Gordley's theory of bargaining is the both parties should gain equally from the exchange
Ethical principle for equality of exchange… contracts should be invalidated if one party gains disproportionately
The ethical intuition is that a party in an everyday exchange does not intend to make a gift to the other party, which is what occurs if one person pays too much or receives too little in an exchange
It is a theory of substantive fairness
I don't know how this section applies
Information Processing Disabilities: Cognitive Deficiencies
Cognitive deficiencies
Where two parties have equal access to the relevant body of information about the contract subject matter, but have sharply differential capacities to evaluate the implication of that information for their respective welfare
Two sub-cases:
Transactional incapacity
A knows of B's inability to deal with a given complex transaction and exploits that incapacity by inducing B to make a bargain that a person who had the capacity to deal with the transaction probably would not make
Unfair persuasion
The use of bargaining methods that seriously impair the free and competent exercise of judgement and produces a state of acquiescence that the promisee knows is only temporary in the promisor
Intrusive sales tactics
Taking advantage of someone's emotional state
For terms to be binding they should arise out of the autonomous consent of the parties and reflect base-line conditions of voluntariness and information
Standard Form Contracts
Two hostilities against standard form contracts:
That the use of standard form contracts is a manifestation of monopoly
That the use of standard form contracts is typically characterized by imperfect information on the part of some of the parties to them
The second argument is more substantial
People know that people do not read all the terms, and it saves people money to bargain like this
So when should it be wrong to enforce standard forms?
Where a supplier has deliberately exploited a consumer's ignorance of terms generally available, in the market for like goods or services, to consumers in an economically similar situation in order to exact terms substantially inferior to these generally prevailing terms, the supplier's actions should be viewed as unconscionable`
Unconscionability and the Code
Arthur A. Leff, "Unconscionability and the Code"
Introduces the basic necessities of a contract
Parties with capacity
Manifested assent
Consideration
Party is bound unless he can make standard contract-law defense:
Fraud, duress, mistake, impossibility or illegality.
These defenses can be grouped into two categories:
Process of contracting
Fraud, duress
The resulting contract
Impossibility, illegality
These two categories are then used for two forms of unconscionability
Procedural Unconscionability
Problems existing in the formation process of the contract
There is not clear definition of what is meant by unconscionable (in America?)
Asks the question of what is the best way to inject unconscionability doctrine into law?
Author would prefer well drafted legislation
Discusses case where a woman of limited intelligence supporting her family off $218/month from government purchases $500+ stereo, defaults, and has the rest of the appliances from this store taken as well.
"Unconscionability has generally been recognized to include an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party"
Negotiating aspect
Contractual terms aspect
Notes the dangers of using class stereotypes in applying unconscionability
Young people can't bind themselves
Old ladies can't bind themselves
Blahblahblah
Author wants more satisfying legislation.
Exploitative Contracts
Rick Bigwood, Exploitative Contracts (Oxford: Oxford University Press, 2003), 505-10,514-15
Should some conduct lesser than exploitation function as the justificatory paradigm for state interference with contracts entered into under potentially exploitive conditions?
Author uses the idea of the norms of a "legal neighbourhood"
Exploitative contracts breach the norms that define and constrain pre contraction interactions of bargaining parties
Legal Neighbourhood:
A situation where "serious" vulnerability or dependency exists on the one side of an interpersonal relationship or dealing; and,
That vulnerability or dependency is sufficiently known to the party on the other side of the relationship, who enjoys an atypical degree of interpersonal power as a result
Legal neighbourhood generates norms of decent treatment toward parties who are vulnerable
Violation of these norms justifies state-intervention
Responsibilities:
Responsibility not o create serious vulnerability to harm in bargaining
Responsibility to not unfairly derive benefit in virtue of another's known serious bargaining disadvantage relative to you, even though you didn't create the disadvantage
Exploitation is preferred over mere neglect because it still respects sanctity of contract
Post et al. v Jones et al.
