Duress, Undue Influence, and Unconscionability

• Author: John D. McCamus
• Pages: 403-499

403

CH AP TER 11

DURESS, UNDUE

INFLUENCE, AND

UNCONSCIONABILITY

A. INTRODUC TION

This chapter exami nes a cluster of doctrines applicable to circum-

stances where a stronger party h as taken advantage of a weaker part y

in the course of inducing the weaker pa rty’s consent to an agreement.

More particularly, the common law doctrine of duress a nd the equity

doctrines of undue inf‌luence and unconscionability will be considered.

Where applicable, each doctrine renders the agreement in question

unenforceable at the option of the weaker party.1 These doctrines con-

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

the common law to the effect that where two par ties have a contractual

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

gain that result s is enforceable. These doctrines a re interrelated and, in

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

cation of two or even all three of the doctr ines.

The organization and interrelation of the doctrines bears the

burden of the historical div ision of private law doctrine into doctrines

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 various k inds made

1 Exceptionall y, the newly minted doct rine of the “unconscionable ter m” 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 chapter.

THE LAW OF CONTR ACTS404

to induce the threatened part y to enter into an agreement. Thus, the

common law doctrine of duress provided rel ief essentially in ca ses of

agreements induced by dire th reats, such as threatened physical v io-

lence. Equity in its traditional role of ameliorating the harsh edges of

the common law, was prepared to render unenforceable agreements

induced by less dire thre ats. This aspect of the equitable doctr ine has

come down to us as the doctri ne of “actual” undue inf‌luence.2

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

ing with the inducement of agreements in circumstances where the trans-

action results from abuse of a relationship of trust and conf‌idence. Where

such a relationship is found to exist, the existence of undue inf‌luence is

presumed and this second branch of the doctrine of undue inf‌luence

is therefore often referred to as “presumptive” undue inf‌luence. 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 inf‌luence in equity, a threatened breach of contract in a commer-

cial setting would not be considered to be a th reat in the requisite sense.

In the late-twentieth century, however, it became recognized that such

threats might provide a ground for unenforceability of the resulting

agreement. As this doct rine has been termed “economic duress,” how-

ever, it appears as an expansion of the categories of common law dur-

ess rather tha n an expansion of the equitable category of actua l undue

inf‌luence. A more rational organization of this material might dist in-

guish between agreement s induced by threats (including traditional

duress, actual undue inf‌luence, and economic duress) as opposed to

agreements induced through abuse of a relationship of trust and conf‌i-

dence. Nonetheless, the convention of treating these subjects accordi ng

to the historical div isions of common law and equity is widely accepted

and will be followed here.

Although the distinction between undue inf‌luence and unconsc-

ionability is less problematic, it is nonetheless t he case that the bound-

ary line between rel ationships of trust and conf‌idence that are of such a

nature as to give ri se to presumptive undue inf‌luence and relationships

merely subject to a doctrine of unconscionability c annot be traced with

complete precision. This point is illustrated by the well-know n deci-

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

was an elderly farmer who mortgaged his only a sset, Yew Tree Farm,

to the bank in order to provide funds to h is son whose business was

in some diff‌iculty. On two further occ asions, the father was invited to

2 The doctrine of act ual undue inf‌luence is not restr icted, however, to situations

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

3 [1975] QB 326 (CA) [Bundy].

Duress, Und ue Inf‌luence, and Unconsciona bility 405

provide additional securit y and 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 third 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 t he son’s company might be deep-seated.

Nonetheless, he neither insisted nor suggested t hat Bundy should take

some time to think about the transaction or, indeed, seek some advice

on the matter. When the son’s diff‌iculties were not alleviated, the bank

foreclosed on the mortgage and brought an action for possession of

the farm. In resp onse, Bundy sought to set aside the transaction on

equitable grounds. For the majority of the court, this series of trans-

actions between the father and t he bank had established the requisite

relationship of trust and conf‌idence and t hus, on the basis of the trad-

itional equitable doctrine of undue inf‌luence, 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 Canad ian court. For

a Canadian judge, then, Bundy might be a case of undue inf‌luence or

unconscionability or, indeed, both.

The Bundy case has att racted a good deal of attention, but not because

of its location at the borderline of undue inf‌luence and unconscionabil-

ity. Rather, it was on this occasion that Lord Denning MR proposed, in

effect, a merger of the various doctrine s considered in this chapter. Lord

Denning seized upon the occasion to articulate a new general principle

that, in his v iew, could serve the useful f unction of reconciling the

complex of common law and equitable doctrines 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 general rule” constituted by

the doctrines of dures s, undue inf‌luence, and unconscionability.5 Lord

Denning then proposed the following rationalizing principle:

Gathering al l together, I would suggest that through all t hese instan-

ces there run s a single thread. They rest on “inequal ity of bargaining

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

out independent advice, enters into a cont ract upon terms which are

very unfai r or transfers property for a cons ideration which is grossly

4 Ibid at 336.

5 Lord Denning MR di d not refer to the concept of unconscionabilit y as such but

identif‌ied two c ategories 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 Denn ing listed a f‌ifth categor y relating

to salvage agreem ents as being simila r in nature. See ibid at 3 37–39.