Discuss the Judicial Attitude of the Australian Courts to the Rule in Yerkey V Jones

Abstract

In Yerkey v Jones (1940) 63 CLR 649, Dixon J developed the law concerning when the married women who guaranteed their husband’s debts can be set aside by the special equitable principle for protecting the wives since the husband used undue influence to procure the wife’s consent and the wife did not understand the nature and effect of the security given. This essay is to discuss the judicial attitude of the Australia and England to the rule in Yerkey v Jones. Basically, Australian courts did not prefer to apply the first limb of special equity favouring wives that is an outmoded approach; nevertheless, English and Australian cases are more inclined to the second limb of decision in Yerkey v Jones, in which the surety obtains no benefit from the transaction and the creditor is aware that the surety is in a relationship of trust and confidence with the principal debtor, then the creditor can be said to have taken the risk of impaired consent from the surety.

Introduction

‘A guarantee is a contractual promise by a guarantor to answer the obligation of a principal debtor.’ The use of a guarantee can be a strong form of security depending on its nature. Whereas, it may bring some unenforceable risks arising from the guarantor escaping the liability under the guarantee, such as misrepresentation, undue influence and unconscionable conduct.

In addition to the certain pre-contractual circumstances above, the decision of the High Court of Australia in Yerkey v Jones established a special equitable principle in favour of wives. In the case, the wife is a guarantor of his husband, the principal debtor. The guarantee was being set aside when she misunderstood the nature of the security given to a bank on basis of securing debts to her husband. However, its equity would lead to arguable judicial attitudes. Hence, the aim of this essay is to discuss the judicial application of the special equity rule in different judicial approaches, particularly putting...