Unconscionable Conduct in Mortgage Contracts

This assignment examines a legal case involving unconscionable conduct in a mortgage agreement. The central issue is the bank's alleged exploitation of an elderly couple due to their limited understanding of English and lack of financial knowledge. The analysis delves into the concepts of bargaining power, undue influence, and misrepresentation, exploring whether the bank was aware of the couple's vulnerabilities and took advantage of them. The assignment also considers the role of the couple's son in the transaction and his potential influence on their decision-making.

Running head: BUSINESS LAW ASSIGNMENT
Business Law Assignment
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Commercial Bank of Australia Ltd v Amadio [1983]
The Commercial Bank of Australia Ltd v Amadio [1983] case has been dealt with the
common law and statutory developments in the trade practice where a dispute has been found
between the trader and consumer. The case has concentrated with the ‘unconscionability’ under
the Trade Practice Act where a substantiative part of the contract has been raised the actual
disputes. It is the first case in Australia, which has introduced the unconscionable conducts in the
law of Contract.
The Old Italian Migrant Couple Mr. and Mrs. Amadio have been sustained as guarantor
against a loan, which has been taken by their son for his construction business. The loan has been
taken from the Commercial Bank of Australia. However, the bank manager Mr. Virgo has been
found that their son, Vincenzo Amadio has misrepresented the facts and his parent’s identity as
guarantors. Here, when the business failed, the bank has been enforced the guarantor for
mortgage the building which was owned by Amadios.
In this case, the court has been introduced the term unconscionability under the
Australian Contract Law. The court has defined the unconscionability in various ways. The
Procedural unconscionability is the process where the party may suffer damages due to the
negotiations. Here, the stronger party took advantages from the consumers due to their lack of
knowledge of understanding the terms of the contract. In this case, the trader has also taken
advantages of the consumer due to their less knowledge about the contract and the incapable of
understanding of facts where the trader has taken benefits from the transaction (Skead, Atkins
and Carruthers 2017).

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The Substantive unconscionability defines the unfairness of terms or outcomes. It has
mainly caused due to the use of coercion or undue influence. When consumer makes his or her
own independent decision due to the excessive pressure of the undue influence, the trader took
the benefits from them. Most of the situation, court does not concentrate on the facts that whether
the trade has good or bad bargain powers. The imbalance of bargaining powers is the actual
reason of the unconscionability (Skead, Atkins and Carruthers 2017).
In this case, the statutory development has been focused on the Corporations Act 2001, Trade
Practices Act 1974, Australian Securities and Investments Commission Act 2001 and various
industry codes of conduct.
Under the Trade Practice Act 1974, section 214A has been expressly discussed the term
unconscionable conduct in the contract which caused at the time of transaction between two parties.
The section 514B has been defined the facts of prohibition of the unconscionable conduct in the
consumer transaction. In the part IVA of the Trade Practices Act, it also included other relevant
sections, which deal with the unconscionable conduct in the trade consumer transaction. The section
514A deals with the procedural unconscionability and the sections 51AB and 51AC conduct with the
substantive unconscionability in the contract (Goldberger 2016).
The section 514A under the trade practice, deals with procedural unconscionability under the
common law of contract. This act protects those people who are disabled by their age, infirmity,
medical or mental illness and served with other several disadvantages. When a contract formed under
this duress is known as breach procedural unconscionability. In this case, Justice Mason has focused
on the bargaining powers between two parties where the transaction was not enough qualify for the
special disability. Therefore, for considering the special disability, the conduct must have enough
ability to make the correct judgment in one’s interest is related with the other party. Therefore, the