Ratio:
Where one party has absolute power, and the other has no choice but submission is a transaction which has no characteristic of a valid contract
Facts:
A Ship the Richmond was whaling in the north Pacific
Ran onto rocks close to shore in fog
Winter was coming
Other whaling ships were spotted nearby when the fog cleared
The captain went to a ship and asked them to take their crew, and that there was whale oil on the Richmond for them to take
Other ships became involved and there was an auction of the oil
The prices were LOW
The captain had to accept them
Issue:
Is the transaction between the captain of the Richmond and the other boats valid given the bargaining situation the captain was in
Decision:
For the Richmond,
Reasons:
Putting items to sale where there was no market, no competition, and where one party held all the bargaining power - is a transaction which has no characteristic of a valid contract
Courts of admiralty enforce contracts for salvage, but they do not like it when a party takes advantage of the situation and of other's misfortune to drive a bargain
Marshal v Canada Permanent Trust co.
Supplemented brief by Cassidy Thomson
Issue
Ratio
Notes
What is unconscionability?
There are two requirements for unconscionability:
Gross inequality of bargaining power (so one party might have incapacity like this case)
An improvident bargain. (a bad deal!)
Person who asserts the K is unconscionable must prove it is so on a balance of probabilities… once they do a prima facie case is made out. Then it is up to the other person to rebut or explain why it isn’t unconscionable (i.e. the bargain is fair)
Facts: Ptf offered to purchase land from def. who was in an elderly care home. Def accepts. The price for the land is grossly undervalue. Def. in process of being declared mentally incapacitated to deal with his legal affairs. Trust takes over his affairs and refuses to complete the K. Ptf sues for specific performance. Def’s estate counter claims for rescission due to unconscionability.
Husband said she didn’t need a lawyer even though she wanted one
Issue:
Unconscionability within a relationship where there is no typical mental weakness?
Reasons:
He was in a position of control
Court quotes Coutes
“…..”
Burden shifting when you have to prove:
Because he got such a good deal he needs to show it was fair
Before burden is on him, you need to show the deal is really bad and there was a difference of bargaining power
Lloyds Bank Limited v Bundy
Supplemented brief by BBeitz
FACTS
Old Herbert Bundy mortgaged his only remaining asset farm that had been in his family for 300 years to bank to benefit his son. Bank sued to throw him off the property. Bundy had not obtained independent legal advice before entering agreement. Bank knew Bundy had no other assets.
HELD
Undue influence. K set aside.
RATIO
"law gives relief to one who without independent advice, enters into contract upon terms which are very unfair or transfers property for consideration which is grossly inadequate, when bargaining power grievously impaired by reason of own needs, desires, ignorance, infirmity, coupled with undue influences or pressures brought to bear on him by or for benefit of the other"
Bank manager knew business would fail and wasn’t trying to save it; only wanted to shore up Bank’s losses
OTHER
Denning decision
Class Notes:
Son needs something (securing land against something) for increased line of credit from bank
Father signs pretty much anything because he is old
Father signs security for son
When should the bank manager, who went over to the house to attain the signature, be on inquiry notice to make sure the person is with it
Where the bargaining power is so strong with one party, and so weak with another
Hinges on lack of independent consideration
Greviously impaired bargaining power
(IC) Credit Lyonnais Bank Nederland NV v Burch
Miss Burch started working for her employer at the age of 18. She became close to the director, Mr Pelosi, who was an Italian business man 10 years older and trusted him implicitly. She often visited his home to do babysitting and went on holiday with the family to Italy. At the age of 21 she purchased a flat. 5 years later, she was still working for him but the company was experiencing financial difficulty. Mr Pelosi asked her to put her flat up as security for a loan taken out by the company. He told her that his home and villa in Italy were also secured on the debt but they would not accept 100% mortgage on these properties and needed another £20,000. She agreed to allow her home to be used as security believing that it was only £20,000 and that Mr Pelosi's properties would first be sold which would release the debt so that there was no risk to her. The bank had written to her and informed her that the charge was unlimited in amount and time and advised her to seek independent advice. She at no time was told of the extent of the company's borrowings which stood at £270,000 neither did the bank satisfy themselves that she had in fact received independent advice.
Held:
The agreement of Miss Burch had been obtained by undue influence and the bank had notice of this as the transaction was so obviously to her disadvantage. The bank had taken insufficient steps to avoid constructive notice. Therefore the transaction could be set aside.
(IC)Royal Bank of Scotland p.l.c. v Etridge (No.2) and Other Appeals
