Garcia vs National Australia Bank Ltd - Research Paper Example

Name Lecturer Course Date A Critical Analysis of the Judges’ Ruling in the Case of Garcia v/s National Australia Bank Ltd. The special equity of wives basically applies where a husband induces his wife to sign a guarantee whose nature or effect she does not comprehend. Women in most cases get to participate in guarantees because they have a personal relationship with the borrower, mainly the husband, but no because they fully understand the implications of their involvement. In such a case, the wife occupies a special position, whereby, she can request that the guarantee be set aside if she gave her consent before fully comprehending the effects of what she was about to do. This could have been caused by lack of clear explanation by her husband or the omission of the bank to explain to the wife, in the absence of the husband, the implications of what she was about to involve herself in. This principle was initially developed to complement the common law which was harsh and denied women the right to deal with properties registered in their name. In explaining the position of married women under the common law, Blackstone said that the existence of a woman, by the common law was either suspended or consolidated and incorporated into the one for the husband, due to marriage. This meant that a woman as stated by the law was under the husband’s authority and protection, thus showing the husband as the higher power or one with more authority. This, therefore meant that there was need to protect the wives who could be easily used by their husbands, through use of threats, to participate in things or businesses that ultimately would benefit the husband alone, and which, though the wife is forced to contribute in, she does not have a say in its running. It was initially applied in the Yerkey v/s Jones case (1939). In this particular case, Mr. Jones, who needed to buy a property to use in rearing poultry, persuaded Mrs. Jones to sign the mortgage. She was required to paying £1 000, though she hardly understood the implications. Due to the undue influence from her husband, the lack of any legal advice from an independent source, unilateral mistake and misinterpretation, Mrs. Jones was granted equitable relief by the high court. In this particular case of the Garcia, the Australian High court was to a great extent justified in following the special equity of wives. As stated earlier, the principle was formulated to protect wives who had offered to be guarantors, without first getting legal advice from independent sources or before the bank taking the necessary steps of explaining the implications of the particular decision to the wife alone, in loan cases that involved their husbands. In the Garcias’ case, Mrs. Garcia told the court that she agreed to guarantee her husband’s loan due to various reasons. The first one was the fact that her husband had told her that the guarantees involved no risk since even if they would not have the money to pay, then they would have the gold. Secondly, Mr. Garcia repeatedly put pressure on his wife to sign the guarantees by telling her that she was a fool when it came to commercial matters and he, on the other hand, was the expert. Moreover, she said she was really trying to prevent her marriage from breaking. In addition, the bank officer did not take some time to explain the consequences of what she was about to do. In fact, Mrs. Garcia said that the signing process did not even take a minute. This simply means that the bank failed to take a precaution of ensuring that Mrs. Garcia had made a well informed and understood decision. Five of the judges involved based their judgment on these reasons. These reasons are based on the principle of Yerkey used by Judge Nixon in deciding the Yerkey v/s Jones case. However, one of the judges in the team, though deciding in favor of Mrs. Garcia, based his decision on the aspect of emotional dependency whereby the guarantor trusted her husband. In this principle used by Judge Nixon, a wife could either be a ‘mistaken volunteer’ who did not understand the consequences of the decision made. This could be due to the fact that the husband did not explain clearly and fully and/or the lender did not explain too, the implications of the particular decision. The second case would be where the lender does not take time to find out how much the guarantor understands what she is getting involved in. in case she does not understand, the lender is obligated to inform her so that she makes a sound decision. In a case where the lender claims that the guarantor is fully aware of what she is getting involved in thus no need to inform her then, the lender is the lender is to have ample and varied evidence to act as proof. In the case in question, Mrs. Garcia was a ‘mistaken volunteer’ who gave in due to her husband’s pressure and demeaning remarks; she is a fool in commercial matters, misinterpretation of what the husband said particularly about not losing anything at the end since even if they will not have the money, then, they will end up with the gold, and due to the bank’s neglect of its duty of ensuring that she understood what she was doing. That is why it was only right for the majority of the judges to base their decision on the principle of Yerkey v/s Jones (1939) In both cases, it is clear that there was failure of the bank to carry out its mandate of informing the wives of the implications of their decisions before they gave them the document to sign. These two cases of the Jones and the Garcia share some similarities. Apart from the bank not informing the guarantor, there is also misrepresentation where the wives misunderstand the husbands’ statements thus leading to a decision made being based of misunderstood information. In this principle of gender equity, the surety may not be nullified if the guarantor is a director or a shareholder of the particular company. In the case of Mrs. Garcia, though she was the registered director of the company involved; one that was handling the gold transactions, she was not directly involved in its operations and it was her husband who was in charge. This means that