NAB v Wehbeh [2014] VSC 431

A husband and wife had a home loan. In addition the husband took out a business loan for his business, in which the wife was a guarantor. Both loans went into default. Consequently, the bank sought to recover possession of land under the home loan agreement. In addition, the bank sought judgment against the wife for the debt due under guarantee because the husband had been bankrupted.

The Court held that the bank had made out its entitlement to possession of the land and judgment on the debt under the guarantee subject to the determination of the issue of whether the wife was under some special disability or undue influence at the time of signing the guarantee for the business loan.

The wife claimed that she placed trust and confidence in her husband to enter into the transaction, in which she did not receive a benefit, and that she failed to understand the nature of the transaction (this defence is based on the principles set out in Yerkey v Jones and Garcia v NAB).

The bank argued that she was not a volunteer, but in fact benefited from the loan because she had been a director and employee. The Court disagreed and found that, whilst she may have worked part time in one of the outlets, her interest was not “a great deal more than the interest of one who derives an incidental benefit that accrues generally to the family of which the wife is a member”.

However, the wife had received independent advice about the nature and effect of her obligations before executing the guarantee. The Court noted:

if the wife has been in receipt of the advice of a stranger whom the creditor believes on reasonable grounds to be competent, independent, and disinterested, then the circumstances would need to be very exceptional before the creditor could be held bound by any equity which otherwise might arise from the husband’s conduct and his wife’s actual failure to understand the transaction.

In terms of the home loan, the Court had regard to the wife’s borrowing history. In particular, the fact that she had been involved in six loan transactions since 1990. The wife did not established that she did not understand the nature and effect of past transactions. Neither did she suggest she was ‘overborne’ by her husband to enter into the home loan.

The Court held the wife had failed to establish all of the necessary elements to give rise to the defence and granted the bank possession.

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