Coercion Guaranteed

I posted last week on a judgement which awarded a large sum of money to a woman who had been both physically and emotionally abused by her husband. I remarked that an important element of the decision was the recognition of the damage inflicted by emotional abuse.

Now, from an entirely different field of law, comes further recognition of the constraints on someone being pressured and emotionally abused by her spouse.

Judge Tamar Naot-Perry, a Magistrate’s Court judge in Haifa, ruled on a suit by a major bank against a husband and his wife, now living separately. The husband had opened a company, and in asking for a loan for the company, the bank had required that both the husband and the wife guarantee the loan. The company went under, the loan went unpaid, and the bank sued both the man and the woman as guarantors of the loan.

It’s an important decision in recognizing that even when we are ostensibly free agents, our actions are constrained. It will be interesting to make use of this in division of property suits in Family Court, where the person who has racked up debts in a failed business enterprise tries to dump half of the debts on the other party.

The woman testified before the court that she knew nothing of the husband’s business dealings and was not even aware that he had opened a company. She was unaware that she was signing a guarantee at the time of the signing; apparently, her husband demanded that she sign the forms, all the while misleading her by telling her they were related to the conditions of the loan they took for the mortgage on their apartment.

She only discovered that there had been a loan from the bank, and that she was a guarantor, at the time she was served with the lawsuit from the bank.

In general, the man frequently threatened her and was verbally abusive, which implies that she was functionally unable to refuse his demands.  The judge accepted her testimony that she operated under threats from the husband, that she was afraid of him, and that he and he alone ran the business and bore sole responsibility for the finances in the home. She went to the bank because he told her to, and was afraid to ask any questions; she didn’t speak with the bank clerk, and the husband did all the talking.

Furthermore, she testified that the bank did not explain to her the substance of the papers on which she signed; the judge accepted this testimony and took the bank to task for simply allowing a spouse to sign, without bothering to explain either the substance or the ramifications of their signature.

Despite the extreme caution the court must exercise before exempting a guarantor from fulfilling his or her contractual obligations, under the circumstances of this case, the judge was left with the deep impression that the woman’s fear was real and credible. Apparently, there was some evidence as to the husband’s ability to frighten the woman during their interactions in the courtroom, which also re-enforced the judge’s perception of the relationship.

The judge had no problem determining that the woman thought she was signing on a different document, but did say that the woman did not exercise the requisite caution even if, between the lines, it’s likely that given the inequitable power relations between the couple, she probably couldn’t have asked any questions had she wanted to.

Despite the woman’s failure to ask any questions, the judge ruled that the bank had a clear obligation to give her all the relevant information and to explain to her the content and significance of the document she was signing. While the bank played no role in misleading the woman, it did have an obligation to explain, and doing so would have clarified to her that she was not signing documents related to a mortgage.

The judge goes on to say that the obligation to explain that the responsibility is even greater given that woman had no experience with finances, and given the imbalance in power relations between the couple.

My question is, does have a bank have a responsibility to know this? To assume this? Ostensibly, the bank has an obligation to explain even if the couple has an equal relationship, and both are involved in finances. It seems to me to be irrelevant – from the bank’s point of view – what the relationship is between the parties, unless a bank worker had special knowledge in this area.

In any case the judge really took umbrage at the testimony of the bank clerk who said that if the wife would have asked questions about the document, he would have answered, but she didn’t ask any questions.

Furthermore, although she signed the guarantee in 2007 and the company started floundering shortly thereafter, the bank didn’t approach her about the debt or the account until 2010, after filing suit against the husband/company. Had she known about the debt and the guarantee earlier, these might have come into play when the two separated.

In any case, based on the combination of these factors – the woman’s lack of knowledge and the bank’s failure to discharge its responsibilities- the judge exempted the woman from payment.

My only hope is that some of my colleagues don’t misuse this decision and attempt to apply it where grounds do not exist.

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