Category Archives: Equity

Equity – Guarantee – Mortgage – Guarantor under disability – Unconscionable bargain – Misrepresentation

Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1983) 151 CLR 447 (12 May 1983).

http://www.austlii.edu.au/au/cases/cth/HCA/1983/14.html

“Equity – Mortgage and guarantee – Right to set aside – Unusual transactions between bank and customer – Bank’s failure to disclose to mortgagor guarantor – Misrepresentation.
Guarantee – Guarantor under disability – Dealing with bank – Bank knowing of disability – Unconscionable bargain – Onus of proof – Whether transaction should be set aside unconditionally.”

An elderly Italian migrant couple had mortgaged land they owned as a guarantee for a loan from the bank to their son’s business. The business then went into liquidation and the bank demanded payment of the guarantee and then attempted to exercise a power of sale over the land.”

The Amadios argued that the guarantee and mortgage should set aside as:

  • they spoke limited English;
  • they did not receive independent advice and were not advised to do so;
  • they were not aware of their son’s financial situation, although the bank was; and
  • they mistakenly believed that the liability was limited to $50,000.

The court held that the mortgage and guarantee must be set aside as it was unconscionable for the bank to enter into those transactions in circumstances where the bank through it’s superior bargaining power had gained an unconscientious advantage to the detriment of the Amadios who suffered a special disability.

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Commercial Bank of Australia Ltd v Amadio [1983] HCA 14 | 12 May 1983

ON THIS DAY in 1983, the High Court of Australia delivered Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1983) 151 CLR 447 (12 May 1983).

http://www.austlii.edu.au/au/cases/cth/HCA/1983/14.html

“Equity – Mortgage and guarantee – Right to set aside – Unusual transactions between bank and customer – Bank’s failure to disclose to mortgagor guarantor – Misrepresentation.
Guarantee – Guarantor under disability – Dealing with bank – Bank knowing of disability – Unconscionable bargain – Onus of proof – Whether transaction should be set aside unconditionally.

An elderly Italian migrant couple had mortgaged land they owned as a guarantee for a loan from the bank to their son’s business. The business then went into liquidation and the bank demanded payment of the guarantee and then attempted to exercise a power of sale over the land.”

The Amadios argued that the guarantee and mortgage should set aside as:

  • they spoke limited English;
  • they did not receive independent advice and were not advised to do so;
  • they were not aware of their son’s financial situation, although the bank was; and
  • they mistakenly believed that the liability was limited to $50,000.

The court held that the mortgage and guarantee must be set aside as it was unconscionable for the bank to enter into those transactions in circumstances where the bank through it’s superior bargaining power had gained an unconscientious advantage to the detriment of the Amadios who suffered a special disability.

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Statute of Frauds 1677 | 16 April 1677

ON THIS DAY in 1677, the English Parliament enacted the Statute of Frauds 1677.

This Act required certain dealings with real property, sale of goods, estates, trusts and marriage be reduced to writing and signed in order to avoid fraud or perjury.

The provisions of the Act have since been incorporated into many pieces of legislation around the common law world.

 

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Yerkey v Jones [1939] HCA 3

ON THIS DAY IN 1939, the High Court of Australia delivered Yerkey v Jones [1939] HCA 3; (1939) 63 CLR 649 (6 March 1939).

http://www.austlii.edu.au/au/cases/cth/HCA/1939/3.html

Yerkey v Jones provides that: (1) a wife may have a guarantee set aside if the consent was obtained by undue influence, unless she received independent advice (at 649, per Dixon J); and (2) a wife has a prima facie right to have a guarantee set aside if she failed to understand the effect of the guarantee or its significance, unless steps were taken by the lender to inform the wife of such matters (at 683, per Dixon J).

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Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7 | 19 February 1988

ON THIS DAY IN 1988, the High Court of Australia delivered Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387 (19 February 1988).

http://www.austlii.edu.au/au/cases/cth/HCA/1988/7.html

Maher owned a commercial property at Nowra. Waltons was a national department store. Waltons and Maher entered into negotiations regarding the lease of Maher’s property conditional upon Maher demolishing the existing building and constructing a new one in accordance with Waltons’ requriements.

Waltons provided Maher with a draft lease contract. Maher suggested amendments and indicated they needed to complete the agreement in the next day or so in order to arrange building supplies before Christmas. Maher indicated that he did not want to demolish the building until he knew there was no problem with the lease. The solicitor for Waltons said to Maher that Waltons had informed him that the amendments were acceptable but would obtain formal instructions and inform him by the next day if they did not agree with any of the amendments. The solicitor for Waltons then sent Maher’s solicitor a redrafted lease with the suggested amendments and did not object to the amendments the next day, or at all. Maher then sent Waltons an executed lease by way of exchange and then proceeded with the demolition. A week later, Waltons had concerns about the transaction and, not having exchanged their counterpart of the lease, instructed their solicitor to go slow. Waltons then became aware that the building had been demolished and when the new building was 40% completed advised Maher that they did not wish to proceed with the transaction.

