An unconscionable contract between parties is an agreement that grossly unjust, dishonest or unfair. Questions of competency, fairness, and honesty arise in determining whether an agreement is unconscionable or not. If parties manipulate these elements in that the agreement will be intolerable and shocking to the conscience of a normal person, then  court of law will deem the contract unfair. If the contract is void, it will not allow it to come to terms enforced. The unconscionability of a contract will always be a defense.  Therefore, one party sues the other for breach of contract whereas the other party claims unfulfilled obligations because the contract was unconscionable. The contract agreement cannot be unconscionable if one party’s terms are unfavorable. It is in the context that the contract is grossly unjust or unfair. The terms and benefits of the terms should be shocking to a normal person’s conscience. The court does review the questionable contracts, but, not with the aim of teaching people how to make sound business decisions, but to prevent one party from exploiting the other.

Background facts

The respondents, Mr. and Mrs. Amadio signed a memorandum of mortgage for the Appellant (Bank of Australia) to secure a loan. This loan was for their son. They were between 71 and 76 at the time of signing the mortgage. Born in Italy, they had been living in Australia for nearly four decades. They were illiterate as they had not received much formal education. Mr. Amadio could speak reasonably good English but had a limited grasp of written English. Mrs. Amadio had little understanding of spoken English, but usually required an interpreter. She was not conversant with business. Her husband had done a number of land transactions after his retirement as a market gardener. Doing the various transactions, he had received assistance from his son, Vincezo Amadio. The respondents were not well informed of the contents and details of the mortgage agreement, and they had no clue of what was going on. The transaction questions the misinterpretations of Vincezo Amadio. Vincezo Amadio was a business land developer and builder. He owned companies including V.Amadio Bulders Pty.Ltd. His parents had every reason to believe he was a successful man as the annual turnover of the companies amounted to millions of dollars. The Appellant bank thought the opulent lifestyle that he lived was deceptive. In October 1976, the company could keep within its overdraft limit and had applied to increase the limit so that it could pay its creditors. The bank granted the company the increase and conditioned it to clear its advance by December 1976.  By the deadline, the company still had not cleared its advances in overdraft, and it continued to accrue. Mr. Virgo and V. Amadio would daily selectively dishonor accounts presented by creditors as paying off the bills could have forced the company out of business. The company, could not pay its debts as it became insolvent. (At p451) The bank valued its connection with Vincezo Amadio, the reasons for maintaining the tolerant attitude. He also brought business to the bank, i.e. he participated in a joint venture with General Credits Ltd. This was a subsidiary bank, and Vincezo Amadio controlled it. (At p452) The bank decided to stop further operations on the company’s overdraft account realizing that it could no longer conduct the operations as before. This was on 18 march 1977. The company was to open another bank account and keep it on credit. Vincezo Amadio told the state bank manager that he had opened an account in a different bank and had arranged for an overdraft. He advised the manager that a building owned by his parents was used as security of the overdraft. This was true in the first case, but false to say his parents had granted him security. It was false in his part to claim to have spoken to his parents. The bank trusted him and was keen to keep his business. The state manager offered to take a mortgage over his parents’ property. With the security, the bank allowed the company to operate the frozen account. The company’s overdraft limit was of $270,000  and was to be reduced subsequently. By April 15, the remaining value of the overdraft would be cleared by a loan from another company. In the meeting they discussed nothing about the indebtedness of the company to the bank. Also nothing was decided on whether the whole amount was to be cleared by the mortgage or a limited amount. The state manager instructed Mr. Virgo to implement the decision.  (p. 452).  Vincezo Amadio called his parents to guarantee his account and provide security.  The issue of security whether to be for a limited or unlimited time did not come up between the respondents and the Appellant bank, but he had told his parents to guarantee an amount of $50, 000. The judge did not find that the misinterpretations made by Vincezo Amadio being fraudulent. (At p453)

Mr. Virgo went to the respondents’ home and obtained their signatures according to the memorandum in question. The respondents had agreed to pay all the dues owed by the company on demand, with interest, and they mortgaged their property as security for the company. Their discussion was extremely little. The respondents did not read the memorandum and Mr. Virgo did not explain the contents to them. As learnt by the judge, Mr. Virgo believed that Vincezo had explained everything to his parents sufficiently. Mr. Amadio remarked that he had recieved information that the mortgage would last only for six months. The respondents believed that their liability was limited to $50,000, but also that it was limited in the time span. The information their son provided had induced this belief, and they could have not signed in case they had known the true effect. (At p454) The company operated the new account, but the finances continued to deteriorate. The bank made a register of the mortgage in June 1977, and by the end of 1977, the company went into state of liquidation and Vincezo Amadio was declared a bankrupt. The bank made their demands to the respondents. However, they were not met. The bank served the notice of the sale of the property under the mortgage. The respondents instituted the court proceedings in which the bank counterclaimed for the due amount. The bank issued an amount $239, 830.85 on the counterclaim.


