Second they are often volunteers to the guarantee in the sense that they

Second they are often volunteers to the guarantee in

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Second, they are often "volunteers" to the guarantee, in the sense that they receive little or no benefit from the primary transaction. Third, they are frequently in a relationship of emotional interdependence with the borrower of the primary loan contract. The rule in Yerkey v Jones: There are two limbs to the rule: o The first allows a wife to have a guarantee set aside if her consent was obtained by undue influence, unless she has received independent advice – there is a presumption of undue influence between them. o The second gives a wife the prima facie right to have a guarantee set aside if she failed to understand the effect of the guarantee or its significance, unless the lender took steps to inform her of these matters - This rule comes into effect whenever the lender comes to the knowledge that the parties are married Garcia v National Australia Bank Ltd: Facts: Garcia entered a mortgage with her husband to secure a $5,000 loan in relation to his business. Mrs Garcia later entered several guarantees relating to loans made to the business. She was a director and shareholder of the company but the court found that she was not directly involved in its operations over which her husband had “complete control”. The couple separated in 1988 and divorced in 1989. Following the divorce Mrs Garcia sought to have the guarantees, which by this stage totalled $327,189.69, set aside. When this guarantee was signed by Mrs Garcia that the bank had taken no special steps to make sure that she understood the Distributing prohibited | Downloaded by Patricia Moawad ([email protected]) lOMoARcPSD|2330427
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nature of the transaction. Her evidence was that she did not understand the transaction, in particular that she was not aware that the guarantee was secured by the mortgage over the family home. Holding: A claim based on Yerkey v Jones succeeded at first instance, was overturned by the Court of Appeal and then was ultimately upheld by the High Court. Commercial Bank of Australia v Amadio: Facts: Aged parents with limited English language skills, mortgaged their property and provided their son with a guarantee for a loan. Parents believed guarantee was for 6 months for $50,000. Ended up being over $200,000. Holding: parents held to be under a disability and were held not to understand the implications of the documents executed. (unconscionable to enforce guarantee). Right and remedies of the mortgagee The personal covenant: As a mortgage operates to secure a loan it is a contract between the mortgagor and mortgagee. This contract contains a personal covenant to repay the loan. This personal covenant can be enforced by suing on the contract. The right to enforce this covenant arises on the date that the sum is not repaid, and if the covenant is one that requires payment on or after a set date, the right to enforce arises after the mortgagee has demanded payment: Bolten v Beckenham Personal covenant includes any amount still owing after the proceeds of sale of the security: Commonwealth Bank of Australia v Buffet
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