowledge of the borrower’s circumstances, the purpose of the loan and whether the borrower has obtained independent legal advice. Public interest does not necessarily require so-called asset lending to be proscribed, or even deterred. It may advance the interests of the parties to many transactions, and facilitate commerce generally, for financiers to be able to lend on a “low doc” basis without requiring the expenditure of time and effort in ascertaining and verifying the ability of borrowers to service loans.”

Therefore, if a financier is satisfied that a borrower is able to make the decision for him or herself or has received appropriate advice, the public interest reflected in the Contracts Review Act will ordinarily have been satisfied.

3. Were the loan agreements unjust?

Macfarlan JA accepted that the lender had made ‘low-doc’ loans to the borrower. However, Provident was not completely unconcerned about her ability to service the loans, as evidenced by her declaration that she could do so. The documentation also stipulated that the borrower must obtain independent legal advice and provide confirmation that she had done so. This documentation was completed. The fact that the legal advice was manifestly inadequate was not the fault of the bank. Macfarlan JA found that the bank was entitled to assume that the borrower had obtained legal advice of the type that a reasonably prudent solicitor would have provided.

Macfarlan JA concluded: “As Provident was not aware of any disability under which Mrs Papa laboured (and there was in fact none), Provident could not reasonably have been expected to do more. Its conduct was not therefore such as to make the loan contracts unjust”

4. Mrs Papa’s claims against the Solicitor

Solicitors are not ordinarily required to provide advice on the wisdom of transaction in relation to which they act (Polkinghorne v Holland [1934] HCA 28).

In this case, Mrs Papa’s solicitor had extensive knowledge of Mrs Papa’s circumstances. The solicitor knew that Mrs Papa was a mature lady with only one significant asset. Macfarlan JA held that a reasonable solicitor in the circumstances would have formed the view that Mrs Papa’s home would be significantly endangered by her entry into the transactions with Provident. To quote:

“A solicitor’s obligation is not simply to explain the legal effect of documents but to advise his or her client of the obvious practical implications of the client’s entry into a transaction the subject of advice. The prospect of the subject transaction wreaking havoc on Mrs Papa’s life was glaring, given the by no means remote prospect that the business would be unable to support the loan repayments”.

The Court of Appeal found that the solicitor had breached his professional duties. If he provided adequate advice, Mrs Papa would have not proceeded with the loan.

Conclusions

The bank’s appeal was allowed. The borrower’s cross-claim against the bank was dismissed. However, she was awarded damages against her solicitor for professional negligence.

This implications of this decision may be widespread. The court found that if a lender is satisfied that the borrower is able to make an informed decision in relation to a loan agreement, the public interest test will ordinarily be satisfied. However, the lender is not required to go behind the purpose of the loan and assess whether a borrower’s proposed purpose is commercially viable.

Since the Khoshaba decision in 2006, defaulting borrowers have been ready to blame lenders where they have failed to meet their payments obligations. This decision is a further reminder of how vital it is that lenders ensure that:

• All borrowers are required to obtain independent legal advice prior to executing loan facility documentation;
• A compliant solicitors certificate or a declaration from the borrower that such advice has been obtained is provided.

Related articles

Mortgagor Wins Right to File Cross-Claim Against Mortgagee

Service the Loan: How Much is Enough When Assessing Borrower’s Ability?

Guarantee Provider Must Obtain Independent Legal Advice

Unconscionable Conduct: Can a Lender Protect Itself?

Lender Fails to Insist on Independent Legal Advice

Solicitor’s Certificate: Do These Cure Undue Influence?

This publication is provided for your general information and interest only. It is not intended to be comprehensive, and does not constitute and must not be relied on as legal advice. You must seek specific advice tailored to your circumstances.

The post Asset Lending Not Necessarily Prohibited By Public Policy appeared first on Elliott May.

