Vincenzo Was in Significant Debt and Had Arrangements with the Bank's Local Branch Manager, Mr Virgo.

Individual Summary

Fact:

Vincenzo was in significant debt and had arrangements with the bank's local branch manager, Mr Virgo, to selectively nourished cheques to keep his company running. Afterwards, the bank advised that he could continue to have an increased overdraft if security was given by his parents (Mr and Mrs Amadio, The respondents). Then Vincenzo told parents the guarantee was for around $50,000 and would be for about six months. Later that day Virgo went to Amadio's home. The Amadios did not read the document and Mr Virgo did not explain it, believing that Vincenzo had explained it to them. When Mr Amadio remarked that the mortgage was only for six months, Mr Virgo pointed out that there was no such limitation, but without any more explanation. The Amadios signed mortgage under the representations of their son since they have poor abilities to understand more English details. Shortly thereafter the company's accounts further deteriorated and the company went into liquidation.

Issue:

1. Whether the mortgage was procured as a result of an unconscionable bargain?

2. Was it induced by bank’s misrepresentation or 'concealment of facts which it was the bank's duty to disclose'?

Rule:

To answer Issue 1:

The situations that have a negative impact on a party, which may trigger a court of equity setting aside, are too varied to categorize. (Blomley v. Ryan [1956] HCA 81; (1956) 99 CLR 362, at p 405) In a transaction, whenever a weaker party is at an inferior position in dealing with another stronger party. Since illness, ignorance, inexperience, impaired faculties, financial need or other adverse effects may affect his ability to conserve his own interests. The stronger party will take the opportunity to occupy the initiative. (Likewise Kitto J (1956) 99 CLR, at p 415) The stronger party has an onus to show that the transaction was fair, just and reasonable. (Lord Hatherley, O'Rorke v. Bolingbroke (1877) 2 App Cas, at p 823) Otherwise, the general principle can apply. That principle might justify the setting aside of a guarantee. (Bank of Victoria Ltd. v. Mueller [1925] VicLawRp 74; (1925) VLR 642, at p 649)

To answer Issue 2:

The rights of the principal creditor will not be affected by the debtor's misrepresentation of the guarantor unless the creditor knows or agrees to make a false statement.  (Spencer v. Handley [1842] EngR 666; (1842) 4 Man & G 414 (134 ER 169)) However, "the surety may be a 'favoured debtor', and the Courts look upon his interests with a jealous eye". (Union Bank of Australia Ltd. v. Puddy (1949) VLR, at p 247) So if the dealings are fairly to lead a reasonable man to believe that fraud must have been used in order to obtain such concurrence, he is bound to make inquiry. But if he abstains from inquiry because he sees that the result of inquiry may show that he is tainted with fraud, then his want of knowledge of the fraud will afford no excuse. Bank of New South Wales v. (Rogers [1941] HCA 9; (1941) 65 CLR 42, at p 60)

Application:

To answer Issue 1:

Yes, it was an unconscionable bargain. Reasons are:

1. Mr. Virgo’s knowledge represents that of banks. Maybe we can consider Mr. Virgo as having knowledge of the possibility already discussed. The inevitable conclusion is that: Without disclosing the fact or even giving advice which can make the defendants have their own judgments, Banks have acted unconscionably. (at p468)

2. Mr. Virgo knew that the respondents were advanced years Italians who were not good at English. There was no reason for him to deem that the respondents had received related information from anyone but their son. Which signifies he conceded that Vincenzo had acted as an adviser/explainer to parents. But Mr. Virgo may not consider one possibility that the respondents would not hesitate to sign only depending on their trust to son, instead of their own understanding about what Mr. Virgo said. (at p467)