Bank Liability In Mortgage Contracts: Analysis Of Amadio Case

The Amadio Case: Background

1The group leader is responsible to ensure the report is submitted in both of the following separate ways:

a.an electronic copy must be uploaded to Turnitin so that plagiarism can be checked;

b.one hard copy must be handed in to me in lecture week 10; reports will not be accepted at reception at Kent or Market Streets

c.The group leader must attach a cover sheet stating the names, student numbers and the tutorial code for each student in the group.

2You are reminded that the purpose of the assignment is to give you the opportunity to

a.read an important judgement of a Superior Court

b.extract from the judgments the reasoning (or ratio) of the respective judges in coming to their separate conclusions; and

c.express in your own words the legal reasoning of the various judgments;  therefore, cutting and pasting passages from the judgments will just give you a high similarity index in Turnitin and a low mark for the project.

3I encourage groups to express answers in either numbered or bullet point form rather than long paragraphs.
4Do not repeat the questions in your report;  this will just give you a high similarity index in Turnitin.  You only need to put a sub heading (“Question 1, Question 2,” etc) above each answer.
1Mr and Mrs Amadio relied upon three causes of action (ie, three legal issues, not just facts) when they challenged the mortgage guarantee they had signed?  Refer to the lecture notes for lecture 3 (Contracts 2) and identify which of the three grounds for avoiding a contract given in those notes the Amadios relied upon.

2The Appeal Court reversed the decision of the trial (ie, first) judge and decided that the bank was liable to the Amadios  for three reasons.  State any two of the reasons (ie, wrong conduct by the bank) which the Appeal Court identified.
Questions 3-5 are based on the judgment of Justice Gibbs
3    Justice Gibbs ruled that a bank is not obliged to disclose to an intending guarantor the state of the account to be guarantee except in a certain circumstance.  What is that circumstance?
4    What were two circumstances (facts) in this case which persuaded Justice Gibbs that the bank should have made such a disclosure to the Amadios?
5    Justice Gibbs concluded that the bank’s failure to disclose either of the two situations referred to in question 4 constituted which of the torts discussed in lecture 3?
Questions 6 and 7 are based on the judgment of Justice Mason (who decided the case on different grounds):
6    What was the ratio (ie, the particular tort discussed in lecture 3) which Justice Mason considered the bank to be guilty of?
7    Justice Mason identified several ways in which the bank on the one hand and Mr and Mrs Amadio on the other hand were in positions of what he called “gross inequality of bargaining power.”  What were any three of those ways?
Justice Mason and Justice Deane both explained the legal difference between the torts of unconscionable conduct (unconscionability) and undue influence.  
8    State in your own words [ie, do not just cut and paste from the judgments] the difference between these two torts which the two judges explained (you may find it useful to refer to lecture notes for some help in answering this question).
9How did the situation of the Amadios fit each of these two torts?
Answer the following from the judgment of Justice Dawson (who was the dissenting judge)
10    What should be 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?

In the given case, Mr. and Mrs. Amadio relied upon three causes of action while challenging the mortgage guarantee contract they had signed (Babie 2016). They were:

• Misrepresentation was madeby Vincenzo Amadio.
• Unconscionable conductwas made by Vincenzo, and the bank, and
• Undue influence, as they entered the contract on the basis of the relationship of trust with Vincenzo, their son.

In the given case, the Appeal Court reversed the trial judge’s decision and held that the bank owed liablity to the Amadios for three reasons. Two of the reasons that the court gave were:

• The bank had an obligation towards the respondents to reveal the true position of the account, and
• The transaction was unconscionably done, against which equity would give relief.

Justice Gibbs, in his judgment, ruled that banks have no obligation to disclose the state of the account to a guarantor except in a certain circumstance. He ruled that the requirement of the bank, taking a guarantee, to disclose all facts to a surety arises only when something, between the principal debtor and bank, has taken place, that was not naturally expected and where it particularly affects the degree of the surety’s responsibility (Thampapillai, Bozzi and Matthew 2015).

