Victorian Equity Law - Essay Example

The ment "Following the High Court's decision in Garcia v National Australia Bank Ltd1, it has been suggested that different principles are applicable to the setting aside of securities given by wives to support their husbands' borrowings, on the one hand, and securities given by non-wives to support third party borrowings, on the other", is accurate and the law of equity under a) doctrine of undue influence and b) Special Wives Equity justifies the differences. The renowned judges after elaborate discussion and arguments in various cases confirm the justification of the different principle adopted. Victorian Equity Law provides that Undue influence is an equitable doctrine where strong person taking advantage of a position of power over weaker person. This position arises in case of relationships between solicitor and client, parent and child, wife and husband which is known as fiduciary relationship, where trust and confidence exists. In this case, undue influence is presumed by law unless until it is proved contrary2. The presumption of undue influence is recognised by court of law basically where fiduciary relationship exists believing that in fiduciary relationship one party succeeds in exerting unfair influence or undue influence over the other. The court of law recognises relationship between employer and junior employee, doctor and patient also to bring into the ambit of presumption of undue influence3. In fiduciary relationship between wife and husband the creditor has a bounden duty before obtaining guarantee from the wife where wife is not a benficiary, is that a) to take reasonable steps to establish that her consent had been properly obtained, b) to discuss the facts with her c) to warn her of the consequences d) to suggest to take independent legal advise. Failing which, the transaction could be set aside by court of law4. Equity law protects innocent persons from undue influence by giving an opportunity to rescind the contract executed under undue influence. Defence available to opposite party if the fact of non existance of undue influence is rebutted with evidence5. Undue influence: Undue influence is classified into three types, a) actual undue influence, b) presumptive undue influence and c) proven undue influence. Actual undue influence is to be proved. Presumptive undue influence exists where trust and confidence is placed upon a strong party, especially in fiduciary relationships such as solicitor and client, religious adviser and disciple, physicians and patients, and parent and child. Proven Undue influence is similar to presumed undue influence except that in proven undue influence the trust and confidence is to be proved unlike in case of presumptive undue influence. Special Wives Equity: The law provides special equity for wives to protect their interest from the undue influence of their husbands, who take advantage of the weaker position of their wives. Under this equity if the transaction is clouded by actual undue influence and the creditor has the knowledge of existence of marriage between the surety and the borrower the transaction will be set aside. The law further provides that even there is no actual undue influence the transaction is subject to be set aside at the option of the surety unless the creditor has taken sufficient measures to bring to her notice and inform her suitably the effect of the transaction. The law says in special wives equity constructive notice of undue influence or relationship of influence is immaterial, mere knowledge of existence of marriage is sufficient. In Garcia case, which is relied on Yerkey v Jones8 the High Court has discussed elaborately on the principles based on the doctrine of Special Wives Equity. Clear and thorough study of the judgment in Garcia case shows how the different principle adopted in case of Wives in setting aside of security of wife is justified when compared to the non-wives security to third party, duly following the law of equity6. Garcia vNnational Australia Bank ltd7: National Australian Bank Ltd, advanced loan to business managed by Garcia's husband. In 1979 Garcia along with her husband, executed mortgage over their matrimonial home as a security for the loan. During 1985 and 87 she has signed four guarantees to the loans. Subsequently she divorced in 1989. After divorcing she prayed the court to set aside the guarantee given by her taking the protection under the equitable doctrine of "Undue influence". Her contention was that a) she was under undue influence of her husband. b) She did not understand that the guarantees secured were to cover all moneys mortgaged. c) She signed the guarantee at the request of her husband. d) She singed to allow her husband to deal in large of amount of gold. e) She signed the guarantee on the assurance given by her husband that there is "no danger" to her guarantee in view of large gold to repay the loan in adverse conditions and lastly e) The bank has not