In Paccar Financial Pty Ltd v Menzies[2013] NSWSC 772 the critical issue before the court was whether certain loan documents had been signed and/or sufficiently explained to the borrower by the lender. None of which would have been required had the lender insisted on independent legal advice.

The Facts

In May 2006, Menzies Haulage, a company directed by Mr and Mrs Menzies, purchased trucks and trailers  for $570,000. They entered loan and charge agreements for each item of equipment (2 trucks and 2 trailers), to finance these purchases. The Menzies agreed to guarantee payment of the loan from the lender.

Soon after receiving the advance, Menzies Haulage fell into arrears. The lender agreed to refinance the trucks and trailers to “spread out” the cost of the GST over the life of the loan. Menzies Haulage fell into arrears again. And by June 2008 the company owed in excess of $26,000 across the four loan facilities. Therefore the lender issued letters of demand seeking payment of the arrears. After correspondence between the lender and the guarantors, they reached an agreement suspending repossession action provided Menzies Haulage met the terms of arrangement. Once again, the borrower failed to make payments in accordance with this subsequent agreement.

On 25 March 2009, the lender sent a letter to Menzies Haulage terminating the facilities and demanding payment of the termination amount and delivery of the equipment. The lender also issued a letter of demand seeking payment under the guarantee of the sum of $373,541.09 plus interest and costs until payment. However, the lender received no payment and the borrower did not return the equipment to the lender.

Issues

The borrower and guarantors argued they only signed loose execution pages for the deeds of loan and charge. And for the guarantee and the amending deeds. They contended that the terms and conditions were subsequently appended to the execution pages. Therefore, this meant they had no notice of the terms of the agreement. The lender denied these allegations. It argued that the pages of each document were stapled and bound by tape at the time(s) that the documents were signed and that the Menzies had sufficiently reviewed the documents before signing them.

By way of a cross claim, the borrowers and guarantors argued for the following:

1. A declaration that the representations made by the lender constituted misleading and deceptive conduct within the scope of the Competition and Consumer Act 2012 (Cth).
2. An order under s 232 of Sch 2 to the Competition and Consumer Act 2010 (Cth) that the lender be restrained from enforcement action.
3. Alternatively, a declaration that the guarantee and indemnity was an unjust contract pursuant to s 9 of the Contracts Review Act 1980. The guarantors sought an order to void the guarantee and indemnity on this basis.

The Judgment

Harrison AsJ assessed the expert evidence of forensic document examiners and concluded that the experts’ findings corroborated most of what the lender alleged. At the time of the proceedings, Mr Menzies’ affidavit had not been sworn. If Mr Menzies had attended the hearing, Harrison AsJ would have permitted him to swear his affidavit. But without his version of events being tested during cross examination, the Court preferred the lender’s version of events.

With respect to the cross-claim, Harrison AsJ found that the lender did not engage in misleading or deceptive conduct. The alleged misrepresentations were not made out.

Secondly, the contracts were not unjust under the provisions of the Contracts Review Act. Whether a contract is unjust will depend on the court’s consideration of a number of factors listed in s 9 of the Act. The guarantors alleged that:

• there was an inequality in bargaining power;
• the terms and conditions were not subject to negotiation;
• the terms of the contract imposed conditions which were unreasonably difficult to comply with;
• the lack of independent legal or other expert advice.

The guarantors also claimed the lender did not explain the meaning and effect of the contracts. Mr Menzies had extensive business experience. It was concluded that Mr Menzies was a reasonably experienced businessman who understood the terms of the documents he signed. Accordingly, a conclusion that Mr Menzies did not know what he was signing in light of his prior business experience could not be supported.

Conclusion

The cross-claim for relief failed and the guarantors were held liable to pay the amounts outstanding under the loan agreement and the lender’s costs. The lender was also entitled to possession of the equipment the subject of the agreement.

Related articles

Service the Loan: How Much is Enough When Assessing Borrower’s Ability?

