Business Law Assignment Question And Answers

Question 1  (10 Marks)

Mr. and Mrs. Lee provide a guarantee to a bank over a loan for a motor vehicle purchased by their son Lim. Lim subsequently defaults on his repayments and the bank seeks to enforce the guarantee against his parents. At the time the guarantee was entered into, neither parent had a good grasp of the English language, both were elderly and they received no independent legal advice. Mr. and Mrs. Lee believed that the extent of their liability was far more limited than it was. Upon what grounds could it be argued that reality of consent is missing from the guarantee agreement? What would be the likely status of the agreement?

Question 2 (10 Marks)

Critically analysis the following scenario and advise Belinda whether she has an action against the ferry company for the loss of her car.

Belinda, who resides in Melbourne, decided to take her family to Hobart. Arriving at the ferry (which she has often used before), she is given a ticket on paying her fare and the fare of her three children.  On the reverse side is written:

'All vehicles and passengers use this ferry at their own risk'

She does not read these words nor does she see the notice on the ferry itself that has identical wording.  Due to negligent navigation by its captain, the ferry collides with an underwater obstruction marked by a warning buoy.  The ferry sinks slowly enough for all the passengers and crew to be rescued but the ferry and vehicles on it are lost. 

Answer 1

The main issue is to analyze the ground upon which it can be argued that the element of consent is missing from the guarantee agreement formulated by Mr. and Mrs. Lee and what would be the likely status of such agreement. 

In Australia, there are instances where the loan agreement established amid the lenders and borrowers is set aside by either party on the ground that the same is not fair. Mainly concerning from the sureties point of view there are various grounds under which protection has been granted and the same are understood herein under (Sneddon M, n.d)

• Relief in Equity: Undue Influence– In Bank of Australia v Whitelaw (1906) undue influence is submitted as an influence which is asserted by one party (dominating) over another (weaker) in order to attain benefit for himself or another and the consent of the weaker party is not free/voluntarily given. Normally, the lenders do not establish a direct undue influence over the sureties or guarantees. It is normally the debtor who exercises influence over the sureties and the main question is whether the lender can be made answerable for the actions of debtors. In Budget Nominees Pty. Ltd. v. Registrar of Titles (1988) it was held that the lender is made accountable of causing undue influence on the sureties only when the lender is aware that the debtor has asserted influence on the sureties and has still proceeded with the loan transaction. In such instance, the sureties have the right to set aside the agreement on account of undue influence.  

• Relief in Equity: Unconscionable transactions – Unconscionable transactions are those transactions where one party is at the disadvantageous position because of his age, literacy, knowledge, ignorance etc and the other party has gained an undue advantage because of such disadvantageous position of the first party. In Commercial Bank of Australia Ltd v Amadio (1983) the doctrine was established that the guarantee given by an aged couple to a bank was set aside by considering the transaction as Unconscionable. When unconscionable transactions are established that the sureties have the right to set aside the transaction established by the lender. Many a time's lacks of independent advice by the lender to the sureties are one of the grounds to establish unconscionable transactions and are held in European Asian of Australia Ltd v Kurland (1985). In order to consider the advice valid it is necessary that the advice must be independent, that is, the interest of both the debtor and the lender must not be taken into consideration while furnishing advice to the sureties and is held in Powell v Powell (1990). 

Thus, these are the two grounds under which the sureties are granted right to set aside the transaction entered by them with the lenders as the transaction are entered by the sureties either on the basis of nonvoluntary assent or by unconscionable conduct.

By applying the law to the facts, it is submitted that

Mr. and Mrs. Lee provide a guarantee to a bank over a loan for a motor vehicle purchased by their son Lim who subsequently defaults on his repayments. Bank now seeks to enforce the guarantee against his parents but when the guarantee was entered into neither parent had a good grasp of the English language, was elderly and received no independent legal advice.

In such circumstances, if the son of Lee couple has caused undue influence upon him and the bank is aware of the same and has done nothing to curb such transaction then the Lee couple has the right to set aside the transaction on the basis of undue influence. However, if the lender has directly influenced the decision of the Lee couple by not submitting any independent advice than the couple has the right to cancel the agreement on the basis of unconscionable conduct.