3BUSINESS LAW ASSIGNMENT
given verdict in this case has been processed by knowing that the setting in which the contract was
drawn up is related with the fact that the contract was procedural unconscionable. Therefore, it is
necessary to establish the facts the contract was conducted with the procedural unconscionability
(Skead, Atkins and Carruthers 2017).
According to the section 514B of the Trade Practice Act, it is necessary to establish the terms
of special disability under the concept of unconscionability. The Subsection 51AB (2) of this act
defines that business or the company never engaged themselves with any conduct which must be
unconscionable. The section 514B (2) has been described the facts where the court can considered
the corporation who have breached the contract and it will determine the extent of the contravention.
It is related with the bargaining powers between the trader and consumer. When the weak consumer
has found to corporate with the corporate terms with reasonable and necessary protection as per the
best interest of the corporation. It is also helps to get the clear understanding about the terms of the
documents, which are related to the supply of goods. In some cases, the undue influence may affect
the weaker consumer due to the coercion in the unfair terms in the contract, which are related with
the goods or services. The section 51AC has been legislated under the Trade Practice Act for the
protection of small business from unfair and exploitive conduct in the conducts. This section has set
free small commercial transaction from the reprehensible conduct and recent trends towards the legal
evaluation in the business contract. Therefore, this section is only conducts with the consistent with
other dealings and other non-disclosure facts, which are related with the parties. It also protects the
degree and fairness of the negotiation terms. In such matter, the contractual right of the trader always
varies (Goldberger 2016).
However, in this case, the judgment was given on the main fact of unconscionable conduct
which has refers the unconscientious of the nature of the bargaining power for determine the position
of the party who have faced special disability or caused due to the special situation of disadvantages.

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The undue influenced has been found in this case where the advantages has been taken from the
innocent parties who are not deprived of an independent and voluntary will. The old couple was also
found with lack of education and due to their age, it creates a disadvantageous position. Therefore, it
is necessary to found that whether the bank was equally aware about the situation or not. The couple
was Italian, old and not has enough knowledge about English. Their son was the only adviser and he
was required the mortgage and does not have their best interest in mind. Therefore, the couple has
also mentioned that their son did not explain the all the terms of mortgage. There are several facts has
been introduced due to the gross inequality of bargaining power between the bank and the respondent
where the respondents also holds the position of special disadvantages and the bank was in the
relation with the proposed mortgage guarantee (Skead, Atkins and Carruthers 2017).
Therefore, according to the situation, the court has also mentioned that, the appellant was not
having any knowledge about the inability to make a judgment about the best interest of the position.
The unconscionable conduct has been dealt in this case where the consequences were found in
relation due to the absence of the reasonable degree of equality between the parties. The person who
has been disabled can use the sufficient reasonable grounds and introduced enough evidences in this
case. Therefore, the stronger party has involved with the terms of prima facie unfair or
unconscientious, which caused the impugned transaction towards the weaker consumer (Skead,
Atkins and Carruthers 2017).
The misrepresentation of the non-disclosure facts are also identified in this case. The
arrangement with the bank and Vincenzo has increased the overdraft and introduced a limit, which
has been caused with very short period. The bank also dishonored the cheque in an endeavor to
maintain the company’s façade of prosperity. However, the misrepresentation has not created by the
bank. Vincenzo is liable for such misrepresentation (Goldberger 2016).

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Reference
Brody, G. and Temple, K., 2016. Unfair but not illegal: Are Australia's consumer protection laws
allowing predatory businesses to flourish?. Alternative Law Journal, 41(3), pp.169-173.
Casson, J., 2016. Small business and unfair contract terms: Changes on the horizon. LSJ: Law
Society of NSW Journal, 3(2), p.76.
Dal Pont, G., 2015. Equity and trusts in Australia.
Goldberger, J., 2016. Unconscionable conduct and unfair contract terms. Commercial Law
Quarterly: The Journal of the Commercial Law Association of Australia, 30(2), p.17.
Latimer, P., 2016. Protecting Consumers from Unfair Contract Terms: Australian Comparisons.
McKendrick, E. and Liu, Q., 2015. Contract Law: Australian Edition. Palgrave Macmillan.
Skead, N., Atkins, T. and Carruthers, P., 2017. Analysing Mortgagor Protections in Equity and
Under Statute.
Stewart, T., 2015. Unreasonable, unconscionable and oppressive contract terms in South African
and Western Australian Consumer Law (Doctoral dissertation, University of Johannesburg).