Williams v CBA [2013] NSWSC 335

A father gave a mortgage to secure a guarantee of a loan to his son to purchase a service station. Unusually there was no default by the son or the father and no claim for possession by the bank. However the bank mortgage prevented the father from selling his property and distributing the proceeds to his other three children and so he claimed a Contracts Review Act defence and unconscionability to impugn both.

The court found the fathers’s evidence unreliable and made the following findings:

  1.  The father knew the amount secured by his mortgage secured his son’s loan;

  1.  The father was given the opportunity to obtain independent legal advice but had a firm view that he wanted to provide the mortgage;

  1.  The father understood the nature and effect the risk of sale of his farm in the event of his son’s default.

  1.  There was no pressure by the bank or the son on the father to provide the mortgage.

  1.  The terms of the mortgage were not unjust or unreasonable.

  1.  The breaches of the bank’s code of practice (eg. to have the guarantor sign in the absence of the debtor) would not have changed the outcome and so there was no loss.

The court dismissed the father’s case saying:

 

It is not enough that he was simply elderly at the time he gave his mortgage. Nor is it enough that he obtained no personal benefit from the transaction other than the moral satisfaction to be derived from the gift of paternal benevolence to his youngest son. Nor is it enough that the plaintiff chose not to address the longer term consequences of his decision on any future estate planning that he might have been expected to undertake. That he did not do so was not the bank’s fault.

 

The responsibility of bank officers do not require them to investigate the guarantor’s motives; the existence of other children and his relationship towards them; or the possible wider effect of the transaction on the guarantor’s personal, moral or financial obligations. Bank officers cannot be expected to go into those matters unless, perhaps, clearly put on notice.

 

It is ordinarily sufficient if the bank officer ensures that the guarantor understands the particular nature of the transaction to which he has agreed and comprehends its legal effect. The bank officer must also ensure that the guarantor understands that it is desirable to obtain independent legal advice, and must provide him with the opportunity of doing so. They were not put on notice of any frailty, infirmity or feebleness on the part of the plaintiff – whether of mind or body. And they had no reason to foresee that the guarantee and mortgage would necessarily create the difficulties in the plaintiff’s personal affairs that it has apparently caused.

 

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