Write a critical note on ‘Unconscionable Bargains’

Question: Write a critical note on ‘Unconscionable Bargains’.

Find the answer to the mains question only on Legal Bites. [Write a critical note on ‘Unconscionable Bargains’]

Answer

Where one of the parties to a contract is in a position to dominate the will of the other and the contract is apparently unconscionable, that is, unfair, the law presumes that consent must have been obtained by undue influence. The burden is shifted to the stronger party to prove that he did nothing to overbear the will of the other. An instructive illustration is the decision of the Privy Council in WajidKhan v. Raja Ewaz Ali Khan [(1890-91) 18 lA 144]:

An old and illiterate woman, incapable of any business, conferred on her confidential managing agent, without any valuable consideration, an important pecuniary benefit under the guise of trust. Their Lordships said that “all the facts of the case go to show that there was active undue influence. The onus is on the grantee to show conclusively that the transaction is honest, bona fide, well-understood, the subject of independent advice and free from undue influence”.

Unconscionable bargains have been witnessed mostly in money lending transactions and in gifts. But the principle is not confined to such transactions only. In a case before The Bombay High Court in Bhimbha v. Yeshwantrao, ILR (1900) 25 Bom 126; where a poor farmer, being unable to pay back a loan, executed a sale deed in favour of the creditor of his property three times the value of the sum due, the court granted relief by setting aside the sale and allowing the farmer to pay back the lender within a fixed period.

Position of dominance necessary for the presumption to arise

It should, however, be borne in mind that the presumption of undue influence on the ground of unconscionableness of the bargain is raised only when one of the parties is in a position to dominate the will of the other. As between parties on equal footing, the mere unconscionableness of the bargain does not create the presumption of undue influence. The mere fact that the bargain is a hard one is no ground in itself for granting relief.

In consonance of the above principle, Section 111 of the Indian Evidence Act also states that, where there is a question as to the good faith of a transaction between parties, one of whom stands to the other in a position of active confidence, the burden of proving the good faith of the transaction is on the party who is in a position of active confidence.

Effect of Unconscionable Bargain

A question arises under which head an unconscionable bargain could fall. If it fell under the head of undue influence, it would be voidable, but if it fell under the head of being opposed to public policy, it would be void. The court observed that such contracts would rarely be induced by undue influence, even though at times they were between parties one of whom held a real or apparent authority over the other. Very often, they were entered under the pressure of circumstances, generally economic, resulting in inequality of bargaining power.

Such contracts did not fall within the four corners of the definition of undue influence given in Section 16(1), and ought not to be held voidable, because it would compel each person with whom the party with superior bargaining power had contracted to go to the court to have the contract adjudged voidable. Such a contract or such a clause in a contract ought, therefore to be adjudged void, being against the public policy and principles of natural justice.

---

Law of Contract Mains Questions Series: Important Questions for Judiciary, APO & University Exams

1. Law of Contract Mains Questions Series Part-I
2. Law of Contract Mains Questions Series Part-II
3. Law of Contract Mains Questions Series Part-III
4. Law of Contract Mains Questions Series Part-IV
5. Law of Contract Mains Questions Series Part-V
6. Law of Contract Mains Questions Series Part-VI
7. Law of Contract Mains Questions Series Part-VII
8. Law of Contract Mains Questions Series Part-VIII
9. Law of Contract Mains Questions Series Part-IX
10. Law of Contract Mains Questions Series Part-X