Unfair Advantage Of One Party example essay topic

'The law of contract must strike a balance between two competing aims'. Many of the rules governing contract are to ensure fairness and there are a number of distinct, though sometimes overlapping, doctrines concerning this area of English law. The question of fairness may be made in relation to the way in which the contract is made (procedural unfairness) or in the terms resulting from the contract (substantive unfairness). In English law the judicial approach to contracts, which are unfair or discriminatory, has expanded significantly over time. It was restricted in the nineteenth century by the assumption through the freedom of economic decision, parties are enabled to choose the terms on which they enter contracts, based on what they consider advantageous to their interests. Limiting this freedom to relieve inequality was seen as a legislative task for Parliament.

There are now principles in place within English law to address the problem of unfair contracts. Factors that can impact the validity and enforceability of a contract involve the improper conduct of one party, the vulnerability of the other, or a combination of these. Three areas that involve these factors are duress, undue influence, and unconscionable conduct. These types of conduct are related and are grounded on the general principle of 'inequality in bargaining' and if a contract is found to involve one of these the contract can be made' void'. In order for this to happen it has to be shown that the contract was unfair in the way it was made and / or there is contractual imbalance (concerning the actual substance of the contract and the fairness of its terms).

The burden of justifying the righteousness of a bargain is on the party claiming benefit of it As the acceptance and agreement of an offer is one of the main elements needed to create a contract, parties must obviously enter into contracts freely for them to be binding. If a contract has been induced by the use of unlawful or illegitimate force or pressure by one party, or the threat to do so, the contract is voidable (at the option of the victim) based on duress. There must be violence, or the threat of violence or the threat to commit some illegal act in the traditional interpretation of duress. It must be directed to the other party or his family or a close relative, and it must be a factor in the victim's decision to enter into the contract, for example Barton vs. Armstrong [1975] where a threat made to kill the other party if he did not sign the contract. As many cases concern tortuous duress, there can also be an action for damages.

Historically a claim that a contract was voidable for duress could only be successful if a threat to the person (physical duress) and had induced the contract. However it has now been established that in certain circumstances economic duress can be pleaded, for example if there is a threat to break an existing contract unless it is re-negotiated in one party's favour. Undue influence is exerted when a person exerting pressure compromises another person's free will. It involves an inequality of bargaining positions - where one party is in a dominant position and the other in a weaker position.

In certain special relationships for example, parent / child or doctor / patient, the law presumes that the stronger party has unduly influenced the weaker party unless there is evidence to the contrary and the burden is on the stronger party to rebut the presumption. A special relationship exists when the parties are in a fiduciary relationship. If the stronger party cannot rebut the presumption of undue influence the resulting contract is voidable at the option of the weaker party. This occurred in Lloyd's Bank vs. Bundy [1975].

Equity can give relief against unconscionable bargains when one party is in a position to exploit a particular weakness of the other. Judicial statements support this view and there is entitlement to relief if the other party has taken unfair advantage of fact there is a marked inequality in bargaining power. The word "unconscionable" literally means "against good conscience". Judges often describe conduct of this category as "harsh and oppressive". In Lloyds Bank vs. Bundy [1975] the cases on unconscionability were summarised by reference to "an inequality of bargaining power". This is often due to ignorance, illness, pressing need and pressure brought to bear on a party for the benefit of the other, stronger party.

In Clifford Davis Management Ltd vs. WEA Records Ltd, Lord Denning restated this principle. The problem of unconscionable bargains can often be overcome by ensuring that the weaker party has the benefit of independent professional advice before contracting. English law gives relief to one, who without independent advice, enters into a contract upon which the terms are very unfair or transfers property for consideration, which is grossly inadequate. It is important to remember that no bargain will be made void if it is 'the result of the ordinary interplay of forces'. Even when cases which some may feel are morally unjust e.g. the example Lord Denning gave of a poor, homeless man who agrees to pay a high rent to get a roof over his head, common law will not interfere. It is believed that it is up to Parliament to limit freedom to enter into contracts and not the courts.