she had only been used since her participation was passive and it was her husband who was actively involved thus this could not have influenced the decision made by the judges. If the case was different and she was found to be an active director of this particular company, then it would have been assumed that she had been involved in making the decision of making the company part of surety and was thus a beneficially of the transaction and she was fully aware of the risks involved. But that was not the case. Despite arguments that Mrs. Garcia, being a qualified physiotherapist, was in a position to read and understand the terms of the contract and thus is expected to have thought through the repercussions, it is not obvious or a guarantee that just because one has excelled in her career, she can understand any matters in law. On the contrary, the particular individual may have excelled very well in her area of specialization and still be very poor in matters concerning law since it is a different register from her area of specialty. In addition, Mrs. Garcia, having participated ‘voluntarily’ may not have put much thought into the contract, not because she was ignorant, but because she trusted her husband and was willing to assist him. In addition, she wanted to save her marriage thus it could be concluded that she was trying to avoid disagreements. There are other principles which are different from this Yerkeyv/s Jones principle and which have been applied in various cases in Australia. One of such examples is the case of the Amedios which involved an old couple. In the case in question, Mr. and Mrs. Amedio were elderly and could hardly comprehend English. They were deceived by their son to sign as guarantors committing to provide a mortgage and guarantee over a certain property which they owned. The old couple had been given wrong information by their son; that the duration of the mortgage was going to be six months and only costing up to $50 000, which they agreed to do. What the couple did not know was that there were no such limitations; the mortgage had no limitations in terms of the amount and time and Vincenzo, their son could withdraw as much as he wanted in the future. Though the old couple did not understand this information, the bank officer, Mr. Vigro, did not make an effort to explain to them, despite a comment by Mr. Amadio about six months limit. This was clear neglect on the bank’s side. The couple was not aware of the state of their son’s business and the kind of commitment they were making. The bank officer on the other hand, was aware of the situation but did not make an effort of informing the couple who he could clearly see was old. In response, the judge limited the mortgage and the guarantee payment by the couple to their expected amount of $50 000. The principle was later applied in another case involving the Vadaszs. The Amadios’ case is different from both the Garcia and the Yerkey v/s Jones. In the former, the relationship is that of parents and their child. In addition, the couple in question has a disability of old age and is at a disadvantage of not being able to comprehend English. In the latter cases, the relationship in question is that of husband and wife. The two are young and able to read. In comparing and contrasting the two scenarios, it is therefore easy to place the first case in the category of unconscionable bargaining. The old couple was taken advantage of by their son due to their old age and inability to read English. This could be termed as ‘special disability’ However, in the second case, the wives acted out of trust and misrepresentation of the information given. This is termed as ‘special equity’. There was a bit of pressure exacted by the husbands where as in the Amadios case; there was no pressure at all. These two scenarios, however, share one common point of the failure of the lenders to carry out their mandate of informing the guarantors of the consequences of their decision or at least finding out if they have received advice from any other third party. The case of Mr. and Mrs. Garcia whose verdict was finally read out on 6th August, 1998 by the high court, after two previous ruling, reaffirmed significance of the ruling made by Judge Nixon in 1939 in the Yerkey v/s Jones case 71 years ago. In our current society, though change has been experienced in many things, some things, like the male stereotype, have not changed. The men have always been seen as the domination sex able and actually supposed to make major decisions within a marriage. A woman is expected to consult with her husband before making decisions whereas a man can make the decision and inform the wife later. This has always given the men the advantage of influencing their wives decisions and choices. This being the case, women are always prone to suffer the consequences of decisions, whether poor or not, made by their husbands, as it happened in the Jones and Garcia cases. The two cases are only a representation of the actual situation on the ground. This is because there are many women who are in relationships which are in ‘relationships… marked by disparities of economic and other power between the parties’ Despite its reaffirmation, the principle has raised many questions on its applicability in the present-day society. The current society has greatly changed with wives becoming more liberal plus the existence of same sex marriages. In addition, despite the continued existence of male stereotype, there are changes like the rise of feminists who act as the voice of the women in the society. Also, some have lost their dominating role in the society with the rise of the modern woman who is striving to compete with the men and also striving for independence, resulting in some being dependent on or dominated by women. These reasons have lead to proposals being made to extend the application of this principle to any relationship that involves generally guarantors who are vulnerable. Since the principle has been applied in cases where the guarantor has been known to depend on the debtor emotionally, thus creating vulnerability, and in cases where the there exists trust and confidence in the relationship, proposals