CASE EXPANSIONS: Unjust Contracts

Syllabus Topic

Option 1: Consumers

The nature of consumer law

• unjust contracts - common law and statutory protection

CASE STUDY 1: Blomley v Ryan

Key Facts

• Blomley entered into a contract to purchase a farm (Worrah) from Ryan, an elderly individual suffering from alcohol-induced impairment.
• Ryan's condition, exacerbated by excessive alcohol consumption, led to a situation where he was unable to fully comprehend the terms of the contract.
• The sale was at a substantially undervalued price, and Ryan's impairment placed him at a significant disadvantage during the negotiations.
• Despite the transaction proceeding, the court refused specific performance, citing Ryan's incapacity and the unfairness of the terms.

Case Effect

• Blomley v Ryan underscores the importance of fairness and equity in contractual agreements, particularly when one party is disadvantaged.
• The case highlights the role of courts in safeguarding vulnerable individuals from exploitation and sets a precedent for evaluating the enforceability of contracts in similar circumstances.
• By demonstrating the role of courts in safeguarding vulnerable individuals from exploitation, Blomley v Ryan highlights the potential effectiveness of legal interventions in addressing unjust contracts.

CASE STUDY 2: Commercial Bank of Australia Ltd v Amadio

Key Facts

• Mr and Mrs Amadio, elderly Italian migrants with limited English skills and education, executed a guarantee and mortgage in favor of the bank to secure debts of their son's company.
• The bank manager, Mr Virgo, obtained their signatures on the mortgage without providing any explanation about the document, despite their limited understanding.
• The bank subsequently demanded payment on the guarantee, which the Amadios believed was limited to $50,000 for six months, as conveyed by their son.
• In reality, the liability was not limited as represented, leading to the Amadios facing financial ruin when the company went into liquidation.

Case Effect

• Commercial Bank of Australia Ltd v Amadio highlights the issue of unconscionable conduct and the importance of protecting individuals with special disadvantages in contractual dealings.
• The case emphasizes the duty of banks and other institutions to provide clear and honest explanations to vulnerable individuals, ensuring they fully understand the implications of the agreements they enter into.
• By holding the bank accountable for its unconscionable conduct, the case sets a precedent for preventing exploitation of vulnerable parties in contractual arrangements.

ORIGINAL ARTICLE

Sources

Australian Contract Law: Blomley Ryan

Australian Contract Law: Commercial Bank Of Australia Ltd v Amadio