1.The case concerns a guarantee given by Mr and Mrs Amadio over a loan by the bank to their son, Vincenzo.
- A guarantee is just a contract between a lender (usually a financial institution) and a person called the guarantor.
- The contract is formed by the guarantor’s making an offer to the lender that if the lender grants a loan to a third party (the borrower), and the borrower fails to repay the loan, the lender can then call on the guarantor to make the repayment.
- If the lender accepts the offer the contract of guarantee is made.
- The consideration for the contract is the actual making of the loan; this is considered something of value to the guarantor who wants to assist the borrower.
- In practice it is common for a parent to assist an adult son or daughter, who would not otherwise be able to obtain a loan, by being a guarantor; the parent values being able to assist the son or daughter and this constitutes consideration because consideration can be “value” in any form.
- To support the guarantee contract (ie, ensure the guarantor can pay up, if called upon), a mortgage over some property owned by the guarantor is often given by the guarantor to the lender.
2.The full details of what happened in the case are set out in the judgements delivered by the separate judges and you will not be able to answer the questions without closely reading them, but by way of short summary only:
- Mr and Mrs Amadio were immigrants to Australia of Italian birth, had a relatively poor command of English and limited business experience.
- They were induced by their son Vincenzo to be guarantors of loans by the bank to Vincenzo, whom they believed to be successful in business.
- In fact, Vincenzo’s business was in a severe financial difficulties.
- The bank knew this, but allowed Vincenzo to explain to his parents the nature of the guarantee and mortgage documents they were signing.
- Vincenzo failed to repay the loans and the bank called on Mr and Mrs Amadio under the guarantee.
- Mr and Mrs Amadio challenged the enforceability of the guarantee contract.
- At the first hearing the bank was successful in defending the claims brought against it by Mr and Mrs Amadio.
- An appeal court reversed that decision and gave judgement for Mr and Mrs Amadio.
- The bank appealed against that decision to the High Court of Australia where the case was heard by four judges. It is the decision of that court that you read (although contained within it is a summary of what the earlier courts decided).
3.You will see that of the four judges who heard the case in the High Court, three decided in favour of Mr and Mrs Amadio and one decided in favour of the bank. Therefore, Mr and Mrs Amadio were successful by a majority decision.
4. However, as between the three judges who decided in favour of Mr and Mrs Amadio, they did not all decide the case on the same legal grounds. It is your understanding of the different approaches taken by the judges that this exercise is intended to test.
The questions you have to answer
1. State three causes of action (ie, legal issues) which Mr and Mrs Amadio raised in challenging the mortgage guarantee they had signed?
2. In reversing the decision of the trial judge, what three conclusions did the appeal court come to after its examination of the facts?
Answer the following from the judgment of Justice Gibbs
3. Is a bank always required to inform an intending guarantor about the state of the account of the customer which is to be guaranteed? If not, in what circumstances would a bank be required to inform a potential guarantor about this?
4. What were two facts in this case which persuaded Justice Gibbs that the bank should have made such a disclosure?
5. What was the ratio for Justice Gibbs’s decision of the case in favour of Mr and Mrs Amadio (i.e., what was the legal issue or issues (not just facts) this judge identified to decide the case)?
Answer the following from the judgment of Justice Mason (who decided the case on different grounds):
6. What was the ratio for his decision?
7. How was it different from the ratio adopted by Justice Gibbs?
8. Justice Mason identified three ways in which the bank on the one hand and Mr and Mrs Amadio on the other hand were positions of “gross inequality of bargaining power.” What were three of those ways?
Justice Mason and Justice Deane both explained the legal difference between unconscionable conduct (unconscionability) and undue influence.
9. In your own words, what is the difference which the two judges explained between these two legal issues?
Answer the following from the judgment of Justice Deane
10. What was the ratio for Justice Deane’s decision in favour of Mr and Mrs Amadio?
Answer the following from the judgment of Justice Dawson (who was the dissenting judge)
11. What was the general test (ie, the proper circumstance) in which a bank would be liable to a guarantor who has been induced to give a guarantee as a result of some misrepresentation about the guarantee?