Maher sued Waltons in the Supreme Court of NSW, obtaining an order for specific performance or damages in lieu. An appeal to the NSW Court of Appeal was dismissed, as was an appeal to the High Court of Australia.

Per Mason CJ, Wilson, Brennan and Deane JJJ, Waltons was bound to enter into a lease agreement and estopped from denying an implied promise to complete the contract as it would be unconscionable for Waltons to take a course of inaction that exposed Maher to detriment by acting on a false assumption.

The High Court brought together proprietary and promissory estoppel under the broader principle of equitable estoppel. When a person makes a non-contractual or voluntary promise and knowingly induces the other party to act to his or her detriment in reliance on that promise, that person is precluded from resiling from the promise without avoiding the detriment. The person who makes the promise is liable to either honour the promise or avoid detriment to the other party.

Per Brennan J at 428-9:

“In my opinion, to establish an equitable estoppel, it is necessary for a plaintiff to prove that (1) the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff’s action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise. For the purposes of the second element, a defendant who has not actively induced the plaintiff to adopt an assumption or expectation will nevertheless be held to have done so if the assumption or expectation can be fulfilled only by a transfer of the defendant’s property, a diminution of his rights or an increase in his obligations and he, knowing that the plaintiff’s reliance on the assumption or expectation may cause detriment to the plaintiff if it is not fulfilled, fails to deny to the plaintiff the correctness of the assumption or expectation on which the plaintiff is conducting his affairs.”

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Lavin v Toppi [2015] HCA 4

ON 11 FEBRUARY 2015, the High Court of Australia delivered Lavin v Toppi [2015] HCA 4 (11 February 2015).

http://www.austlii.edu.au/au/cases/cth/HCA/2015/4.html

The appellants and respondents were sureties who had guaranteed a consolidated loan with the National Australia Bank.

In 2010, NAB demanded repayment of the balance of the loan debts and brought proceedings against all of the guarantors. In settlement of proceedings against the appellants, NAB covenanted not to sue them for the guaranteed debt in return for the payment of a minor portion of the debt. The respondents then paid the disproportionately high balance of the debt and then brought proceedings against the appellants seeking the recovery of the amount they paid to NAB in excess of their proportionate share.

The appellants resisted the appellants claim, arguing that the appellants and respondents no longer had “coordinate liabilities” by reason of the debt only being enforceable against the respondents due to NAB’s covenant not to sue the appellants.

The NSW Supreme Court found in favour of the respondents and the Court of Appeal dismissed an appeal, holding that the respondents could still recover from the appellants because the covenant not to sue did not alter the liabilities between the appellants and respondents under the guarantee and therefore they still had “coordinate liabilities”.

The High Court dismissed an appeal by the appellants, holding the Court of Appeal to be correct in holding (1) that the covenant not to sue did not extinguish the appellants’ liability under the guarantee and (2) that the respondents had an equitable entitlement to contribution which could not be defeated by the covenant not to sue.

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Baumgartner v Baumgartner [1987] HCA 59 | 10 December 1987

ON THIS DAY IN 1987, the High Court of Australia delivered Baumgartner v Baumgartner [1987] HCA 59; (1987) 164 CLR 137 (10 December 1987).

http://www.austlii.edu.au/au/cases/cth/HCA/1987/59.html

The parties had lived together in a de facto relationship. They pooled their earnings to meet all outgoings of the joint relationship, including mortgage payments over the family home purchased with the husband as the only registered proprietor.

After about four years the relationship came to an end. The wife sought a declaration that she held an interest in the property in trust. The husband asserted that only he held the legal title to the house.

The court held that the wife held a beneficial interest in the property by way of constructive trust.

Per Mason CJ, Wilson and Deane JJ at 149:

“The case is accordingly one in which the parties have pooled their earnings for the purposes of their joint relationship, one of the purposes of that relationship being to secure accommodation for themselves and their child. Their contributions, financial and otherwise, to the acquisition of the land, the building of the house, the purchase of furniture and the making of their home, were on the basis of, and for the purposes of, that joint relationship. In this situation the appellant’s assertion, after the relationship had failed, that the Leumeah property, which was financed in part through the pooled funds, is his sole property, is his property beneficially to the exclusion of any interest at all on the part of the respondent, amounts to unconscionable conduct which attracts the intervention of equity and the imposition of a constructive trust at the suit of the respondent.”

The High Court declared that the parties hold beneficial interests in the property of 55% to the husband and 45% to the wife, subject to adjustments.

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