explained the effect of document of her guarantee. The trial court has applied the following principle laid down in Yerkey V Jone8: a) The surety is a volunteer b) The surety is not a beneficiary of the transaction for which guarantee is executed. c) Execution of a transaction, which is not made of a free will, is unconscionable. d) Where the transaction is made of free will, the execution of it is unconscionable if i) it later emerges that the surety did not understand the purport and effect of the transaction, ii) the lender has not taken steps to explain its purport and effect to the surety or iii) the lender reasonably believed that its purport and effect had not been explained to the surety by a competent, independent and disinterested stranger.9 Aggrieved by the order of the trial court National Australian Bank Ltd, appealed to New South Wales Court of Appeal, which allowed the appeal and held that the case is not bound by Yerkey v Jones and it is subsumed by the Commercial Bank of Australia Ltd v Amadio10. Garcia then appealed before the High Court Of Australia. The high court allowed the appeal with cost holding that the court of appeal erred in holding that the case is not bound by the principles set out in Yerkey case. While dealing the case in depth the judges also discussed the applicability of the ratio in Yerkey v Jones, which is decided in the year 1939, the court accepted that there is a considerable change in Australian society more specifically in the role of women in the society has changed considerably during the lat six decades, but the disparities between men and women with regard to economic and other power is still unchanged, still the wives are subjected to undue influence of their husbands. Therefore applying the aged old ratio is still justified and proper. The court has also felt that the principle of Yerkey will find application to other relationships including non-wives also, but while resolving the issues in other relationships other issues are also important to consider. Which shows that the same principle applied in case of wives security cannot be applied to non-wives, which may lead the creditor to vulnerable position and creditors will not accept the matrimonial property as security and the stop accepting the guarantees of non-wives to avoid risk of their business. The court found the reasons for Yerkey case is that there are two types of instances 1) there is actual undue influence by husband over wife 2) there is no undue influence but there is fault of not explaining accurately and adequately about the transaction while obtaining the surety by the husband for the economic benefit husband rather than for wife. High court observed that the trial court made two critical findings in this case in favour Garcia 1) Her husband pressured her to sign the document. She appeared to have done so because her husband consistently pointed out what a fool she was in commercial matters whereas he was an expert, and because she was trying to save her marriage. 2) Mrs.Garcia signed the guarantee no the information given by her husband that there would be no risk, but not for something that happened later. The court said that the reason for adopting different principles and enhancing the women's opportunities in case of wives is that practically it is difficult for the wives to satisfy a court that they have been misled and buckled under pressure of their husbands in financial matters. Under these circumstances the court felt that even today most of married women still are in need of the special protection as offered by Yerkey case. It also felt that by offering the special protection to wives no injustice is caused to the creditors they are required to be diligent as prescribed by Yerkey. Justification the equity maintains in applying different principles in wives securities is inferred from the above judgment. We examine the principles applied in case of other than wives: Lancashire Loans v.Black11: In this case, mother obtained guarantee from her married daughter who is not independent of her thoughts, for her debts. The court held that the transaction could be set aside since the daughter has acted under the influence of her mother. But this principle is different, which is fiduciary relationship of daughther and mother. Lloyds bank Ltd v Bundy12. In this case, a farmer who is ignorant of business affairs stood for gunarantee for a loan lend by the bank to his son for the development of his company for 7,500. The banker advised the farmer to increase the guarantee to 11,000 for further supporting the company without informing the farmer about the sickness of the company inspite of the bank's notice about it. The bank has taken advantage of the farmer's ignorance of the business activities and relying on the bank's advise. Court of appeal held that the second charge of extended guarantee is void on the principle of undue influence, basing on ground that there exiseted a special relationship of