Commercial and Corporations Law
Alan a retired carpenter and Bridget a retired caretaker are husband and wife in their 70s.
They were migrants from Russia who came to Australia in 1956 and have two children,
Carlos and Doris, both were born and educated in Australia. Both Alan and Bridget have no
formal education and both have very limited co mmand of English. In the past, most of the
important documents have been translated for them by their child ren or by qualified
translators. They have worked hard during th eir working lives and they own a modest family
home in Victoria that has a current market value of about $400,000.
Property Division Pty Ltd is in the business of buying properties and subdividing them into
smaller plots to re-sell them with profits. Carlos is a director of the company. The company
has been operating successfully in the past 10 years. However, in recent years, property
market has dropped in value and there is now less demand for smaller plots further out from
Melbourne CBD. Carlos is finding it difficult to re-sell the s ubdivided propertie s as quickly
as he has hoped for, and in the meantime the interest payments on the loans that the company
has with East West Bank are escalating and the company often falls behind in the repayments
to East West Bank that has repeatedly sent letters of demand for payments. Carlos
approaches Bruno who is a friend and a finance manager at East West Bank for assistance.
Bruno suggests refinance as a way of getting out of bank troubles and says that his parents
can be the guarantors and they can use the hom e they own to take out a further mortgage.
Over dinner, Carlos explains to his elderly parents and his sister about how successful his
property subdivision business is and that he needs a little help to expand his business and this
would take about 12 months. The elderly parents seem happy that their son is doing well in
business and so they agree to provide him w ith $30,000 as requested as a way of assisting
him to expand his business and agree to sign the guarantee and the mortgage document.
Bruno is mostly quiet during dinner, except that he walks away a couple of times to answer
his mobile phone. Bruno then presents the documents for the elderly couple to sign, he says
to Alan and Bridget that they should take a few days to read through the documents, think it
over and ask for professional advice from someone else if necessary. Nothing more is said
about this until after the dinner when Alan and Br idget say that they do not need to think it
over as their son is doing well in business and they have known Bruno since he was a child.
One and half years later, Property Division Pty Ltd goes into receivership. The company
owes the Bank about $150,000. East West Bank now attempts to enforce the mortgage and
the guarantee against the elderly couple.
Advise Alan and Bridget. Explain with clear and full reasons as to whether they have a
strong claim against East West Bank. (15 marks)
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