Introduction To Business Law For Independent Legal Law

Background of Commercial Bank of Australia Ltd v Amadio case

Describe about the Introduction to Business Law for Independent Legal Law.

1: Mr. and Mrs. Amadio had raised three causes of actions in this case. (i) Therefore, they pointed out that when they had signed the document for the bank, no independent legal advice was provided to them even when the bank new regarding the fact of their lack of experience in business matters. (ii) Similarly, the bank manager also knew regarding the fact that in the opinion of Mr. and Mrs. Amadio, the company of their son was doing very well. In the same way, they also raise the cause of action that they were not well versed in English language and were in advance years of age. (iii) The third cause of action raised by Mr. and Mrs. Amadio was that when they had entered into the contract, they were under the impression that their liability for the guarantee given by them was restricted to $50,000. Therefore, they were not aware of the fact that their liability was unlimited and at the same time, they were not told regarding this fact by the bank.

2: When the Appeal Court had reversed the judgment, it was of the opinion that in this case, an obligation was present on part of the bank to tell Mr. and Mrs. Amadio regarding the real financial condition of the company that their son was running when the elderly couple was going to provide a guarantee for their son. In this context, the appeal court also mentioned that the manager of the bank had made misrepresentation which can be attributed to the bank. Similarly, another finding on the basis of age, the court has reversed the judgment was that in the present situation, the transaction can be termed as unconscionable and as a result, it was required under equity that really should be provided to Mr. and Mrs. Amadio by the court.

3: While delivering the judgment, Justice Gibbs stated that in the present situation, in view of the fact that the bank knew that as potential guarantors, there was a particular disability present one part of Mr. and Mrs. Amadio, it was required that the real statement of accounts of the company run by their son should have been told by the Bank to the elderly couple when they were going to stand as guarantors for the business.

4: There were certain facts due to which, Gibbs J arrived at the conclusion that the bank should have told certain facts to Mr. and Mrs. Amadio.

Appeal Court’s judgment and findings

(i) These included the fact according to which, any person who is going to provide a guarantee for any customer of the bank will not imagine that the credit of such customer with the bank is not satisfactory or that the customer has overthrown the account.

(ii) But to the contrary, in this case although the company managed by the son of Mr. and Mrs. Amadio was going to financial problems because it had exceeded its overdraft on a number of times and the cheques issued by this company were also not honored. These facts in themselves are sufficient to reveal the financial position of the company. Hence, Gibbs J. suggested that the circumstances require that a disclosure should have been made to Mr. and Mrs. Amadio in the event when they are going to provide guarantee for the company.

5: The legal ratio on the basis of which Gibbs J. arrived at the conclusion that it was not likely that a person who is going to provide surety for the past and the future liabilities of a particular Corporation will expect that there is any agreement created between such company and the bank which will have such unusual terms. Gibbs J. also noted the fact that the cheques issued by the company were being regularly dishonored, the bank continued with the select dishonored of the cheques with a view to maintain a facade of a successful company when the reality was that insolvency was glaring the company in its face.

6: The legal ratio on the basis of which, Mason J. had given his decision was the fact that in case of the relief granted for unconscionable conduct, it is generally presumed to be dealing with the cases where one party enjoys a superior bargaining power that is capable of being used unconsciously by the party, resulting in a detriment to the other party. At the same time, making his point clear, Mason J. also mentioned the difference that exists between undue influence and unconscionable conduct. Therefore he said that in this case, even if the other party has claimed that independent and voluntary will of the innocent party was present yet, under the circumstances it can be said that and unconscionable advantage has been taken by the bank regarding the visibility of Mr. and Mrs. Amadio.

7: There was a difference present between the legal ratio adopted by Mason J. and the legal issue on which the decision of Gibbs J. was based upon. Therefore, while delivering the decision, Gibbs J. noted the fact related with the failure on the part of the plan to disclose certain relevant facts to Mr. and Mrs. Amadio and stated that it can be treated as a misrepresentation although it was not intentional but still it was related with most of the transaction that took place between the bank and the elderly couple. On the other hand, the ratio behind the judgment given by Mason J. was based on the unconscionable conduct in which the bank was involved.

Legal rationales behind the judgments of Gibbs J, Mason J, Deane J, and Dawson J

8:  There were certain facts related to the position of the bank and also regarding the position of the couple which were identified by Mason J. as satisfying the legal test. Therefore, Mason J. stated on the basis of the following facts that the legal test has been satisfied in this case was the fact that the elderly couple was more than 70 years of age. Moreover, they were not very fluent in English. The other facts included the fact that the couple did not have any considerable business experience. At the same time, it was also noted by the court that the elderly couple was under the impression that their son’s company was doing very well and therefore the need for the funds was only temporary. The court also looked at the fact that in such a situation, the bank knew very well that the company was facing financial problems.

9: For the purpose of describing the difference that can be found between undue influence and unconscionable conduct, Mason J. pointed out the fact that when undue influence is involved, the will of the innocent party cannot be described as free and Independent. On the other hand, when the matter arises due to unconscionable conduct, even if free and independent will of the innocent parties present, however the other party has taken an unconscionable advantage of the fact that the other party is suffering from a special disadvantage. However the reasoning of Deane J. was different. According to him, when undue influence is involved, the court has to evaluate the quality of the ascent of the weaker party. But when the matter is based on unconscionable conduct, the court has to look at the conduct of the stronger party.

10:  The decision given by Deane J was based on the legal ratio according to which, the fact was noted that Mr. and Mrs. Amadio were not in a position to fully comprehend the nature and effect of the transaction in which they were entering into. Similarly, Deane J. also noted the fact that under the circumstances, it was very important that independent advice should have been provided to the elderly couple regarding the significance for the surety to look at the financial position of the other party, for which they are going to provide guarantee and also to find if any unusual features were present in the account of such a party. On the basis of these reasons, Deane J. arrived at the conclusion that if this information would have been provided to the elderly couple, they would not have stood as guarantors for the company of their son. Hence, he stated that it was clear that in this case, Mr. and Mrs. Amadio could not comprehend the nature and effect of this transaction and at the same time, the bank was aware of this fact. Due to these reasons, Deane J. arrived at the conclusion that the transaction was unjust and unfair.

11: a dissenting judgment was given by Dawson J. He pointed out the circumstances when it can be considered that the bank will be liable towards the guarantor, if the guarantor has been induced to provide guarantee on the basis of a misrepresentation. In such cases, the test that can be used is to see if the guarantors should have made inquiries from the bank related with the state of account of the other party for which they were going to stand as guarantors. Therefore, he stated that there was no duty one part of the bank to provide information to the potential surety regarding the state of account of its customer.

Commercial Bank of Australia Ltd v Amadio [1983] HCA 14