Facts: Mr Garcia owned a gold trading company, and wanted to borrow money from the National Australia Bank to finance his business operations. The bank required Garcia to find security for the loan. Garcia asked his wife to provide the security by executing a mortgage in favour of the National Australia Bank over a house she owned. Garcia assured his wife that there was no real risk involved because the loans would be covered by gold purchased with the borrowed money. Ms Garcia went with her husband to the bank and signed the necessary papers giving the bank a mortgage over her property. The bank did not explain the transaction, or the extent of her liability, to Ms Garcia, who appeared as 'a capable and presentable professional'. Garcia's business failed, the loan was not repaid and the bank wished to enforce the mortgage.
Issue: In these circumstances, could the mortgage be avoided on grounds of unconscionable dealing?
Decision: The mortgage should be set aside as void.
Reason: Although it is now accepted that women are not necessarily subservient or emotionally vulnerable to their husbands, the relationship between spouses is one of trust and confidence. For this reason, one spouse is likely to leave business judgments to the other, and make decisions without consultation or full and accurate explanation. Therefore, if a spouse giving a guarantee did not understand its effect; and gained no financial benefit from the undertaking; and the creditor failed to ensure that the transaction had been properly explained and understood, then the transaction will be set aside as void. This is because it would be unconscionable to enforce the security in such circumstances.