Guarantee Provider Must Obtain Independent Legal Advice

Unconscionable Conduct: Can a Lender Protect Itself?

This publication is provided for your general information and interest only. It is not intended to be comprehensive, and does not constitute and must not be relied on as legal advice. You must seek specific advice tailored to your circumstances.

The post Lender Fails to Insist on Independent Legal Advice appeared first on Elliott May.

These issues were dealt with by Justice Applegarth in McIvor v Westpac Banking Corporation [2012] QSC 404. It affirms how vital it is for lenders to ensure that all borrowers and guarantors receive independent legal advice in relation to their rights and obligations under loan agreements and mortgages prior to funding. His Honour also confirmed that it is not necessary for the solicitor advising the guarantor to be independent of the borrower.

Background

Mr Mark McIvor, a former solicitor and head of Equititrust Limited, was involved in the business of money lending. He became very successful, and Mrs McIvor (the plaintiff in these proceedings and Mr McIvor’s mother) was “in awe of his achievements”.

At her son’s request, Mrs McIvor signed various guarantees and mortgages in favour of the defendant, Westpac Banking Corporation. These included a guarantee dated 21 October 2002, a guarantee dated 10 December 2003 and a mortgage over her property on the Gold Coast. The 2002 guarantee guaranteed the obligations of MM Holdings and Equititrust Ltd (“Equititrust”) to Westpac with a limit of $5,260,000 plus other specified amounts.

Mr McIvor’s money lending endeavours had a reversal in fortunes.  MM Holdings and Equititrust, of which he was a director and shareholder, defaulted in their obligations to Westpac. Both companies failed to meet demands for payment of $12,666,171.99 in November 2011.

Westpac’s solicitors issued a letter of demand to Mrs McIvor pursuant to the 2003 guarantee.

Mrs McIvor’s Arguments

Mrs McIvor commenced proceedings in February 2012. She sought an injunction restraining Westpac from enforcing its guarantees and mortgage, delivery up and cancellation of the guarantees. And also an order that Westpac provide a release of the mortgage over her Gold Coast property.

She claimed the guarantees and mortgage were obtained “by the undue exercise by Mark McIvor of his influence over her”. She claimed the nature of the relationship with her son meant that he was “able to cause her to execute any document he chose”. She further contended that by October 2002 Westpac had notice that she reposed trust and confidence in her son with respect to commercial matters. And also that she was subject to his influence. Even though Westpac was said to have notice of this influence, Mrs McIvor alleged that the bank:

• did nothing to investigate if her willingness to execute the documents was the result of the undue exercise by Mark McIver of influence over her;
• failed to explain the meaning and effect of those documents;
• failed to ascertain whether she had received any independent advice on the documents;
• and failed to ensure that she was relieved of her son’s influence.

On these grounds, Mrs McIvor claimed that it would be unconscionable for Westpac to enforce the guarantees and mortgage against her.

Westpac’s Response

Westpac argued that Mrs McIvor failed to establish an entitlement for relief because:

• the evidence did not establish that she was under actual undue influence;
• if there was any influence, the court should not find that there was undue influence by her son over her.

Westpac submitted that Mrs McIvor’s evidence revealed that she freely executed the documents, but showed no particular interest in them. In other words, any failure on her part to read the documents and understand their effect was not the consequence of her will being overborne or of her being taken advantage of unfairly.

Also, Westpac asserted that the solicitors’ certificates provided to it were sufficient evidence that Mrs McIvor had received competent and independent legal advice as to each of the guarantees and the mortgage she signed.

Justice Applegarth’s Consideration

The nature of the relationship between Mrs McIvor and her son

His Honour stated that this issue concerned the “kind of relationship that existed between Mrs McIvor and Mark McIvor at the time of the relevant transactions in 2002 and 2003”. The following factors were identified:

• Mrs McIvor trusted her son, thinking his expertise in commercial matters was “marvellous”;
• Mrs McIvor had never had an interest in commercial matters;
• The nature of their relationship was such that Mrs McIvor executed documents at her son’s request;

With this in mind, his Honour found it reasonable to presume that the relevant transactions were procured by Mark McIvor through some “unconscientious use of his power” over his mother as dealt with in Garcia v National Australia Bank Ltd.

