Commercial Bank Of Australia V Amadio Case: Analysis Of Misrepresentation, Unconscionable Conduct, And Banking Obligations

1. State three causes of action (ie, the legal issues, not just the facts) which Mr and Mrs Amadio relied upon in challenging the mortgage guarantee they had signed?

2. The Appeal Court reversed the decision of the trial (ie, first) judge.  State two conclusionsthe Appeal Court came to, after its examination of the facts, which persuaded it that the bank was liable to the Amadios?

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 to the Amadios? 

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[?  

6 How did the ratio (legal issue) for Justice Mason’s decision differ from the ratio used by Justice Gibbs?  

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 “gross inequality of bargaining power.”  What were three of those ways? 

8 Justice Mason and Justice Deane both explained the legal difference between unconscionable conduct (unconscionability) and undue influence.  

State in your own words, the difference which the two judges explained between these two legal issues (you may find it useful to refer to lecture notes for some help in answering this question) and use the facts of the case to show how each of these two legal issues is satisfied by the situation the Amadios were in 

9 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?  

Bank's Obligation to Inform Intending Guarantor

Mr. and Mrs. Amadio relied on the concept of unconscionable conduct while developing a challenge against the contract they had with the bank. This is a concept whereby one party to the negotiation process has an advantage over the other party, based on disability, old age, sickness, language barrier, etc. In this scenario, Mr. and Mrs. Amadio were arguing that they were at a disadvantage because of their age, which was 76 and 71 years respectively, and their inability to understand English language fluently. One of the cases that was relied upon in establishing this principle of unconscionable conduct is Blomley v Ryan (1956), and it is in this case that a definition of unconscionable conduct exists.  

Another ground is the misrepresentation of facts. The Amadios believed that the banking organization did not give them a full disclosure of the financial position of Vicenzo, who was their son. The information the bank had towards their son was material enough, and could influence the decision of the Amadios in determining whether to engage in the contractual relationship or not. In as much as the bank did not have the obligation to disclose the financial position of Vicenzo; there was an exception in the case because of the special relationship between the bank and their customer.       

Another cause of action or legal issue that emerged is whether there was an undue influence that made Mr. and Mrs. Amadio to enter into the contractual relationship. This is because of the fact that Vincenzo their son manipulated them, and portrayed himself as a successful and prominent business man.

2. The Conclusion that the appeal court came up with

The first conclusion from the appeal court is that there was the existence of unconscionable conduct; hence the contract had to be dismissed. This is because the bank took advantage of the age and the incapability of Mr. and Mrs. Amadio to understand English, and the main interpreter, was their son Vicenzo, who had an interest in the contract, which he was seeking to promote. On this note, the court came up with a conclusion that the notion of unconscionable conduct existed; hence the contract was null and void.  

Another conclusion of the court is the notion of misrepresentation. According to the court, the bank failed to disclose the special relationship it had with Vicenzo, and this disclosure could have influenced the decision of Mr. and Mrs. Amadio during the contract negotiations process.   

Facts Persuading Justice Gibbs

The bank is not mandate to disclose the financial position of their customers to a guarantor, and this is basically because of the purpose that a guarantor has to play. For instance, the reason of seeking a guarantor is because the bank does not trust that then guarantee will pay off his loans or mortgages. The guarantor therefore acts as a security in case the guarantee defaults on his payments. Therefore, it is a natural fact that the bank is not obligated to disclose the financial position of their customers based on this concept. However, there is an exception to this rule, and the exception occurs if the banking organization has a special relationship with their customers, and this relationship is material enough, whose knowledge can influence the decision of the guarantor.

The relationship between the bank and Vicenzo was a special relationship, in which the bank allowed Vicenzo to have an access of an overdraft of over $ 270,000, which was above the overdraft limit he had, which was $ 35,000. Furthermore, this overdraft had to reduce within a span of 3 weeks to $ 180,000. This was a special relationship that existed between the bank and Vicenzo, and the manager of the bank had the responsibility of disclosing this type of relationship to Mr. and Mrs. Amadio.   

Mr. Vicenzo had on numerous occasions issued out dishonored cheques, and with the full knowledge of the banking organization. In a bid to protect the interests of the bank and that of Mr. Vicenzo, the bank tolerated these activities, and the consequence of these activities is that the company belonging to Mr. Vicenzo was seen as successful and prominent, which was not the case.

While ruling in favor of Mr. and Mrs. Amadio, Justice Gibbs was seeking to examine whether the concepts of unconscionable conduct and misrepresentation existed. In his ruling, Justice Gibbs argued that the notion of misrepresentation existed, and this is because of the failure by the banking organization to provide a full disclosure of the relationship they had with Mr. Vicenzo. The relationship was a special relationship that Mr. and Mrs. Amadio could not expect that a ban can have with their clients, and this is because of the abnormal increase in the overdraft benefits for Mr. Vicenzo, and the collaboration between the bank and Mr. Vicenzo on issues regarding dishonored cheques. While coming up with a decision in support of Mr. and Mrs. Amadio, Justice Gibbs relied on the precedent that was established in the case of Owen & Gutch v Homer (1853). However, Justice Gibbs ruled that enough evidence was not presented about the notion of unconscionable conduct.      

Justice Mason believed that there was sufficient evidence to prove the existence of unconscionable conduct in this case; thus, the contract should be cancelled. The Judge denoted that enough evidence was provided which proved that the bank and Vicenzo took advantage of the inability of Mr. and Mrs. Amadio to understand English, and influenced them into entering the contract. On this note, Mr. and Mrs. Amadio were the inferior negotiators, because they relied on their son Vicenzo for interpretation and explanation, and this Vicenzo had an interest on the outcome of the contractual negotiations. Basing on these facts, there was enough evidence of the existence of unconscionable conduct.

• The bank had a special relationship with Mr. Vicenzo and was acting on the knowledge of the financial difficulty of their customer. Mr. and Mrs. Amadio were not aware of this kind of a relationship, and did not know the financial position of their son.
• The language of negotiation was the English Language, and Mr. and Mrs. Amadio did not understand this language, and they relied on Vicenzo for interpretation, who in turn was interested in the outcome of the negotiations.
• and Mrs. Amadio were advanced in age, and this made the bank to have an upper hand during the process.

Unconscionable conduct exists when one party to the negotiations process has an advantage over the other party, and uses this advantage to influence this other party to enter into a contractual obligation that favors the dominant party. The disadvantaged party normally enters the contract independently, but it is based on the influence of the superior party. In the case of Mr. and Mrs. Amadio, their advanced age and incapability to understand the English language was a disadvantage to them, and the bank and Mr. Vicenzo used this weakness to negotiate a contractual relationship that was not beneficial to them. This is an example of unconscionable conduct. The concept of undue influence emerges when one party does not enter into a contract independently, and he is influenced by the other negotiating party. In the circumstance of Mr. and Mrs. Amadio, they were under undue influence because of the perception that the business of their son was doing well, and the failure of the bank to disclose material information about the financial position and capability of Vicenzo.   

The bank should disclose any special relationship that they have with their customers, that is beyond the normal operations and scope of the banking organization.

Reference:

Commercial Bank of Australia v Amadio (1983) 151 CLR 447; [1983] HCA 14