Mary Matthew v Independent Holdings Limited No. 4253 Judgment No. SCGRG 93/1423 Number of Pages 6 Guarantee and Indemnity Contract of Guarantee

[1993] SASC 4253

COURT IN THE SUPREME COURT OF SOUTH AUSTRALIA MOHR J

CWDS
Guarantee and indemnity - contract of guarantee - Guarantee - Contract of Guarantee - Husband and wife - Respondent enforced guarantee against appellant - Appellant appealed - Appellant was unaware of the nature and content of the document being signed - The document was signed as a matter of urgency - Respondent took no steps to ensure that the appellant had independent advice.

HRNG ADELAIDE, 21 October 1993 #DATE 12:11:1993
Counsel for appellant:     Mr G K Patel
Solicitors for appellant:    Patel and Co
Counsel for respondent:     Mr S Cole
Solicitors for respondent: I Martirovs

ORDER
Appeal allowed - judgment against appellant set aside.

JUDGE1 MOHR J The respondent in proceedings in the Magistrates Court sought to enforce a guarantee against the appellant. It was successful and the appellant now appeals. 2. The appellant acknowledged throughout that she signed the guarantee and that in form it was effective. 3. The debt the subject of this guarantee was due to the respondent from the partners in a supermarket suppliers. The partners were the appellant's husband, Matthew McGrath and Mr McGrath's father. The liability of those three was not in dispute. 4. The Learned Special Magistrate made the following findings of fact which were not in dispute on the hearing of the appeal.
     "1. The plaintiff was born 2nd March, 1944 in India.
     2. In 1961 the plaintiff matriculated. Her matriculation
    qualified her for entry to University in India.
     3. In 1965 she qualified as a nurse.
     4. In 1970 the plaintiff migrated to Australia and
    immediately obtained work as a nurse. She has been in constant
    employment as a nurse since that time subject to periods of time
    associated with the rearing of her children.
     5. When the plaintiff first migrated to Australia she settled
    in Melbourne and was successful in obtaining employment in a
    number of different hospital positions.
     6. The plaintiff married her husband in 1975.
     7. The defendant's husband is a qualified engineer. He
    migrated to Australia from India shortly before he and the
    defendant married. He obtained employment in Australia in
    Melbourne first of all in a technical college and subsequently
    he obtained employment working with a computer company.
     8. In 1986 the defendant's husband started an export import
    business. The defendant was a silent partner in that business.
    She was authorised to sign cheques and did sign cheques from
    time to time. Her husband's business activities meant that he
    travelled overseas or interstate from time to time. The
    defendant answered the phone and tendered to enquiries
    concerning the business. Other than that, she paid no active
    part in the business.
     9. The defendant and her husband bought two house properties
    in Melbourne, borrowing money from banks on mortgage finance.
     10. In 1989 the defendant, her husband and their children
    moved to Adelaide because of the pollution in Melbourne.
     11. Initially when the defendant and her husband moved to
    Adelaide, they lived in rented premises.
     12. The move to Adelaide took place in July 1989.
     13. In about November 1989 the defendant registered the
    business name Jimso Enterprises in South Australia. Her partner
    in that business was a Dr Gopal. The business in fact did not
    operate.
     14. In about March 1990 a house property was bought by the
    defendant in her sole name. The defendant's evidence is that
    her husband told her to put it in her name. At this stage her
    husband's business was still successful.
     15. In June 1990 the defendant's husband was involved in an
    accident. He suffered serious injuries. He experienced
    difficulty in travelling. The export import business became
    unsuccessful.
     16. In or about July 1991 the defendant's husband entered
    into a partnership with Matthew McGrath to purchase a
    supermarket. The defendant was not a registered proprietor or
    partner of that business.
     17. To assist the defendant's husband in the purchase of this
    business, the defendant advanced $27,000 to the partnership in
    which her husband was involved.
     18. To raise the necessary funds to advance money to the
    defendant's partnership the defendant borrowed $45,000 from a
    financier. Some of the money was used to pay off the existing
    Commonwealth Bank loan upon the house property owned by the
    defendant and in which she, her husband and family resided. The
    balance of $27,000 was advanced to the partnership.
     19. The defendant knew that the supermarket which her husband
    and McGrath were purchasing was a half case supermarket. But
    she says she had little other knowledge of that business." 5. Further he said of the respondent:-
    "I make these comments about those facts and, more
    importantly perhaps, I make this comment about my own impression
    of the defendant. The defendant impressed me as a person of
    character. She respondent well to cross-examination by Counsel.
    Once or twice, she corrected Counsel. She is a person who is
    quite well educated. She has successfully applied for and held
    down jobs in Australia since her arrival in Australia. In