Actual undue influence

His Honour turned his attention to the issue of actual undue influence, noting “one of the bases upon which the receipt and retention of the benefit of a guarantee by a financier arising from a customer’s undue influence over a guarantor will be found to be unconscientious is if the financier had actual or constructive notice of the circumstances giving rise to the impropriety”.

Where there are circumstances giving rise to a presumption of undue influence, the provision of independent legal advice to the guarantor may remove any concern relating to possible undue influence.

Justice Applegarth considered the circumstances in which Mrs McIvor signed documents and dealt with solicitors:

1. With respect to a 1995 guarantee, his Honour noted that the front page contained a warning in large print advising that the document was very important. The front page also advised that Mrs McIvor should, before signing, read the document carefully, check whether the primary debtor can pay the debt, and should seek her own legal advice. By signing the document, Mrs McIvor acknowledged that “she had read the guarantee carefully and thought hard about whether to sign it”.
2. In October 2002, the bank made an offer to MM Holdings to vary its existing finance arrangements. Mr Haney, a solicitor, signed a certificate dated 21 October 2002 about his interview with Mrs McIvor in relation to the guarantee, mortgage and other documents with which he had been provided. Mrs McIvor knew Mr Haney because he was a school friend of Mr McIvor. Justice Applegarth summed up the evidence, finding that Mr Haney had explained to Mrs McIvor the general nature and effect of the documents and consequences for her if MM Holdings defaulted in payment or in other obligations that it owed to the bank.  She indicated that she understood the general nature of these documents. She also indicated that she had executed the documents free from pressure from any other person.
3. On 10 December 2003, Mrs McIvor signed another guarantee in favour of the bank. Mr Welch was the solicitor in this instance. Mrs McIvor alleged that Mr Welch had not explained anything to her. Justice Applegarth rejected this argument. The evidence suggested that Mrs McIvor ‘knew what she was doing’. And that Mr Welch had explained the effect of the documents and the consequences of a failure to meet her obligations.

With these factors in mind, his Honour found that Mrs McIvor understood the purport and effect of the transactions. 

Did the Solicitors’ Certificates displace any notice of possible undue influence?

As per the case of Esanda Finance Corporation Ltd v Tong (1997), “absent circumstances where a party is put on notice that the advice has not been given, has not been given properly or has not been understood, the party seeking to enforce the contract is entitled to rely upon the certificate”. Therefore, Justice Applegarth found Westpac was entitled to assume that the relevant solicitor would act honestly and give proper advice to Mrs McIvor. His Honour reiterated that it is not the law that independent legal advice can only be given by a person with no connection to the borrower (with reference to National Mutual Trustees Ltd v Dedrion Pty Ltd).

On this issue, Justice Applegarth stated:

“This is not a case in which any of the solicitors who gave a certificate were acting for the borrower. Each was in a position to give independent advice. In agreeing to interview and advise Mrs McIvor, each owed legal and professional duties to her. The bank was entitled to assume that each solicitor observed these duties. It was not for the bank to tell the solicitor how to perform his or her duties or, save for exceptional circumstances, to inquire about the independence of the solicitor or the adequacy of the advice that had been given”

His Honour continued:

“The provision of a solicitor’s certificate does not wholly eliminate the risk of undue influence or misrepresentation. But it does provide a bank with a degree of assurance, depending upon the contents of the certificate, that the party to whom the independent advice has been given understands the purport and effect of the transaction, including its risks, and is in a position to make a free choice about proceeding with the transaction, knowing those risks”

The issue is also addressed in the case of St George Bank Ltd v Dunstan where it was held a solicitor’s certificate will usually put to rest what otherwise would have been a suspicion of undue influence.