confidence between the farmer and the banker. Australia Bank Ltd V Nobile And Another13: X and Y, wife and husband were directors of a building company. They have obtained their respective parents' guarantee for securing loan for the company. They also have kept their land under mortgage as security for the loan. They did not know that the company was financially in a bad shape. However, bank manager told them that the company was doing good business. Both parents signed the guarantee and mortgage in the presence of the bank manager. After some time, the company went into liquidation because of its bad economic position. The bank demanded the guarantors to pay and commenced proceedings. The parents filed case. The trial judge set aside the guarantee and mortgage holding that the bank procured the guarantee and mortgage from Mr. and Mrs.N with an unconscionable conduct which is against S.52 of the Trade Practices Act 1974. The bank appealed. Federal Court of Australia dismissed the appeal holding that a transaction could be set aside when an unconscientious conduct is proved and when the other person is in a legally disable position against other who has utilized such disability to his favour14. Westpac Banking Corporation V Paterson15: Ms.Paterson entered into a mortgage over a property, jointly owned with her former husband, in favour of Westpac Banking Corporation. The mortgage was signed by her former husband and his new wife. When the respondent's former husband and his new wife failed to make repayments on a loan secured by the mortgage, the bank commenced proceedings for possession. This action was questioned before court. The trial judge held that the bank's actions were unconscionable since the guarantors did not understand the risks of the transaction and the risk and the bank did not ascertain that they were informed of the risks. On appeal by the bank, the court held that in the absence of pleading that there was undue influence or unconscionable conduct of the bank, the trial court should not have decided the case on that basis16. In the above the principle applied is different from that of Wives securities. The undue influence is subject to strict proof. The principles applied in Garcia case do not apply in these cases. The obstacles stand in the way of achieving a unified approach to all security givers: The obstacles in achieving unified approach is are of two fold: 1) If the principle applied in wives security as held in Garcia case is also applied to all others. The creditors are at more risk and it will be difficult job for them to adhere to the principle laid down in Yerkey' case in each and every transaction, therefore the investments will suffer, which may also lead to down fall of nation's economic growth. 2) If the special wives equity is lifted and they are treated on par with others the wives will be put to exploitation by their husbands. The High court has rightly said that though there is a considerable development in Australian society since six decades especially in women society, still considerable women are under the influence of their husband and they are not independent in economic decisions, and still they are still deposing the trust and confidence on their husbands. Hence the courts feel of need to extend the special equity to wives is essential in present situation. If this is not done the nation is failing in providing social justice to married women. This is social a problem, which the nation cannot overlook. 1. Garcia v National Australia Bank Ltd1 (1998) 194 CLR 395 2. http://en.wikipedia.org/wiki/Contract_law#Duress_and_undue_influence 3. Richard Lawson, Business law, (1998)Pp 140 4. John Elison, Jim Beddingfield, Tom Harrison, Business law (1195), fourth edition, Pp305 5. John Elison, Jim Beddingfield, Tom Harrison, Business law, fourth edition (1997) 6. https://elaw.murdoch.edu.au/issues/2006/1/eLaw_Sykes_13_2006_04.pdf. 7. GARCIA v NATIONAL AUSTRALIA BANK LTD 155 A.L.R. 614 8. http://law2.biz.uwa.edu.au/law/courses/Unjust%20Enrichment/Garcia%20summary 9. [http://www.lexis.com/research/retrieve/frames_m=78ca41ec781994df558e46b180e96b2b&docnum=47&_fmtstr=FULL&_startdoc=1&wchp=dGLbVlz-zSkAt&_md5=35ed9cac334f60f0f6d9d64c51f9c39c] 10. Commercial Bank of Australia Ltd v Amadi [ (1983) 151 CLR 447 46ALR 402]. http://www.austlii.edu.au/au/cases/cth/high_ct/151clr447.html 11. Lancashire Loans v.Black [1934] 1 KB 380. 12. Lloyds Bank v. Bunday (1975) http://www.duhaime.org/contract/ca-con2.aspx 13. AUSTRALIA BANK LTD v NOBILE and ANOTHER, (100 A.L.R. 227) 14.[http://www.lexis.com/research/retrieve/frames_m=1a1f9684ff0e777e7e6400 ea15cb555f&docnum=105&_fmtstr=FULL&_startdoc=101&wchp=dGLbVlz-zSkAW&_md5=4cf23115055b6aadabd2044a2db15e42] WESTPAC BANKING CORPORATION v PATERSON [187 A.L.R. 168, 21 November 2001] 16.[http://www.lexis.com/research/retrieve/frames_m=78ca41ec781994df558 e46b180e96b2b&docnum=23&_fmtstr=FULL&_startdoc=1&wchp=dGLbVlz-zSkAt&_md5=35ed9cac334f60f0f6d9d64c51f9c39c Read More