Mortgage Issues Faced by Respondent
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Performance bond or other type of guarantee in which the guarantor effectively becomes a co-signatory to the underlying contract is considered as the contract of mortgage and guarantee (Schneeman, 2012). And unlike in a demand guarantee the guarantor acquires certain rights under the contract and can challenge the demand for payment of the guarantee sum. In this report it is to be described that the respondents Mr and Mrs. Amadio, executed a guarantee and mortgage( as security for the guarantee) in favour of the appellant bank. The purpose of this is to guarantee debts of their son's ( Vicenzo Amadio's ) Company. Thus the whole report is based on the mortgage issues which have been faced by the Respondents.
1.As per the given case study it is explained that Mr. And Mrs. Amadio have given the guarantee in the favour of their son Vicenzo who has taken the loan from the bank. They have used the legal issue while doing a case these are mentioned as under:
A personal guarantee creates a secondary obligation to support the primary obligation between the lender and the borrower (PADHI, 2012). Hence in the given situation Mr and Mrs. Amadio are in the position of guarantor, their son Vicenzo is borrower and the bank is lender. Thus their liability is secondary regarding the payments of the given loan.
The another cause of action which can be raised by them is their obligation is contingent on the Vicenzo's primary obligation, hence if he is not liable to pay the borrowed sum to the lender then Mr. and Mrs. Amadio should not be liable either.
However the bank would typically demand on the Vecinzo and or Mr and Mrs. Amadio first and give them opportunity to repay before demanding on the personal guarantor ( Mr and Mrs. Amadio) in the above case and its good to do so. It should be noticed that if there is of collusion between lender ( the bank) and the and principal (Vicenzo) or dealings between them which might prejudice Mr. and Mrs. Amadio then they may attempt to seek an order restraining the performance of the personal guarantee.
Thus in above three main cause of actions have discussed which can be used by Mr. and Mrs. Amadio while doing the case.
2.The appeal court orders that mortgage should be set aside. The court held that it was the obligation of the bank to reveal the true position of the accounts of vicenzo's company and it was liable for his representation. They further held that the transaction was unconscionable one, for which equity would proved relief. Thus the trial court declared that the respondents are not liable for any penal provision under this case as no duty of them is occurred.
3.Justice Gibbs first observed that a contract of guarantee is not uberrimae which means that utmost good faith in which one party is under a duty to disclose all material facts to the other (Agapiou, and Clark, 2012). Here a surety ( Mr. and Mrs. Amadio) who guarantees a customer's account (Vicenzo's Account) with the bank will not expect that the account has not been overdrawn or that the bank is satisfied with his credit., for the probable reason which is the bank requires the guarantee because the customer has been overdrawing his account and wishes to do so again and that the bank is not satisfied with his credit. Thus it is concluded that the bank did not disclose all these material facts amounted to misrepresentation of a material part of transaction between company and the bank and that the memorandum of mortgage, including the guarantee which it contains is not binding on the Mr. and Mrs Amadio.
The other thing is that the bank is required to disclose all the material factors in two situations these are exceeding overdraft limit of the customer and dishonouring of the cheques. If there are no more cases than that, then the bank is not liable to do the disclosure of those facts.
4.As per the judgement of justice Gibbs that the bank is bound to disclose anything which has taken place between the bank and the principal debtor which was not naturally to be expected or the necessity for disclosure only goes to the extent of requiring it where there are some unusual features in the particular case relating to particular account which is to be guaranteed. Thus these are the factors which are to be disclosed by the bank.
5.The judge identified that there is a misrepresentation which is made by the bank, it is the duty of the bank to disclose the matters about Vicenzo's account and its details. The judge concluded the decision in favour of Mr and Mrs. Amadio, by explaining the fact that the bank has done the misrepresentation and has not disclosed all the material facts regarding the customer's account. Thus his honour dismissed the appeal on the grounds of misrepresentation through non-disclosure.
6.Justice Mason gave the decision that court have exercised jurisdiction to set aside contracts and other dealings on the variety of equitable grounds. They include fraud, misrepresentation, breach of fiduciary duty, undue influence and unconscionable conduct. Thus these are the grounds on which the judgement is made.
7.Justice Gibbs concluded the case by explaining that the failure of the bank to make disclosure of the material consideration regarding the account of Vicenzo is amounted to misrepresentation of a transaction between the company and bank and that the memorandum of mortgage including of course the guarantee which it contains is not binding on the respondents.
On the other hand justice Mason gave the conclusion that the respondents are entitled to relief on the ground that the bank is guilty of unconscionable conduct in procuring the execution of the mortgage guarantee by the respondents. In his judgement he also usefully discussed the distinction and overlap between various equitable terms. Thus it is different than the conclusion of justice Gibbs.
8.There are grounds on which it is to be established that there is a inequality bargaining power between Mr. and Mrs. Amadio( Respondents) and bank. The first is the way of contrast to the bank, the respondent's ability to judge whether entry into the transaction is in their own best interest , having due regard to their desire to assist their son Vicenzo. The second element is the situation of special disadvantage in which Mr and Mrs. Amadio are placed is the outcome of their reliance on and their confidence in their son, who in order to serve his own interest urged them to provide the mortgage guarantee which the bank required as a condition of increasing the approved overdraft limit of his company. The third is reliance of Mr and Mrs. Amadio is due in no small degree to their infirmities. They are Italian of advanced years, aged 76 years and 71 years respectively, having a limited command over written English and they are not having experience in business in the field of level in which their son Vicenzo and company engaged. Thus they believed that the company of their son is working in very good condition and the bank knew that the company of Vicenzo is in perilous financial condition.
9.There is a difference between undue influence and unconscionable conduct (Agapiou, and Clark, 2013). Relief on grounds of unconscionable conduct is taken to refer to the class of case in which a part makes unconscientious use of his superior position or bargaining power to the determinant of party who suffers from some special disability or is placed on some special situation of disadvantage. On the other hand undue influence is mental, moral or physical domination that deprives a person of independent judgement and substitutes another person's objectives in place of his or her own. Exercise of undue influence is characterized often by excessive insistence or will or pressure applied due to authority, positioning, or relationship in relation to the strength of the person submitting to it. In these matters contracts are considered voidable if it can be shown that undue advantage has been taken of an involved party.
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10. Justice Deane concluded that Mr and Mrs. Amadio are entitled to have whole transaction set aside unconditionally. In present case it is, as has been said, evident to the bank that Mr. and Mrs. Amadio stood of advice as to the nature and effect of the transaction into which they are entering. It is apparent that any such advice would have include the importance to a guarantor of ascertaining from the bank the state of customer's account which is being guaranteed and any unusual feature of the account (Clark, 2009). He finally concluded that the whole transaction should properly be seen as flowing from the special disability which is evident to the bank and as being unfair, unjust and unreasonable. His honour then stated that the appeal should be dismissed with costs.
11.Justice Dawson stated that a bank is not under any obligation to disclose to a prospective guarantor (Mr and Mrs. Amadio) facts relating to its customer ( Vicenzo) or the customer's account which are material to the risk being undertaken by the guarantor, subject to the exception that a bank is required to disclose matters between it and Vicenzo which Mr and Mrs. Amadio might not naturally expect to have taken place in relation to the customer's affairs.
In the above report it has been explained that Respondents are not liable to pay the sum to the bank. The decisions made by Justice Gibbs, Mason, Dawson and Deane, are discussed. In the above mentioned case Mr. and Mrs. Amadio won and the appellant court gave the judgement in the favour of them. Thus it is concluded that on the grounds of misrepresentation and undue influence the bank is not liable to take the compensation from the respondents.
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