It is extremely difficult to set aside an agreement or transaction based on the doctrine of unconscionability. The adjective itself means an action not guided by one’s conscience and is unscrupulous, or not in accordance with what is just or reasonable, that is excessive or extortionate. A legal commitment may end up being seen by one party as undesirable or improvident, even unfair, but this alone is not enough to cast the other parties’ actions as being unconscionable such that the commitment complained of can be undone by the courts. As stated by the Ontario Court of Appeal (ONCA) in Black v. Wilcox (1976):
In order to set aside the transaction between the parties, the Court must find that the inadequacy of the consideration is so gross or that the relative positions of the parties are so out of balance in the sense of gross inequality of bargaining power or that the age or disability of one of the controlling parties places him at such a decided disadvantage that equity must intervene to protect the party of whom undue advantage has been taken.
The Four Elements Test
The case law, as determined by the ONCA in Titus v. William F. Cooke Enterprises (2007) and Kielb v. National Money Mart Co. (2017), sets out four elements that need to be established for the doctrine of unconscionability to apply in order to set aside a legal commitment. The elements are as follows:
- A grossly unfair and improvident transaction;
- The victim’s lack of independent legal advice or other suitable advice;
- An overwhelming imbalance in bargaining power caused by the victim’s ignorance of business, illiteracy, ignorance of the language of the bargain, blindness, deafness, illness, senility, or similar disability; and
- The other party knowingly taking advantage of this vulnerability.
The Heuristic Problem
The legal or semantic definition of unconscionability set out above is reasonably straightforward and commonsensical. What though is the heuristic or mental shortcut that would allow one to make a decision quickly and efficiently when examining a particular term or clause in a legal commitment that is alleged to be unconscionable?
First and foremost, courts will always strive to uphold the doctrine of the sanctity of a contract. This doctrine means that the courts are unwilling to rewrite the terms of a contract arrived at freely between the parties. Too often the complainer has simply realized they made a bad bargain, which a court will not step in to rectify.
Yet the doctrine of unconscionability does just what the courts are generally reluctant to do – undo a binding legal commitment. Unconscionability is not the same as the doctrines of undue influence or duress and should not be confused with them. The equitable reason for its existence is the protection of individuals who are vulnerable in some way and who are taken advantage of as a result. In such cases, courts are willing to put aside the doctrine of the sanctity of a contract in order to reach a fair and equitable resolution.
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