Upon detailed consideration of the evidence, his Honour found that having received the solicitor’s certificates in relation to the guarantees and mortgage, Westpac Bank was “no longer on notice of the exercise, or possible exercise, of undue influence”.

Did Garcia v National Australia Bank apply to these circumstances?

Mrs McIvor argued that there was no reason why the principles stated in Yerkey v Jones and confirmed in Garcia should be limited to a wife who guarantees her husband’s liabilities and should extend to her situation.

His Honour dealt with case law supporting a broader interpretation of Garcia. However, his Honour ultimately found it unnecessary to decide whether the principles stated in Garcia applied to a relationship of trust and confidence of the kind that existed between mother and son at the time Mrs McIvor provided the guarantees and the mortgage because, even if those principles did apply, she was not able to show that the transactions were entered into due to any undue influence, or that the bank had either actual or constructive notice of the alleged undue influence. 

Conclusion

Mrs McIvor’s action was accordingly dismissed and the bank was entitled to judgement on its counterclaim and to an order for recovery of possession of Mrs McIvor’s property over which the bank had a mortgage as security for monies owed by the borrower as primary debtor.

The judgment may be read in full by following the link below:

• McIvor v Westpac Bank

This publication is provided for your information and interest only. It is not intended to be comprehensive, and does not constitute and must not be relied on as legal advice. You must seek specific advice tailored to your circumstances.

The post Solicitor’s Certificate: Do These Cure Undue Influence? appeared first on Elliott May.

In Dowdle v Pay Now For Business Pty Ltd & Anor [2012] QSC 272 the Supreme Court of Queensland considered the issue of misleading and deceptive conduct where a wife sought to have a guarantee and mortgage set aside even though she had received legal advice prior to executing a mortgage and guarantee to secure monies advanced to her husband.

Facts

The first defendant (Pay Now For Business) sent a letter of offer to Mrs Dowdle (the Plaintiff) for a loan of $50,000 to be secured by her property. The funds from this loan were however to be used by Mrs Dowdle’s husband. Mrs Dowdle accepted this offer.

However, the lender sent a subsequent letter of offer to Mrs Dowdle’s husband. This was done without advising her that the initial offer had been withdrawn. She subsequently signed a new guarantee and mortgage. This made her liable for the loan to her husband of $50,000 as well as all of her husband’s existing debts to the lender. She did not understand the effect of the transaction at the time she signed the guarantee and mortgage. Instead she was under the belief that the documents related to the original letter of offer sent to her.

The court needed to decide whether the failure by the lender to advise Mrs Dowdle of the change in structure of the transaction amounted to misleading and deceptive conduct.

Decision

Misleading and deceptive conduct

Mrs Dowdle relied on three grounds to set aside the guarantee and mortgage. The lender:

1. should have appreciated that Mrs Dowdle might have received insufficient explanation regarding the effect of the transactions from Mr Dowdle. It took no steps itself to provide such an explanation to her. Also the lender didn’t provide sufficient information to the independent solicitor and financial adviser. Therefore they could not provide the necessary explanation to her;
2. knew that Mrs Dowdle was in a situation of special disadvantage in relation to the transactions. So she could not make a judgment as to what was in her interests. The lender took unfair advantage of its superior position by entering into the transactions;
3. obtained the benefit of the guarantee and mortgage by conduct that was misleading and deceptive or was unconscionable conduct (with reference to the Trade Practices Act and the ASIC Act)

Cases referenced

In her analysis of Mrs Dowdle’s claims, Justice Mullins referred to several important cases:

Goodwin v National Bank of Australasia Ltd (1968)

The lender relied on Goodwin v National Bank of Australasia Ltd (1968) to support its assertion that a lender is under no obligation to disclose information to a surety of a customer in respect of the customer’s present and future indebtedness to the lender. Justice Mullins accepted that this case was still authoritative. But noted that its application could be impacted in the event of unconscionable or misleading and deceptive conduct.

