Some transactions are so unconscionably bad that the law will set them aside.
Buccilli v Pillitteri 2012 ONSC 6624, involved a family estate dispute after a tragic death where all the parties had a one third interest in a family business. After the deceased’s death, his surviving widow, on the advice of her brothers-in-law, signed transfers of all her interest in the deceased estate, including the interest in the family business and real property, to one of the defendants in trust, in exchange for receiving a condominium. Eventually the widow brought court action to set aside the transfer agreement, and the action was allowed on the grounds of undue influence, and other reasons including unconscionability. In a nutshell, the court found that there was an inequality of positions of the parties, and the widow relied upon her brother-in-law’s for advice. The transfer agreement was an improvident bargain whereby the widow gave up her interest in the deceased’s estate, which was worth a very substantial amount, in exchange for a condominium worth only $610,000.
153 Unconscionability is closely aligned to undue influence, as stated by LaForest J. in Hodekinson v. Simms. In Norberg v. Wvnrib. 19921 2 S.C.R. 226 (S.C.C.) LaForest J. stated the doctrine of unconscionability to be as follows:
30. An unconscionable transaction arises in contract law where there is an overwhelming imbalance in the power relationship between the parties. In Morrison v. Coast Finance Ltd. (1965). 55 D.L.R. (2d) 710 (B.C.C.A.). at p. 713, Davey J. A. outlined the factors to be considered in a claim of unconscionability:
… 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. On such a claim the material ingredients are proof of inequality in the position of the parties arising out of the ignorance, need or distress of the weaker, which left him in the power of the stronger, and proof of substantial unfairness of the bargain obtained by the stronger. On proof of those circumstances, it creates a presumption of fraud which the stronger must repel by proving that the bargain was fair, just and reasonable.
33. An inequality of bargaining power may arise in a number of ways. As Boyle and Percy, Contracts: Cases and Commentaries (4th ed. 1989), note, at pp. 637-38:
[A person] may be intellectually weaker by reason of a disease of the mind, economically weaker or simply situationally weaker because of temporary circumstances. Alternatively, the “weakness” may arise out of a special relationship in which trust and confidence has been reposed in the other party. The comparative weakness or special relationship is, in every case, a fact to be proven.
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2012 CarswellOnt 15064,2012 ONSC 6624, 84 E.T.R. (3d) 208,225 A.C.W.S. (3d) 115
As the last sentence of this passage suggests, the circumstances of each case must be examined to determine if there is an overwhelming imbalance of power in the relationship between the parties.
40. It must be noted that in the law of contracts proof of an unconscionable transaction involves a two-step process: (1) proof of inequality in the positions of the parties, and (2) proof of an improvident bargain.