Unconscionability is used to defeat or challenge contracts
. For some reasons, it has become hard and fast associated with the vague term bargain
. Many contract law
books refer to the doctrine
of unconscionability by using the phrase unconscionable bargain
, as if a bargain was an alternate legal creature from a contract
. It is not. But lawyers, and especially law professors don't like change so if it was good enough for British judges in the 1800s, it's good enough, period.
Even the revered Chitty on Contracts refers to the doctrine of unconscionable contracts under the heading unconscionable bargains.
Legal historians expend reams of paper trying to justify a history of the doctrine of unconscionability when in fact, it crystalized from an 1888 decision of Justice Kay in Fry v Lane.
At this time, in the history of the common law, the traditional rigidity of the common law often rubbed horns with its alter ego, the touch-feely character of equity. Where there had been no fraud or clear undue influence, the common law saw no reason to extract a sinking man from his improvident bargain. A contract is a contract; freedom of contract and all. But the courts of equity saw a need for those exceptional cases where a contract was obviously excessively harsh and especially where one of the parties was poor, or relatively ignorant, or elderly, or all three.
William Fry was described as just such a poor and ignorant man; still, a helluva legacy to have in perpetual law reports. In any event, Justice Kay uttered those magic words:
"... where a purchase is made from a poor and ignorant man at a considerable undervalue, the vendor having no independent advice, a court of equity will set aside the transaction."
In a 1906 decision1, Justice Macnaghten wrote that an unconscionable contract is one which is:
"... unreasonable and not in accordance with the ordinary rules of fair dealing."
So entrenched became the doctrine that when the Americans drafted their Uniform Commercial Code, they included at §2-302:
"If the court as a matter of law finds the contract or any term of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable term, or it may so limit the application of any unconscionable term as to avoid any unconscionable result."
Even in England, horrified as they are of codification, a European Union Directive2 looms large:
"A contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer."
In summary, as stated by Chitty:
"The doctrine of unconscionable bargains seems to be limited in three ways. The first is that the bargain must be oppressive to the complainant in overall terms. The second that it may only apply when the complainant was suffering from certain types of bargaining weakness. And the third, that the other party must have acted unconscionably in the sense of having taken advantage of the complainant."
The eventual overlap with the doctrine of undue influence was inevitable. For example, the following is often cited as an authority, from Justice Davey of the British Columbia Court of Appeal in Morrison; where a 79-year old woman had been coached into taking out a mortgage on her property so that two men could pay off their own consumer loans. The court set aside the mortgage contract, writing:
"The equitable principles relating to undue influence and relief against unconscionable bargains are closely related, but the doctrines are separate and distinct. The finding here against undue influence does not conclude the question whether the appellant is entitled to relief against an unconscionable transaction.
"A plea of undue influence attacks the sufficiency of consent; a plea that a bargain is unconscionable invokes relief against an unfair advantage gained by an unconscientious use of power by a stronger party against a weaker. On such a claim the material ingredients are proof of inequality in the position of the parties arising out of the ignorance, need or distress of the weaker, which left him in the power of the stronger, and proof of substantial unfairness of the bargain obtained by the stronger. On proof of those circumstances, it creates a presumption of fraud which the stronger must repel by proving that the bargain was fair, just and reasonable."
- Council Directive 93/13/EEC, 5 April 1993, Unfair Terms in Consumer Contracts, §3(1) (note 2)
- Duhaime, Lloyd, Contract Law
- Duhaime, Lloyd, Legal Definition of Undue Influence
- Duhaime, Lloyd, Privity, Consent and the Reasonable Man
- Morrison v Coast Finance 55 D.L.R. 2d 710 (1965)
- Fry v Lane 40 Ch. D. 312 at page 322 (1888)
- Samuel v Newbold 1906 A.C. 461 (note 1)