Case 9 - Nell v. Scrooge Bank

Summary

Case

When Scrooge Bank told David it was not prepared to give him a loan for his business without a personal guarantee, he did not dare tell his wife Nell. Instead, he explained that he was taking a short-term loan from the bank that required her to sign the loan document as secretary of his one-man company. Trusting David, Nell went to the bank and signed what subsequently proved to be a personal guarantee for David's business. Now that David's business has been declared insolvent, Scrooge Bank has called in the guarantee against Nell. What remedy, if any, is available?

Discussions

Austria

(i) In the case in discussion Nell has made a mistake of expression which is also a mistake as to the content of the contract in the broad sense. However, the question of whether the mistake is fundamental must be considered. The mistake will be considered important if the mistaken party, namely Nell, would not have concluded the contract had she known the true facts. Clearly, here Nell would not have agreed to conclude the contract of guarantee. Nell cannot, however, hope to succeed in contesting the validity of the contract, since none of the requirements stated in § 871 ABGB is fulfilled. The persons acting for Scrooge Bank were in no way responsible for causing Nell's mistake. Moreover they could not have been aware that Nell had made a mistake since she did not mention her intentions to them.