On trial of the action brought by the bank against the OBriens the judge held

On trial of the action brought by the bank against

This preview shows page 289 - 291 out of 396 pages.

On trial of the action brought by the bank against the O’Briens, the judge held that they were bound by the mortgage. The Court of Appeal set aside this decision. On further appeal to the House of Lords, the decision was again reversed. The House concluded that the bank could not enforce its security against Mrs O’Brien, relying upon the “doctrine of notice” in so deciding. The essence of the reasoning is that if the bank has notice of any wrongdoing by the husband in obtaining his wife’s signature, the bank is disqualified from reliance upon the document. Nobody would argue with that. But the House extended the doctrine of notice to embrace the concept of “constructive notice”. It concluded that the bank should know that such transactions do not benefit the wife, and that there is a substantial risk that the husband has committed some wrongdoing in obtaining his wife’s signature to the document. The creditor should therefore, in order to ensure the validity of its security, insist upon a private meeting with the wife in the husband’s absence to fully explain the nature of the transaction It will be noted from cases already discussed that there is some substantial divergence of approach between the Australian and the English courts. The issue again attracted the attention of the High Court of Australia in Garcia v National Australia Bank Ltd. 15 The Garcias borrowed money from the bank between 1979 and 1987. The bank obtained a mortgage from them in 1979, in addition to which Mrs Garcia signed four guarantees in favour of the bank. The last of these was for $287,000 in 1987. In 1988 the Garcias separated, and in 1990 were divorced. During 1990 Mrs Garcia brought an action to be released from her last guarantee, and the bank counterclaimed to enforce it. The trial judge set aside the guarantee, noting that it had not been 14 [1994] 1 AC 180. 15 (1998) 155 ALR 614. David, Parker, and Box Gerard. Business Law for Business Students, Thomson Reuters (Professional) Australia Pty Limited, 2013. ProQuest Ebook Central, . Created from vu on 2018-11-12 19:26:48. Copyright © 2013. Thomson Reuters (Professional) Australia Pty Limited. All rights reserved.
Image of page 289
270 B USINESS L AW F OR B USINESS S TUDENTS properly explained to her by the bank. He relied upon the principles set out in Yerkey v Jones . The Court of Appeal set aside this judgment, pointing out that the principles established in Yerkey’s case were overruled by the decision in Commercial Bank of Australia Ltd v Amadio, 16 and that it was wrong to treat a woman who acted as surety for her husband as being in a position of special disadvantage. On further appeal to the High Court, the appeal from the New South Wales Court of Appeal was allowed. The High Court did not decide the case on undue influence (by husband over wife). Nor did it decide it on the basis of the husband being the agent of the creditor. It decided it on the basis that the wife was volunteering her asset (or her equity in an asset) as security and that she was mistaken as to the true nature of the transaction. Given that the transaction does not directly benefit the wife,
Image of page 290
Image of page 291

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture