Lesion (CVL)/Unconscionability (CML)
One person taking undue advantage of another, by reason of considerable inequality of bargaining power with a very unfair result (must shock the conscience of the court)
-broader concept, inequality of prestations, plus inequality of bargaining power
-contracts of adhesion can be an indicator of unconscionability
Remedy: Recission
Unconscionability (CML)
CML - Harry v. Kreutzinger
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Leading case of unconscionability in Canada
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Uses very paternalistic and offensive language
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“Inequality in the position of the parties due to the ignorance, need or distress of the weaker, which would leave him in the power of the stronger”
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One party is incapable of protecting his or her interests (vulnerability of one person due to old age, lack of experience, disabilities, emotional distress, illiteracy etc.)
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“Coupled with a substantial unfairness of the bargain” = undue advantage
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Doesn’t matter that Harry could have sought legal advice? “… he was overborne by the respondent because of the inequality of their positions”
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J.A. Lambert: “Sufficiently divergent from the Community standards of commercial morality”
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Note closeness to public policy reasoning
CML – Harry v. Kerutzinger, [1979] 9 BCLR 166 (CA), CB2 : 53 |
Jurisdiction
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British Columbia
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Facts
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Harry, an inexperienced, hearing-impaired First Nations fisherman with a grade 5 education and six children, sold his fishing boat, to which a very valuable (Class “AI” – available to Indians only) fishing license was attached, for a quarter of its worth ($4500 for a $16 000 value). Kreutzinger assured him he would be able to procure another license, which was not true. Kreutzinger aggressively pressured Harry, to complete the sale, which he finally did. When he discovered that he could no longer get a comparable fishing license, Harry sued for unconscionability. At trial, the court said the contract was fair because Harry could have sought independent legal advice but didn’t, so he couldn’t complain that the price was unfair.
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Issues
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Was the contract void for unconscionability?
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Holding
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Yes (3-0) Harry. Contract rescinded. Parties ordered to return their prestations.
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Reasoning
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McIntyre JA:
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The trial judge distinguished this case from Lloyds Bank v. Bundy because the appellant did not agree as a result of one session of bargaining – he had the opportunity to consider the decision, so should not complain that the consideration was inadequate.
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Principles of unconscionability differ from those of undue influence. Articulated in Morrison v. Coast Finance Ltd.: “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.”
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Proof of inequality in the position arising out of the ignorance, need or distress of the weaker
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Proof of substantial unfairness of the bargain obtained by the stronger
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Equitable remedy – to set aside the contract
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In this case, the respondent was in a far superior position in terms of experience, education and full knowledge of the value of a commercial fishing license – the appellant “was overborne by the respondent because of the inequality in their positions, and the principles of the cases cited apply.”
Lambert JA (concurring):
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Not satisfied that the principle stated in Morrison v. Coast Finance Ltd. is sufficient to exhaust all cases where rescission could be ordered under the rubric of unconscionable bargain.
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Return to Denning J’s reasoning in Lloyds Bank – “the categories for grounds for rescission are interrelated and based on a common foundation, so that cases of one of the five types may provide guidance on another of the types.”
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Is this transaction, seen as a whole, sufficiently divergent from commercial standards of morality that it should be rescinded? In this case, it was, and this should be the grounds on which it is set aside.
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Ratio
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Inequality of position + Substantial unfairness Presumption of fraud, reversible by proof by the stronger party that the bargain was fair and reasonable.
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Comments
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Note the closeness of the “commercial morality” argument to public policy reasoning
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CML – Toker v. Westerman (US) – Unconscionability through Price
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Situation of the parties:
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Seller: Door to door sales – less overhead
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Buyer: Welfare recipient
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Shows a move from will to fairness in the U.S.
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Court in effect rewrites the bargain, looks at market price and sees that W had paid more than the market value already – the difficulty is what is a “fair” price
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Note: English/Canadian courts have been reluctant to partly enforce contracts
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Note the similarity to ‘lesion”
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Uniform Commercial Code is the law according to which this case is adjudicated
Uniform Commercial Code is a model code, adopted by nearly every state in the U.S.
UCC § 2-302 Unconscionable contract or Clause
(1) If the court as a matter of law finds the contract or any clause 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 clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.
(2) When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose and effect to aid the court in making the determination.
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