Duress, Undue Influence and Unconscionability
| Author | John D. Mccamus |
| Profession | Professor of Law. Osgoode Hall Law School, York University |
| Pages | 364-427 |
CHAP TER 11
DURESS, UNDUE
INFLUENCE AND
UNCONSCIONABILIT Y
A. INTRODUCTION
This chapter exami nes a cluster of doctrines applicable to ci rcum-
stances where a stronger party has taken advant age of a weaker party
in the course of inducing the weaker party’s consent to an agreement.
More particularly, the common law doctrine of duress and the equity
doctrines of undue infl uence and unconscionability will be considered.
Where applicable, each doctrine renders the agreement in question un-
enforceable at the option of the weaker party. These doctrines consti-
tute, then, exceptions to or limitations on the general approach of the
common law to the effect that where two par ties having contr actual
capacity reach a consensus ad idem on an exchange of value, the result-
ing bargain is enforceable. These doctrines are interrel ated and, in a
partic ular fact s ituation, it m ay be appropri ate to consider the applica-
tion of two or even all three of the doctr ines.
The organization and interrelation of the doctr ines bears t he bur-
den of the historical division of private law doctrine into doct rines of
common law and those of equity. The relationship between common
law duress and equitable undue infl uence illustrates the point. Both of
these doctri nes consider the effect of threats of various kinds made to
induce the threatened part y to enter into an agreement. Thus, the com-
mon law doctrine of dures s provided relief essentially i n cases of agree-
ments induced by dire threats, such as threatened physica l violence.
364
Duress, Undue In fl uence and Unconscion ability 365
Equity in its trad itional role of ameliorating the harsh edges of the com-
mon law, was prepared to render unenforceable agreements induced by
less dire threats. This aspect of the equitable doctrine has come down
to us as the doctri ne of “actual” undue infl uence.1
There is a second branch to the law of undue infl uence, however,
dealing with t he inducement of agreements in circumstances where
the transact ion results from abuse of a relationship of trust and con-
fi dence. Where such a relationship is found to exist, the existence of
undue infl uence is presumed and this second bra nch of the doctrine of
undue infl uence is therefore often referred to as “presumptive” undue
infl uence. Under this branch the existence of a threat of some kind is
not required. Under the traditional principles of duress at common law
and actual undue infl uence in equity, a threatened breach of contract
in a commercial setting would not be considered to be a threat in the
requisite sense. In the late-twentieth century, however, it became rec-
ognized that such threats might provide a ground for unenforceability
of the resulting agreement. As t his doctrine has been ter med “economic
duress,” however, it appears as an expansion of the categories of com-
mon law duress rather than an expansion of the equitable category of
actual undue infl uence. A more rational organiz ation of th is material
might distinguish between agreements induced by th reats (including
traditional duress, actual undue infl uence and economic duress) as op-
posed to agreements induced through abuse of a relationship of trust
and confi dence. Nonetheless, the convention of treating these subjects
according to the historic al divisions of common law and equity is wide-
ly accepted and will be followed here.
Although the distinct ion between undue infl uence and unconscion-
ability is less problematic, it is nonetheless the case that the boundary
line between relationships of trust and confi dence that are of such a n a-
ture as to give rise to presumptive undue infl uence and relationships
merely subject to a doctrine of unconscionability cannot be traced with
complete precision. This point is illustrated by the well-known decision
of the English Court of Appeal in Lloyds Bank v. Bundy.2 Bundy was an
elderly farmer who mortgaged his only ass et, Yew Tree Farm, to the bank
in order to provide funds to h is son whose business was in some diffi -
culty. On two further occa sions, the father was inv ited to provide addi-
tional securit y and guarantees in order to assist his s on and he did so. By
this time, t he total charge against t he property had come to exceed its
1 The doctrine of actu al undue infl uence is not re stricted, however, to situations
in which thre ats have been uttered. See be low this Chapter, section C(2).
2 [1975] Q.B. 326 (C.A.).
THE LAW OF CONTR ACTS366
value. On the signing up of the t hird charge, the bank manager, who had
recently taken over thi s position, appreciated that Bundy had no a sset
other than Yew Tree Farm and was of the view th at the problems with
the son’s company might be deep-seated. Nonetheless, he neither insist-
ed nor suggested that Bundy should take some time to think about the
transaction or, indeed, seek some advice on the matter. When the son’s
diffi culties were not alleviated, the bank foreclosed on the mortgage and
brought an action for possession of the farm. In response, Bundy sought
to set aside the tran saction on equitable grounds. For the majority of the
court, this ser ies of transact ions between the father and t he bank had
established the requisite relationship of trust and confi dence and thus,
on the basis of the traditional equitable doctr ine of undue infl uence, the
third and devastating transaction could be set aside. As we shall see,
these facts would likely g round a fi nding of unconscionability, at least by
a Canadian court. For a Canadian judge, then, Bundy m ight be a case of
undue infl uence or unconscionability or, indeed, both.
The Bundy case has att racted a good deal of attention, but not be-
cause of its location at the borderline of undue infl uence and uncon-
scionability. Rather, it was on this occasion that Lord Denning M.R.
proposed, in effect, a merger of the var ious doctrines considered i n
this chapter. Lord Denning seized upon the occasion to articulate a
new general principle that, in h is view, could serve the useful func-
tion of reconciling the complex of common law and equitable doctrines
permitting relief i n situations of this kind. He began by noting: “[I]n
the vast majority of cases, a customer who signs a bank guarantee or
charge c annot get out of it.”3 He then listed “exceptions to this general
rule” constituted by the doctrines of duress, undue infl uence a nd un-
conscionability.4 Lord Denning then proposed the following rational-
izing principle:
Gathering al l together, I would suggest that t hrough all these insta n-
ces there run s a single thread. They rest on “inequality of ba rgaining
power.” By virtue of it, the English l aw gives relief to one who, with-
out independent advice, enters into a cont ract upon terms which a re
very unfai r or transfers property for a considerat ion which is grossly
inadequate, when hi s bargaining p ower is grievously imp aired by
3Ibid. at 336.
4 Lord Denning M .R. did not refer to the concept of unconscion ability as such but
identifi ed two categories of case s where “undue pressure” provided a basi s of
relief, categorie s that appear equivale nt to the doctrine referre d to here as that
of “unconscionabi lity.” In addition, Lord Den ning listed a fi fth category relating
to salvage agree ments as being simil ar in nature. See ibid. at 337–39.
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