    short, she impressed me as a well educated and capable person.
    The defendant is not a person with no experience in business
    affairs. It would be fair to say that her experience is
    limited. But nonetheless her experience in business matters is
    not to be ignored. She was willing to contemplate a business
    venture of her own with Dr Gopal. She was registered as a
    partner and co-proprietor of her husband's business. She agreed
    to the purchase of the Brooklyn Park home in her own name. She
    underwent the relatively complicated financial transaction of
    borrowing money from a financier sufficient to discharge the
    bank mortgage of her home and to advance funds to enable her
    husband to go into the supermarket venture. The defendant said
    on many occasions throughout her evidence that she was
    accustomed to do that which her husband requested her to do.
    But I formed the distinct impression that she did that willingly
    and consensually. The defendant impressed me as a person of
    some strength of mind and purpose. She impressed me as
intelligent and capable." 6. The circumstances under which the appellant came to sign the guarantee were that the she had returned home from her employment as a nurse at about 7.15 a.m. having been on night duty. She saw her children off to school when they left with her husband and then went to bed and slept. She was awoken by her husband about lunchtime. She said it was about noon and by inference it could have been a little later. He produced the guarantee document and told her it required her signature so that he could open an account with the appellant to obtain goods for the supermarket. He impressed on her it was very important. She had not read the document but signed where indicated to her by her husband. Her husband then immediately left. she was not told the nature of the document nor did she read any of the wording on the page she signed. Had she done so the word "guarantee" appeared on that page immediately above the space for her signature and she would have seen it. She had never previously signed a guarantee nor had she had anything to do with such a document. 7. The main thrust of the appellant's case in the magistrates court and before me was that she could avoid the guarantee under the rule enunciated by Dixon J (as he then was) in Yerkey v. Jones (1940) 63 CLR 649 at 683 in the following terms:-
    "For myself I fully accept the exposition by Cussen J of
    Howes v. Bishop and Talbot v von Boris. That exposition, I
    think, shows that these cases are consistent with and recognise
    the proposition that, if a married woman's consent to become a
    surety for her husband's debt is procured by the husband and
    without understanding its effect in essential respects she
    executes an instrument of suretyship which the creditor accepts
    without dealing directly with her personally, She has a prima
    facie right to have it set aside." 8. In the present case the creditor (the respondent) had no dealings whatsoever with the appellant. 9. The doctrine laid down in Yerkey's case has been strongly criticised in recent years as being out of touch with contemporary values. The matter was fully canvassed in the New South Wales Court of Appeal in the unreported judgment (delivered 10 February 1989) of Warburton v Whitely, Whitely v Warburton. Kirby J said at page 3 of that judgment:-
    "The advance in the status and education of women, the
    increasing role of women (including wives) in business and
    commercial affairs and the variety of personal relationships
    today all make a principle, fashioned in terms of a wife's
    disadvantageous position vis-a-vis her husband, unsafe when
    stated as a general rule of universal application. Even as a
    statement of a prima facie position, the statement is now
    unsound and objectionable in principle. It is also of dubious
    accuracy in practice. Doubtless, as Clarke JA points out, there
    are cases, even today, where wives in our society are in a
    position of special disability with respect to their husbands
    and in need of particular protection from the law in relation to
    incurring debts. That is not in doubt. What is in issue is the
    important question of principle as to whether the law's
    protection should be offered on the basis of assumptions about a
    dependent relationship as described fifty years ago or grounded
    in a more discriminating principle which can be adapted to the
    facts of the relationship proved. Such a principle would avoid
    presuppositions about the relationship only of wives to
    husbands. It would avoid (as Deane J did in Amadio) (at 475) a
    rule which confines the 'process of reasoning ... to cases of
    the relief of female spouses'. It would examine the facts of
    each relationship to determine whether a special disability
    existed. It could thus adjust the principle of the law so that
    it could apply to the greater variety of personal relationships
    such as exist today in greater number than fifty years ago. And
    it would withhold the interference of the law in the economic
    activities of individuals based upon no better reason than the
    existence of marriage and the presumed dependence of the wife
    within it." 10. Clarke JA (with whom McHugh JA agreed) after discussing the facts of that case at length and while pointing out:-
