Duress, Undue Influence, and Unconscionability

• Author: John D. McCamus
• Pages: 378-452

378

CHAP TER 11

DURESS, UNDUE

INFLUENCE, AND

UNCONSCIONABILITY

A. I NTRODUC TION

This chapter examines a cluster of doctrines applicable to circum-

stances where a stronger part y has taken advantage of a weaker party

in the course of inducing the weaker par ty’s consent to an agreement.

More particularly, the common law doctrine of dure ss and the equity

doctrines of undue inf‌luence and unconscionability will be considered.

Where applicable, each doctrine renders the agreement in question un-

enforceable at the option of the weaker party.1 These doctrines consti-

tute, then, exceptions to or limitations on the general approach of the

common law to the effect that where two parties have a contractual

capacity to reach a consensus ad idem on an exchange of value, the bar-

gain that result s is enforceable. These doctrine s are interrelated and, in

a particular f act situation, it may be appropriate to consider the appli-

cation of two or even all three of the doctri nes.

The organization and interrelation of the doctrines bears the bu-

rden of the historical div ision of private law doctrine into doctr ines of

common law and those of equity. The relationship between common

law duress and equitable undue inf‌luence illustrates the point. Both

of these doctrine s consider the effect of threats of var ious kinds made

1 Exceptional ly, the newly minted doct rine of the “unconscionable t erm” may

permit a court t o excise the offending ter m of the contract and enforce the

remainder. See Se ction D(6), below in this chapt er.

Duress, Undue In f‌luence, and Unconscionability 379

to induce the threatened party to enter into an agreement. Thus, the

common law doctrine of duress provided relief essentially i n cases of

agreements induced by dire th reats, such as thre atened physical vio-

lence. Equity in its tradit ional role of ameliorating the harsh edges of

the common 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 doctrine of “actual” undue inf‌luence.2

There is a second branch to the law of undue inf‌luence, however,

dealing with t he inducement of agreements in circumst ances where

the transact ion results from abuse of a relationship of trust and con-

f‌idence. Where such a relationship is found to exist, the existence of

undue inf‌luence is presumed and t his second branch of the doct rine of

undue inf‌luence is therefore often referred to as “presumptive” undue

inf‌luence. Under this branch the exi stence of a threat of some kind is

not required. Under the traditional pr inciples of duress at common law

and actual undue inf‌luence in equity, a threatened breach of contract

in a commercial setting would not be considered to be a t hreat in the

requisite sense. In t he late-twent ieth century, however, it became rec-

ognized that such threats might provide a ground for unenforceability

of the resulting agreement. As this doctrine has been termed “econom-

ic duress,” however, it appears as an expa nsion of the categories of com-

mon law duress rather than an expansion of the equitable category of

actual undue inf‌luence. A more rational organi zation of this material

might distingui sh between agreements induced by threat s (including

traditional dures s, actual undue inf‌luence, and economic duress) as op-

posed to agreements induced through abus e of a relationship of trust

and conf‌idence. Nonetheless, the convention of treating these subjects

according to the historica l divisions of common law and equity is wide-

ly accepted and will be followed here.

Although the distinction between undue inf‌luence and unconscion-

ability is less problematic, it is nonetheless the case that the boundary

line between relationships of tr ust and conf‌idence that are of such a na-

ture as to give rise to presumptive undue inf‌luence and relationships

merely subject to a doctrine of unconscionabilit y cannot be traced w ith

complete precision. This point is illustrated by the well-known decision

of the English Court of Appeal in Lloyds Bank v. Bundy.3 Bundy was an

elderly farmer who mortgaged his only ass et, Yew Tree Farm, to the bank

in order to provide funds to his son whose business was in some diff‌i-

2 The doctrine of actu al undue inf‌luence is not restr icted, however, to situations

in which thre ats have been uttered. See Se ction C(2), below in this chapte r.

3 [1975] Q.B. 326 (C.A.) [Bundy].

THE LAW OF CONTR ACTS380

culty. On two further occasions, the fat her was invited to provide addi-

tional security a nd guarantees in order to assist his son and he did so.

By this time, the total charge against the property h ad come to exceed

its value. On the signing up of the th ird charge, the bank manager, who

had recently taken over this position, appreciated that Bundy had no

asset other than Yew Tree Farm and was of the view that the problems

with the son’s company might be deep-seated. Nonetheless, he neither

insisted nor suggested t hat Bundy should take some time to think about

the transact ion or, indeed, seek some advice on the matter. When the

son’s diff‌iculties were not alleviated, the ban k foreclosed on the mortgage

and brought an action for possession of the farm. In re sponse, Bundy

sought to set aside the trans action on equitable grounds. For the major-

ity of the court, this series of transactions between the father and the

bank had establi shed the requisite relationship of trust and conf‌idence

and thus, on the basis of the traditional equitable doctrine of undue in-

f‌luence, the third and devastating transaction could be set aside. As we

shall see, these facts would likely ground a f‌inding of unconscionability,

at least by a Canadia n court. For a Canadian judge, then, Bundy might be

a case of undue inf‌luence or unconscionability or, indeed, both.

The Bundy case ha s attracted a good deal of attention, but not be-

cause of its location at the borderline of undue inf‌luence and uncon-

scionability. Rather, it was on this occasion that Lord Justice Denni ng

M.R. proposed, in effect, a merger of the various doctri nes considered

in this chapter. Lord Justice Denning sei zed upon the occasion to ar-

ticulate a new general principle that, in h is view, could serve the useful

function of reconciling the complex of common law and equitable doc-

trines permitting relief in situations of this kind. He began by noting:

“[I]n the vast majority of cases, a customer who signs a bank guarantee

or charge cannot get out of it.”4 He then listed “exceptions to this gen-

eral rule” constituted by the doctr ines of duress, undue inf‌luence, and

unconscionability.5 Lord Justice Denning then proposed the following

rationalizing principle:

Gathering al l together, I would suggest that through a ll these in stan-

ces there run s a single thread. They rest on “inequality of ba rgaining

power.” By virtue of it, the English law give s relief to one who, with-

4Ibid. at 336.

5 Lord Denning M.R. d id not refer to the concept of unconscionabil ity as such but

identif‌ied two cat egories of cases where “undue pre ssure” provided a basis of

relief, categorie s that appear equivalent to t he doctrine referred to here a s that

of “unconscionabi lity.” In addition, Lord Den ning listed a f‌ifth c ategory relating

to salvage agreeme nts as being simila r in nature. See ibid. at 337–39.