Facts
- The case involved the sale of a reversionary interest by two young men who had recently reached the age of majority.
- The sellers received a sum significantly below the actual value of the reversionary interest.
- The young men lacked business experience and did not receive independent legal advice regarding the transaction.
- The purchasers were found to have exploited the sellers' vulnerability and lack of understanding about the value of the interest.
- The court rescinded the sale on the basis that the agreement was an unconscionable bargain.
Issues
- Whether the vulnerability of the sellers and absence of independent advice rendered the contract unconscionable.
- Whether a significant disparity between the contract price and actual value constituted grounds for equitable intervention.
- Whether the doctrine of unconscionable bargains should offer relief where one party takes unfair advantage of another’s poverty and ignorance.
Decision
- The court found the contract to be unconscionable due to the combination of the sellers’ poverty, ignorance, and lack of independent advice.
- It held that a substantial inadequacy of consideration supports a finding of exploitation.
- The court granted rescission of the contract to protect the vulnerable parties.
Legal Principles
- Unconscionable bargains may be set aside where one party is “poor and ignorant” and lacks independent advice.
- A clear inadequacy of consideration is strong evidence of unfair dealing, especially when combined with procedural disadvantages.
- The court’s equitable jurisdiction allows intervention to prevent injustice where contracts are formed under significant disadvantage or exploitation.
- Subsequent case law has further emphasized the requirement that the stronger party must actively exploit the weaker party’s position, in addition to procedural and substantive unfairness.
Conclusion
Fry v Lane (1889) 40 Ch D 312 established key principles of the doctrine of unconscionable bargains, permitting equitable relief where contracts arise from exploitation of a vulnerable party, particularly in the absence of independent advice and with substantial undervaluation. These principles continue to guide courts in protecting individuals from unfair contractual agreements.