    "While it may be true to say that the need to recognise the
    disadvantaged position of a wife would appear less frequently
    today there are still to be found women in the community who are
    overborne by their husbands. The need for protection of those
    women is as great as ever." 11. Later he went on to say:-
    "On the other hand, it may be that the principles applied in
    Amadio, which applied in Commercial Bank of Australia v. Amadio
    151 CLR 447 which clearly extend to guarantees, provide
    sufficient protection and there is now no case for retaining the
    separate doctrine under discussion. However, that doctrine has
    been applied by the High Court and until that court indicates
    that it no longer is good law I consider that I should continue
    to apply it." 12. The Learned Special Magistrate as I read his judgment also considered himself bound but said:-
    "Mr Howard submits that the evidence discloses a lack of
    that degree of dependence necessary to found a case of undue
    influence. Again I agree with that. The defendant did in fact
    believe in and trust her husband. But she has demonstrated a
    capacity to handle business affairs in her own right and for her
    own benefit. Such influence as her husband had over her was not
    'undue influence' but rested upon a principle in which she
    believed and chose to adopt, that is, to support her husband in
    the new business enterprise in which he engaged following a
    motor vehicular accident which disabled him from continuing to
    be engaged in the export/import business which was his first
    interest. The final matter for me to mention in this judgment
    relates to the relationship between Independent Holdings Ltd and
    this defendant. There is no evidence of any relationship other
    than which sprang into being as a result of the defendant's
    signature to the document of guarantee. There is no evidence
    before me as to what was said between the plaintiff and her
    husband prior to the first defendant presenting the guarantee to
    this defendant for her signature. There is nothing before me to
    suggest that the plaintiff itself did anything directly to bring
    pressure to bear upon this defendant. There was no active
    intervention by the plaintiff which influenced what the
    defendant did. Whatever the defendant did stems solely from her
    relationship with her husband and was based entirely upon what
    he said to her on the day when the document was signed. In the
    instant case, having regard to her own evidence as to what was
    said to her combined with her own knowledge of her husband's
    business affairs, taken in combination with what the evidence
    demonstrates as to her own knowledge of business matters
    generally, I am satisfied that this defendant did in fact have
    an understanding of the nature and effect of the document which
    she signed. In my view, none of the matters raised in the
    counterclaim provides a basis for releasing the defendant from
    the obligations imposed upon her by the document which she
    signed. The defendant is an adult person of ordinary
    understanding and she is bound by the document which she
    executed. If there be any misunderstanding by her as to the
    terms of that document, such misunderstanding has not been
    brought about by mutual mistake or by undue influence, fraud,
    innocent misrepresentation or non-disclosure of material facts.
    It is not unconscionable in all of the circumstances to hold the
    defendant to her bargain. It is a plain and necessary inference
    that the provision of credit by the plaintiff to the defendant's
    husband was subject to this guarantee being obtained. The
    plaintiff, by necessary inference, supplied the goods relying
    upon this defendant's willingness to guarantee payment. I have
    a degree of sympathy for the defendant. Plainly, she has been
    highly industrious, her husband had the misfortune of an
    accident, his own business has failed, the defendant and her
    husband have a youngish family to support; as a result of a
    judgment the matrimonial home could be put at risk. I
    acknowledge all of that. But those are consequences which flow
    from the decision made by the defendant to sign this document
    when she did. Notwithstanding all that has been said as to her
    general background, and as to the particular circumstances of
    the day in question, none of the principles raised by Mr Patel
    or relied upon by him are in my view applicable given the facts
    proven before me." 13. In my opinion in the passage quoted above insufficient weight was given to the appellant's "prima facie" right to have it (the guarantee) set aside. Her evidence was that she did not know that she was signing a guarantee and signed without any consideration of the nature and effect of the document she signed but signed because her husband pressed upon her the urgency of the matter. Notwithstanding the fact that she had some business experience, the factors taken into account in the passages set out above in my opinion did not overcome, in the circumstances in which the guarantee was signed, the appellant's prima facie right to have it set aside. 14. As already mentioned the respondent took no steps to ensure that the appellant had obtained independent advice. In the result it did so at its peril. 15. I allow the appeal and set aside the judgment against the appellant.