Harsh and unconscionable contracts the general rule

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Harsh and unconscionable contracts The general rule at common law is that the courts will not interfere in contracts merely because the contract operates harshly or unconscionably or unjustly against a party to the contract. But in recent years, the courts have been prepared to recognise the grounds of ‘inequality of bargaining power’ where one party has taken advantage of a superior bargaining position. 14 | P a g e
You’ll find the principle of unconscionable contracts in the High Court case of Commercial Bank of Australia v Amadio (1983) 151 CLR 447 . In that case the parents of a builder guaranteed his indebtedness to the bank. The evidence clearly showed that the parents misunderstood the extent of and the length of the guarantee. Further the evidence showed that the parents had little literacy in written English; had no independent legal advice, nor was it suggested to them by the bank were not aware of their son’s bad financial position although the bank was signed the documents at their home with little explanation from the bank officer. The High Court set the guarantee aside. It held that the Bank had engaged in unconscionable conduct and that therefore the contract of guarantee was not enforceable. [In the words of Mason J in Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 467, the general principle to be applied in such cases is that: “[I]f A, having actual knowledge that B occupies a situation of special disadvantage in relation to an intended transaction, so that B cannot make a judgment as to what is in his own interests, takes unfair advantage of his (A ’ s) superior bargaining power or position by entering into that transaction, his conduct in so doing is unconscionable. And if, instead of having actual knowledge of that situation, A is aware of the possibility that that situation may exist or is aware of facts that would raise that possibility in the mind of any reasonable person, the result will be the same”.] [The respondent, a practising solicitor, made a gift of moneys to the appellant to enable her to buy a house in circumstances which the court considered to be an unconscientious exploitation by the appellant of the respondent ’ s infatuation and emotional dependence on her: at 649. The High Court dismissed an appeal by the appellant against an order that she transfer the house to the respondent: Louth v Diprose (1992) 175 CLR 621] [In Mackintosh v Johnson (2013) 37 VR 301 a 73-year-old man and a 45-year-old woman were in an intimate relationship. During the relationship he bought a house in her name and paid large amounts to support her business: at [3]. After the relationship broke down he sought a transfer of title to the house and repayment of the money. The Victorian Court of Appeal held that the facts did not establish unconscionable conduct. The man’s infatuation and lavish spending did not constitute a special disadvantage making him unable to make decisions in his own best interests: at [77]. The Court distinguished Louth v Diprose (1992) 175 CLR 621. In the Louth case the recipient had created a false atmosphere of crisis. There was no similar circumstance in this case: at [79]. In Louth the

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