CHAPTER 5 - Vitiating Factors & Illegality

Question

Mr and Mrs Sarnath migrated to Australia from Sri Lanka in 2005. They are dependent on their only son, Jayantha, for advice and support. They have limited education, no business acumen, poor language skills and their only income is the aged pension. They own their own home which is valued at around $400,000. Jayantha is a charming but reckless businessman,who is always on the verge of something great. In January 2019, he needs $150,000 to pursue a dot com opportunity that will make him rich. He is able to borrow money from the West Bank but only after he persuades his parents to act as guarantors. He misleads his parents as to the extent and purpose of the loan. The bank is unaware of this. After investigating their financial position, the bank manager meets with Mr and Mrs Sarnath and goes over the guarantee contract. He asks whether they have any questions and, when they do not, they sign the documents as required. Jayantha uses the money to invest in an internet company. The company is worthless and Jayantha loses his entire investment. When he is unable to repay the loan, West Bank looks to the parents to honour their obligations as guarantors.

Advise Mr and Mrs Sarnath.

*Answer using IRAC methodology*