The respondents were in a disadvantage in that they were illiterate. They also were old, and the Appellant used this for his own advantage to procure an unfair contract. The respondents allege that the procurement of the mortgage was as a result of the unconscionable conduct. Legal issues

In the full court, it was held that the bank was under no obligation, it did not fulfill its responsibility to reveal to the respondents the true content of the memorandum with respect to the account, and it is then the liability of the bank for the misrepresentations. It was noted that the transaction was unconscionable in which equity would give relief. A contract of guarantee is not uberrimae Fidei. The principles governing the extent in which a creditor is bound to make disclosure into surety. This is stated in Hamilton v. Watson [1845] EngR568; (1845) 12CL and F 109 [8 ER1339]. Lord Campell says that, ‘unless questions are particularly put by the surety, a creditor taking a guarantee is not bound to make disclosure of material facts (1845) 12 Cl & F, at p 119. He continued; “ I should think  this might be considered as the criterion whether the non-disclosure ought to be made voluntarily; whether there is anything that might not be expected to take place between parties”.

Historically, the courts have practiced jurisdiction to set aside contracts and other dealings on a scale of equitable grounds. These include fraud, breach of fiduciary duty, undue influence, misrepresentation and unconscionable conduct. These dealings constitute unconscionable conduct on the part of the second party that benefits from the transaction.The transactions cannot be enforced as doing so would be inconsistent with good will, equity and good conscience. On the grounds of “unconscionable conduct”, relief comes in referring it to the class whereby the party makes conscientious use of the superior position they possess to the detriment of the party that suffers. The superior party uses their bargaining power in the situation of disadvantage, e.g., catching bargain with an unfair contract or expectant heir made by taking advantage of the seriously intoxicated by drink partners. Unconscionable conduct in its narrow sense bears some resemblance with the doctrine of undue influence as there is a difference between the two. In the context of undue influence, the will of the first party is not voluntary and is the first party is not independent, hence, being in a disadvantageous position. It is impossible to describe all situations in which relief will be administered on the grounds of unconscionable conduct. It goes without saying that it is not possible to describe exhaustively all the situations in which relief will be granted on the grounds of unconscionable conduct. As in Fullagar J. said in Blomley v. Ryan [1956] HCA 81; (1956) 99 CLR 362, at p 405.

The circumstances majorly affecting the first party, which may induce a court to check equity either to refuse its aid or to set an agreement aside, are of immense variety and can hardly be fully classified. Among these are poverty, sickness, age, sex, infirmity of the body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation from possible sources. Relief will not only be granted in exceptional situations as is made clear enough, by Fullagar J., but in situations that beg for more than exemplifications of an underlying general principle. This may be invoked by reason or condition of circumstance being placed at a distinctive advantage or disadvantage vis-à-vis another. In order to disavow any suggestion that this principle applies if there is a difference in the bargaining power of the two parties, the word ‘disadvantage’ is qualified by the adjective ‘special’.   Times have changed, and we have new situations which may be used to invoke the underlying principle. As discussed by Lord Reid and Lord Diplock in A. Schroeder Music Publishing Co.Ltd. v. Macaulay (1974) in 1WLR1308, at pp1314-1315and 1316; (1974) 3A11 ER616, at pp 622-623 and 624…here entry into a standard form of contract by parties affiliated to the bargaining of the contract contents is shown. In some situations, the plaintiff will seek relief in establishing unconscionable conduct. This explains the conscientious advantage as it is taken from the disabling condition or circumstances of the other party. The relationship between the various parties present in the contract agreement was by no means a novel. This is viewed as a situation to apply the general principle. This is seen in Owen and Gutch v. Homan (1853) 14 HLC 997, at pp 1034-1035 [1853] EngR 883; (10 ER 752, at p 767) and Bank of Victoria Ltd. v. Mueller [1925] VicLawRp 74; (1925) VLR 642, at p 649 It is in no doubt that the respondents’ age, lack of business experience and illiteracy play a crucial role in the judgment. Their failed to inquire on the financial position of the company, they relied on their sons’ judgment as well as failed to seek sound advice as to the possible consequences of the transaction they were about to sign. Their reliance on their son was as a result of their poor English. This was also valid reason in bringing out the unconscionable contract. The bank manager, i.e. Mr. Virgo did not mention the topic on unlimited liability because the respondents did not bring it up.


The judge found that if Vincenzo Amadio "had disabused his parents' minds because of their confidence in him. If he had told his parents the truth, they would not have helped him and his company. The correctness of this finding has not been questioned or challenged. This finding is thought to have been the reason that any person owing to the situation of the company could have preferred it kept secret. When deciding whether the bank took conscientious advantage of the position of disadvantage in which the respondents were placed, we must ask, first, what knowledge did the bank have the respondents' situation?”

The trial judge found that the respondents Mr. and Mrs. Amadio, who migrated to Australia in the nineteen thirties, had a limited knowledge in written English, but that the female respondent, Mrs. Amadio, although not good at expressing herself, had a fair understanding of spoken English. The trial judge also found that the male respondent understood spoken English to a certain degree and was capable of expressing himself fluently. The male respondent was ignorant, he had been active in many business transactions before his retirement. Moreover, nothing said or done by Vincenzo Amadio or his parents gave or was reasonably capable of giving to any bank officer the impression that the plaintiffs were ignorant, decrepit, senile or ill-informed that some bank officer ought to have explained the substance and the effect of the principal document. The trial judge was unable to find that in March 1977 the male respondent was incapable of sufficiently appreciating the nature and consequences of the document he executed at that time. There was no suggestion that the female respondent would have done other than follow her husband's lead and there is no basis for treating her position differently for the purpose of the application and use of the relevant principle. In my view, the appellant bank was not guilty. His non disclosure does not amount to a breach of contract or duty on its part, was not guilty of any misrepresentation to the respondents and was not guilty of any unconscionable dealing. The appeal was dismissed with costs.

Discount applied successfully