One of the causes of action that the Amadios relied upon is the notion of unconscionable conduct. Under the doctrine of unconscionable conduct, a bargaining party, who has some advantages, uses his position to another party to unfairly create a contract that benefits the superior party. Under these circumstances, the contract is not created by an independent party, and it is not voluntary. The party may be at a disadvantage because of disability, language barrier, etc. Blomley v Ryan (1956) identifies circumstances where the notion of unconscionable conduct exists.
Another ground that the Amadios relied on to challenge the mortgage is the misrepresentation of facts, where the bank did not disclose the true financial position of the son of Amadio, which was material enough and could have influenced the decision of the parents to agree with the mortgage or not. This is a principle established in Goodwin v National Bank of Australia (1968).
Another cause of action that the Amadios relied on to challenge the mortgage was the fact that they entered into the contractual relationship because of undue influence; hence making the contract to be invalid.
In this case, the concept of unconscionable conduct existed because the plaintiff was advanced in age and they did not have a good knowledge of English. They relied on their son for information and advice, yet the interest of their son was different from theirs, and their son was using them for his own benefit. The bank was aware of this situation, but continued with the negotiations; to the disadvantage of the aged plaintiff; thus the existence of unconscionable conduct, which made the contract to be invalid.
The bank was unable to provide a full disclosure of the financial position of the son of Amadios, and this information was material enough, which could have influenced the decision of the Amadios in entering the contract.
The bank is not always required to provide a disclosure of the financial condition or bank statement of a guarantee to a guarantor. This is because a contract of guarantee is not of good faith, where the parties entering the contract have a duty and obligation to disclose any material facts that are in their possession. Furthermore, the reason of requiring a guarantor is because of the suspicion that a customer may fail to pay back the loan; hence, it is not a requirement for the bank to disclose information about their customers. However in the view of Justice Gibbs, there is exception to this law. According to Justice Gibbs, the banks have to disclose the information of a guarantee if there is an activity that is beyond the expectations of the guarantor. For example, a special relationship between the bank and the guarantee, that makes the guarantee enjoy special financial advantages from the bank.
Vicenzo and the bank had a special arrangement where the bank allowed him to take an overdraft of $ 270,000 which was far much more than the existing overdraft of 35,000, and the value of cheques that were still outstanding. This was a conditional arrangement whereby the overdraft limit was to be reduced 3 times within a period of 3 weeks and below its debit balance. The overdraft was to be reduced to $ 220,000 in 1 week, and $ 180,000 in the 2nd week. This was a special arrangement that required disclosure.
Vicenzo had on most occasions issued out dishonored cheques and the bank was aware to this, and it was in some circumstance a party to this activity, and this was in a bid to maintain a façade that the company belonging to Mr. Vicenzo was prosperous. The result of this action is that it misled the stakeholders of Vincenzo’s company, and this includes the Amadios.
While arguing in the favor of the plaintiff, Justice Gibbs introduces the concept of misrepresentation and unconscionable conduct. For instance, the Judge denotes that the failure of the banking organization to make known of the special relationship it had with Vicenzo amounted to misrepresentation of facts, which was material enough, and could determine and influence the decision of the Amadios. Justice relied on the precedent established in Owen & Gutch v Homer (1853) while coming up with a decision on the failure by the bank to disclose the special relationship it had with Vicenzo. It is based on the failure by the bank to disclose such important information, that the mortgage contract was cancelled. In terms of unconscionable conduct, Justice Gibbs was of the opinion that the bank did not take advantage of the weaknesses of the Amadios during the negations, and this is because the bank relied on Vicenzo to explain to his parents on the nature of the contact.
In the view of Justice Mason, the contract was to be null and void, based on the principles of unconscionable conduct. Mason believed that the bank knew the Amadios could not speak English, and they relied on their son for explanations, who in turn was serving his own interests. Moreover, the bank knew of the financial position of Vicenzo, and they still used him as an interpreter, who in turn did not provide accurate information to his parents. Based on these facts, the Amadios were negotiating on a point of disadvantage; hence the concept of unconscionable conduct emerges.
This concept of unconscionable action exists when one party to the negotiations has a superior advantage to the other party, and he uses this advantage to serve his interests during the negotiation process. Under this concept, the parties to the negotiation do into the contractual relationship independently and willingly, but it is because of the disadvantageous position that they find themselves in. Unconscionable conduct may exist when one party is either disabled, mentally disturbed, illiterate, etc. On the other hand, undue influence occurs when a party to the contractual relationship does not enter into the contract independently and voluntarily.
The concept of unconscionable conduct exists in this case, because of the inability of Mr. and Mrs. Amadio to understand English, which made Vicenzo to take advantage of their situation and influence them to enter into a contract with the bank. In the case of undue influence, Mr. and Mrs. Amadio believed that the company of their son was successfully, and they only needed money temporarily. They were influenced by the fact that their son had the capability of hosting a party of 2000 people, and the failure by the bank to disclose the true financial position of Vicenzo.
The bank is required to disclose information regarding matters and issues that its customers have engaged in, which are not normal, in relation to the manner which banks operate with a customer.
Reference:
Blomley v Ryan. (1956) 99 CLR 362
Commercial Bank of Australia v Amadio (1983) 151 CLR 447; [1983] HCA 14
Goodwin v National Bank of Australasia. (1968) 42 ALJR 110
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