Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447
Mortgage of land; vitiating circumstances; unconscionable dealing.
Facts: Vincenzo Amadio owned a building company which was experiencing financial difficulties, a fact well known to his bank. The Commercial Bank of Australia froze Amadio's overdraft facilities. Amadio told the bank that his parents would guarantee his debts by mortgaging their property in favour of the Bank. The bank agreed to give Amadio an overdraft of $270,000 if the mortgage was provided. Amadio asked his parents to provide the mortgage. Amadio's parents believed that Amadio's business was successful, and Amadio told them their liability under the mortgage was limited to an amount of $50,000, neither of which fact was true. The parents agreed to provide the security and the bank manager brought the mortgage documents to their house to sign. He did not explain these documents to the parents before they signed them, nor did he check that they understood the full extent of their risk and liability. Months later, Amadio's company became insolvent and the bank sought to enforce the mortgage against Amadio's parents. They faced financial ruin.
Issue: Could the mortgage be set aside on grounds of unconscionable dealing?
Decision: The mortgage should be set aside.
Reason: Amadio's parents were in a position of special disadvantage because they did not know of their son's true indebtedness, nor were they told of the real extent of their liability under the mortgage, which was potentially ruinous for them. They were elderly and spoke little English. Their age, background and reliance on their son added to their inability to judge what was in their own best interests. The bank knew enough about these circumstances to be put on inquiry, and should have taken steps to ensure that the Amadios appreciated the nature and extent of the mortgage and the risk before deciding to enter into the security agreement, perhaps by obtaining independent advice.