Commercial Bank of Australia Ltd v Amadio (1983)

Justice Mullins held that the general principle outlined in Goodwin could be rebutted where there is evidence of misleading or deceptive conduct following the authority of Commercial Bank of Australia Ltd v Amadio (1983). Mr and Mrs Amadio were elderly migrants with limited English skills. Their son asked them to mortgage their property in favour of the bank. The bank manager went to Mr and Mrs Amadio’s home to have them sign the mortgage. Mr and Mrs Amadio did not read the document. And the bank manager did not explain the mortgage because he was under the belief that the son had explained the transaction to them. Importantly, Mrs and Mrs Amadio were under a false belief as to the liability they were securing.

The majority of the High Court held that the mortgage should be set aside unconditionally. It concluded Mr and Mrs Amadio were under a ‘special disability’ when executing the mortgage. And that such special disability was evident to the bank

Garcia v National Bank of Australasia Ltd (1968)

To determine whether the lender’s conduct was unconscionable, Justice Mullins cited Garcia v National Bank of Australasia Ltd (1968). This case concerned a similar transaction involving a husband and wife. The husband had amassed a significant amount of debt to the bank arising from multiple business ventures. The husband and wife separated and divorced after the agreements with the bank were entered into. The majority of the High Court identified that for conduct to be classified as unconscionable, the circumstances would have to be that the: 

1. surety (wife) did not understand the effect of the transaction;
2. transaction was voluntary (in the sense that the wife obtained no benefit from the contract);
3. lender appreciates that the husband may not have fully explained the effect of the transaction to the wife; and
4. lender did not itself take steps to explain the transaction to the wife.

Trust and confidence in husband

Justice Mullins noted that even though Mr and Mrs Dowdle were separated at the time she signed the guarantee and mortgage, they were still married. And it was because of this that she entered into the agreement. Mrs Dowdle did not understand the effect of the transaction at the time she signed the guarantee and the mortgage because she was operating under the belief that she was signing documents consistent with the original offer sent to her. The transaction was voluntary as she was to obtain no benefit, with all funds being directed to her husband. The first defendant knew that the Dowdles were married. And should have inferred that Mrs Dowdle reposed trust and confidence in her husband. Also that Mr Dowdle might not have adequately explained the transaction to her.

The lender asked Mr Dowdle to arrange for independent legal advice to be given to Mrs Dowdle. However, the legal advice process was undermined by the lender failing to notify Mrs Dowdle of changes to the transaction. Also, the lender was unable to rely on a clause in the contract excluding any obligation on it to disclose to Mrs Dowdle anything relating to the affairs or transactions of her husband because its unconscionable conduct had ‘tainted’ the entire transaction.

Unconscionable conduct

Mrs Dowdle was accordingly able to establish unconscionable conduct based on the principles outlined in Garcia. Although there were no facts alleged in her case to support a conclusion that she was under a ‘special disability’ as per Amadio.

It was for Justice Mullins to decide whether the mortgage and guarantee should be set aside in their entirety. In Amadio, Justice Dean held that a mortgage should be set aside where unconscionable conduct has tainted the transaction. But only to the extent that it imposed a liability in excess of the liability intended to be undertaken. Because Mrs Dowdle was willing to mortgage her property to secure the $50,000 loan, the transaction was not set aside in its entirety. Rather, the operation of the guarantee was modified so that it reflected Mrs Dowdle’s intended undertaking to guarantee an amount of $50,000.

This publication is provided for your information and interest only. It is not intended to be comprehensive, and does not constitute and must not be relied on as legal advice. You must seek specific advice tailored to your circumstances.

The post Court Reduces Amount Guaranteed by Volunteer Wife appeared first on Elliott May.