have been made to extend the use of this principle in all cases, not just husband-wife scenario, where the guarantor is either emotionally dependent on the debtor or there exists confidence and trust between the participants. This would include relationships between parents and children, couples that may not be married but cohabiting and cases where the husband is the guarantor and the wife is the debtor or even marriage between two people who are of the same sex. Recently, some cases have tried to use this principle. These cases have however not been between husband and wife. An example is the Watt v State Bank of New South Wales. The Watts had agreed to act as guarantors in a loan involving their daughter and son-in-law. Though they sought to apply the same principle used in the Garcia case, stating that they did not comprehend that they signed papers which contained mortgages and guarantees, the judges ruling in the case, Judge Crispin C and Higgins CJ, denied them their request. They, the judges, argued that in the case of the Watts, though indeed there was the existence of confidence and trust, the parents acted more from their love for their children and the desire of a parent to help his or her child and to avoid causing them any distress or hurt. This, they argued, could not be covered by the principles applied in the Yerkey v/s Jones case since, these principles did not cover people influenced to act by feelings. Looking at this case closely, it is indeed true that equating a husband and wife relationship with that of a child and the parents is not possible. Though the two may share similarities like existence of trust, they are of different nature. Whereas a wife may not question the husband’s decision and may instead just choose to trust his judgment, the parent, normally will question the child’s decision due to the parental instincts of wanting to give advice and ensure the decision made is sound. It is clear that judges have had their own reservation in the application of these principles applied in the Garcia case. The example given above is one of several attempts by people to try and plead their cases under the Garcia principles. Others include the Armstrong v Commonwealth of Australia together with the State Bank of New South Wales v Hibbert case another example is the National Australian Bank v Starbronze. This case involved brothers-in-law and though there was clear misrepresentation, the court refused to apply the Garcia principle as requested. In all these cases, the judges have shown their reservations in following these principles. Judge Bryson J. in State Bank of New South Wales v Hibbert says that: [T]he extension of the principles acted on in Garcia from wives to all married persons, or to all women, or to all persons who are living in defacto relationships…does not appear to me a development which the law can realistically be expected to take. Despite this clear hesitation by the judges to extend the use of this law to other relationships other than the wife-husband relationship, there is an example of the Kranz v National Australian Bank in which the Victorian court, unlike all the others decided to apply the Garcia principle in a case which did not involve a wife and a husband or a long-term relationship. This case involved a sister and brother-in-law. The court decided to take a more liberal approach in the application of the Garcia principle and extend its use to relationships outside the marriage sphere. Clearly, there is no established scope for the application of this principle. It is however clear that the principle is still very important and still in use as the number of cases trying to apply it are many. This makes it a little difficult on where and when it is appropriate to use this principle. Though initially, judge Nixon followed it to decide in a case which involved the relationship of husband and wife, and though he based his argument on the existence of emotional dependency which lead to emotional vulnerability, and the existence of confidence and trust, it is clear that the use of this principle is trying to expand and encompass different kinds of relationships so long as they share these characteristics of emotional dependency and confidence plus trust. This therefore means that the use of this principle, so long as the case calls for its use, is significant. It is enrichment in the Australian law which when applied properly serves to ensure that justice is given. It therefore means that despite the changes in today’s society, the principle applied by the Australian High Court in the Garcia case is justified and much needed in today’s society. All the judges and those in law have to do is to be prudent to ensure that it is only applied where appropriate or justified. The fairness of this principle is clear. No husband has the right to intimidate his wife and claim that she is ‘a fool in commercial matters’, like Mr. Farbio Garcia did, in an attempt to intimidate the wife to sign a contract which she does not understand and which does not benefit her at all. This however, should not apply only to the cases where the wife is the guarantor and the husband the debtor. With the changes in the society, the principle should also be unanimously allowed to apply to cases where the husband is the victim and the wife the debtor. Though that is just a personal suggestion, the principle is continually being tested with more and more cases, involving different kind of relationships which are non-marital, being brought before the Australia and trying to use the Garcia principle. With time and continued use, the principle will have a clear scope but as long as it is used properly and appropriately, it is just and fair. Bibliography Aghion D. (2004) Contract Vitiating Factors Beaumont M. (2004) Barclays Bank v O’Brien: an exercise in the happily illogical Chew C. (2007). Bond Review. Rethinking the Special Equity Rule for Wives:Post Garcia, Quo Vadis, Where to From Here? Clarke J. (2009) Australian Contract Law Gaudron et al (1998) Garcia v Nationa Australia Bank Ltd, Heffey et al (1998) Contract Commentary and Materials 8th Ed, Weaver G. (1998). Yerkey v Jones Is Still the Law Read More