There are however exceptions to this general rule of non-interference and the courts will set aside a contract when the parties involved are on unequal terms. These cases have always been treated on there own separate individual grounds, for example those discussed above, but Lord Denning in the case of Lloyds Bank Ltd vs. Bundy [1975] expressed his view for the need of a principle that unites the areas of regulating bargains and his doctrine of inequality of bargaining power is the most direct attempt to redress the unfair advantage of one party over another. Lord Denning identifies traditional principles of contract law - undue influence, duress of goods, unconscionable transaction, undue pressure and unfair salvage agreements - and formulates them into an overarching principle of unconscionability. He states 'as a matter of common fairness, it is not right that the strong should be allowed to push the weak to the wall.

' In this general principle he does not include cases concerning contracts voidable for fraud or misrepresentation or mistake, which are governed by settled principles but those involving an inequality of bargaining power. He spilt these areas into five categories including: . Duress of goods - one party in strong bargaining position by being in possession of the goods of another by legal right. The owner is weak, as they urgently need the goods.

The demands of the stronger are unjust... Unconscionable transaction - one part's weakness due to his need for special care and protection, is exploited by another stronger than him so to get his property at gross undervalue... Undue influence - divided into two classes - where the stronger is guilty of some fraud or wrongful act to gain some advantage from the weaker or stronger not guilty of wrongful act but through his relationship with the weaker party gained advantage for himself... Undue pressure - one party stipulates for an unfair advantage to which the other party has no option but to submit... Salvage agreements - when a vessel is in danger of sinking and seeks help, the rescuer is in a strong bargaining position. Lord Denning felt that 'through all these instances there runs a single thread', that of inequality of bargaining power, and English law will give relief to those who enter into a contract with unfair terms and without independent advice.

Many have disagreed with Denning's views on creating one general doctrine covering areas of unconscionable bargains including Lord Scarman, who's opinions expressed in National Westminster Bank plc vs. Morgan imply that it is unlikely such a principle will come into practise in English law in the near future. However this may not mean that English Law is flawed in its judgment of these cases as many feel there are no unfair cases, which the courts cannot set aside under any existing doctrine. The fact that this doctrine is not in use in present law, and that it is believed it may never be introduced, supports this opinion. Contradictory to this, some feel that the principle of inequality in bargaining is a 'doctrine of momentous scope' and that it does differ from undue influence as no confidential relationship or duty of fiduciary care is necessary and undue influence will be presumed when bargaining power is impaired and the terms are unfair or consideration inadequate.

Another issue that needs to be considered is to examine whether or not a general doctrine of unconscionability could contain enough relevant information so as to be relied on as a principle of law in court with criteria to use to decide the outcome of a case. Using Denning's views in Lloyds Bank Ltd vs. Bundy [1975], the criteria to test for inequality in bargaining are: . 'The terms of the contract must be very unfair or the consideration inadequate. The bargaining power of the party must have been impaired by necessity, ignorance, or infirmity.

The other party, or someone else on his behalf, must have used undue pressure or influence (does not need to be conscious but originates from him)... Independent advice will not always save a transaction but its absence is usually fatal. ' The weakness of this approach is that it fails to consider the diversity of circumstances. It lays the foundation for judicial review of procedural righteousness but it does little to advance English law in the interest of freedom of contract, from the principles already in place.

However Denning's doctrine should not be ignored as it is felt by some that his attempt to do for unconscionable bargains what Lord Atkin did for the categories of negligence in Donoghue vs. Stevenson [1932]. He acknowledges relevant factors, which must then be created into criteria that provides protection for inequality in bargaining, without removing freedom of contract. The difficulties in defining the scope of this doctrine, and Lord Scarman's disapproval render the doctrine's position in English law unsteady. However, the doctrine's formulation illustrates the courts growing receptiveness to ideals of justice and fairness in contractual relations. The doctrine attempts to construct substantive and procedural fairness as a condition of contractual validity. The introduction of economic duress is an example of addition to judicial mechanisms designed to control unequal relations between contracting parties, and in time a single, overall doctrine for the problems of unconscionable bargains may also come into practice.

However, although this doctrine is not in effect at the moment, English law does recognise the importance of the need for regulation of contracts and the terms on which parties meet and it does this through the principles of undue influence, duress and unconscionable bargains, which are well grounded in today's law. It is clear that much work is still to be done concerning this area of the law and in identifying the limits of these doctrines and their basis in principle.