Mr A was a subcontractor who wanted a new vehicle for work. He needed finance to buy the vehicle and the finance company insisted on a guarantor. Mrs A agreed to sign the loan documents, even though she didn't fully understand her liability as guarantor.

Some time later, their marriage broke down. The couple agreed on the division of their property and consent letters were drawn up by their solicitors and filed in the Family Court. As part of the orders, Mr A was to keep the vehicle and continue to pay for it.

Several years later, Mrs A had remarried and was recovering financially. To her surprise, she was served with a Magistrates Court complaint for several thousand dollars still owed under the loan contract she had signed with her ex-husband years ago. The vehicle had been repossessed and sold and the finance company was seeking the shortfall between the amount the vehicle sold for and the amount owed under the loan.

Mrs A's former husband had declared himself bankrupt, so the finance company decided to enforce its rights against the guarantor.

Mrs A came to the Consumer Credit Legal Service early last year. She wished to defend the action on the basis that she did not understand her liability as a guarantor and that she had an order from the Family Court. As the Family Court Order could not bind the finance company and was in fact only enforceable against her ex-husband, who was broke anyway, her only possible defence was that she had been misled about the finance contract.

The defence failed. Mrs A was found liable and had to pay the finance company.

The outcome would be the same if Mrs A had been a co-borrower.