The three causes highlighted while putting the mortgage guarantee to challenge in the court of law are as follows.
1. With regards to the mortgage contract execution, an undue influence was exhibited by the bank on the couple i.e. Mr. and Mrs. Amadio as they did not understand English and hailed from Italy.
2. It was argued that the bargain which was executed with one party as the bank and the other party as the Italian couple (Mr. and Mrs. Amadio) was driven by unconscionable conduct and hence not legally enforceable.
3. Further, the bank also indulged in misrepresentation as it was required to disclose the relevant details as part of the disclosures which was never done by the bank. If the same had been carried
out, it was possible that the couple would not have provided their consent to the mortgage contract.
The appeal court did overturn the trial judges’ decision and the basis for the same is outlined below.
1. The bank had the obligation of making relevant and material disclosures to Mr. and Mrs. Amadio which it never carried out.
2. The responsibility of the bank to represent is not over on the account that the representation was made by the son (Vincenzo Amadio) to the parents (Mr. and Mrs. Amadio) as considering the given situation it is highly likely that the representation made by the son could have been incomplete or false as he had vested interest
3. The contract enacted between the bank and the Italian couple (Mr. and Mrs. Amadio) was declared as unconscionable and thereby it did not pose any need on Mr. and Mrs. Amadio to fulfil the obligations arising from the original contract put in place.
Justice Gibbs advocated that in the course of normal circumstances, there is no mandatory duty or responsibility on the bank to share relevant details in relation to the status of the customer account with the potential guarantor. But there are some particular cases where such a responsibility is indeed bestowed on the bank so as to ensure that the guarantor can make a prudent choice before extending the guarantee. The given details about the case make it evidently clear that the son has a business which is underperforming and the company which is running the business is already out of overdraft limit. But Gibbs J. Opined that even in such circumstances, the bank does not have any obligations to inform the couple about the financial health of their sons’ bank account and business. However, the true matter of concern is this privileged agreement which the bank has worked out with the son and it is quite likely that most guarantors would object to such an agreement. As a result, the execution of this agreement bestowed upon the bank a duty to inform the couple about the same before enacting a contract with them to act as guarantors.
To arrive at the conclusion that the bank should have made the necessary disclosure, Justice Gibbs relied on the following two factors.
1. There was existence of an agreement between the bank and Amadio’s son and the agreement had content which could raise alarms for any reasonable guarantor. Hence, the same would apply to the Amadios.
2. In the given circumstance, it was not possible for the Amadios to reach an informed decision as there was unconscionable conduct on part of the bank whereby relevant information about the dealing of the son with the bank was not disclosed.
Amadios were favoured in the ruling which was facilitated by the core ratio that there was misrepresentation on the part of the bank as it did not disclose to the couple regards the existence of the special agreement which was enacted between the bank and Amadio couples’ son. Considering the contents, it was imperative that this should have been disclosed. But failure to do so has resulted in the contract becoming voidable if the innocent party i.e. Amadios desire so.
Before comparing the ratio for Justice Mason and Justice Gibbs, it is essential to understand the underlying ratio applicable for the former. The ratio highlighted by Justice Mason was the presence of unconscionable conduct on the part of the bank as it failed in making the appropriate disclosures to Mr. And Mrs. Amadio before executing any contract with them and thereby providing legal grounds to nullify the contract at the request of the Amadios.
There was a difference of the ratio deployed by the two given judge even though both reached the same conclusion as far as the verdict is concerned. Mason J highlighted the bank’s unconscionable conduct as a basis to provide relief to the Amadios as the relevant disclosures should have been made by the bank and not doing the same amounts to objectionable conduct considering the status of the bank as the stronger party. The extension of relief to Amadios by Justice Gibbs was on account of failure by the bank to disclose about the special agreement that had been enacted between the son and the bank resulting in misrepresentation as a valid ground for contact nullification.
As per Justice Mason, the two parties have unequal bargaining power because of the reasons highlighted below.
1. The Amadios lacked the required capacity for making a rational choice in the given circumstances as they were caught in a dilemma of sought as they wanted to extend help to the son but not at jeopardising their self –interest.
2. The decision to enter the contract with the bank was taken by the Amadios acting on the advice of their son which considering the situation would not be considered as independent and hence potentially driven by his own interests.
3. Due to the Italian origin of Amadios, they were not very well verse with written English coupled with the age factor which made it even more difficult for them to intercept the contract clauses. Further, they also did not have any prior experience in business as a result of which the decision making was extremely difficult.
In relation to case involving undue influence, the priority for the court is to focus on the party who is weaker taking into consideration the quality of assent which has been given to the particular contract under consideration. However, if the court detects the presence of unconscionable conduct, then the focus of the court would shift to the stronger party as there is disability suffered by the weaker party.
The decision was pronounced by Justice Deane driven by the ratio that the bank failed to inform the Amadio couple regarding the special agreement enacted with their son which was of significance and had to be informed to the parents. This is because it was of material nature for the given contract and hence should have been known to them before they gave their consent.
According to Justice Dawson, bank needs to make a disclosure only in a situation where the other party (in this case Amadio couple) intends to know about the account status prior to the execution of the contract related to mortgage.