The two circumstances, in the given case, that convinced Justice Gibbs that the bank should have made such disclosures to the Amadios were:

• Firstly, the arrangement between the bank and Vincenzo Amadio, on the company’s behalf, which was an evidence that suggested that the arrangements were to be made within a short time and did not mention the time of clearance.
• Secondly, the bank did not dishonor the cheques and made itself a party to the company’s selective dishonor for maintaining the façade of prosperity that the company had created, although insolvent, where such façade may well had deceived the respondents, which the bank should have expected.

According to the conclusion made by Justice Gibbs, the above mentioned two circumstances constituted misrepresentation. These two circumstances constituted the torts of unconscionable conduct and the tort of misrepresentation (Goldberger 2016). It is so, because there was a failure on the bank part’s to disclose a material part of the transaction between the bank and Vincenzo Amadio.

According to the decision of Justice Manson, he concluded that the respondents, Mr. and Mrs. Amadio were entitled to receive relief, based on the ground of the bank being guilty of unconscionable conduct in obtaining the mortgage guarantee execution, by the respondents. It is so because the Amadios had were not conscious about their disadvantage in the mortgage contract and Vincenzo Amadio created the contract, even though he was aware of such disadvantage.

Three ways that showed gross inequality of bargaining power according to Justice Mason:

• The Ambadios lacked the judging ability as to whether entering into the transaction was in their own interest, with regards to their desire to help their son.
• The Ambadios’ reliance in their son, who, for his self interests, urged his parents to provide with the mortgage guarantee to the bank, misleading them about the company’s actual position.
• The Amadios were Italians, aged 76 and 71 respectively, with a limited command in English, lacking experience in the field of business, unlike Vincenzo and the bank.

Justice Mason- undue unconsciousness and undue influence differ, as in the later, the innocent party’s will is not voluntary and independent as it is overborne and in the former the disadvantageous party’s will is the result of such disadvantage, which the other party, unconscientiously, takes advantage of.

Justice Deane- undue influence looks into the consent’s quality or the assent of the weaker party and unconscionable dealings on the other hand, looks into the conduct of the stronger party, for enforcing or retaining, the benefit of, dealing with a person, under a special disability, where it is inconsistent with equity or good conscience that he should do so.

As the Amadios were made to provide the mortgage guarantee by their son, Vincenzo, who created the contract with the Amadios, even though he was aware of the disadvantage to his parents, who were noct conscious about the disadvantage, on entering the contract, the tort of unconscionable conduct will apply. On the other hand, as the Amadios entered into the contract for helping their son, it is deemed to be entered into based on the relationship of trust and involuntarily. Hence, it attracts the tort of undue influence as well (Pearson 2017).

According to Justice Dawson, a bank can be held liable to a guarantor under the circumstance, where the guarantor had been induced to provide guarantee, as a result of misrepresentation, and the bank had notice of such misrepresentation or ought to have knowledge of the occurrence of such misrepresentation in future (Andrews 2016). Unless, the bank had no such notice or knowledge about the misrepresentation, it cannot be held liable.

References:

Babie, P.T., 2016. South Australia: Is Native Title a Defence to a Mortgagee's Right to Possession?

Thampapillai, D., Tan, V., Bozzi, C. and Matthew, A., 2015. Australian Commercial Law. Cambridge University Press.

Goldberger, J., 2016. Unconscionable conduct and unfair contract terms. Commercial Law Quarterly: The Journal of the Commercial Law Association of Australia, 30(2), p.17.

Pearson, G., 2017. Further challenges for Australian consumer law. In Consumer Law and Socioeconomic Development (pp. 287-305). Springer, Cham.

Andrews, N., 2016. Misrepresentation and Coercion. In Arbitration and Contract Law (pp. 189-203). Springer, Cham.