A contract is an agreement between two or more parties that is legally binding and enforceable by a court. Once legally capable parties agree to enter into a contract, for whatever lawful purpose, the assumption is that parties to the contract are aware of the terms contained therein and enter into the contract willingly.

Again, consideration, which is the most important binding factor in the formation of a contract, has, in a myriad of cases, been ruled not to be required to be adequate, but only sufficient.

For these reasons, most courts will respect the sanctity of a contract and enforce the terms as agreed by the parties or apply the appropriate damages for the breach of the contract where, prima facie, the contract was validly executed. This is the position of the Common Law.

The Common Law, with all its rigidity, does not allow for contracts, properly entered into by parties sui potens and with all the essential elements of a contract being present, to be set aside. But it is for the injustice that the rigidity of the Common Law sometimes visits upon its subjects that necessitated the development of Equity.

EQUITY TO THE RESCUE

Equity, unlike the Common Law, allows for a contract which is otherwise valid, to be set aside on grounds such as unconscionability of the agreement. Therefore, while the courts will generally respect the sanctity of such a contract, sanctity is not sacrosanct, and under the appropriate circumstances, the contract or a term in it may be set aside.

In a myriad of authorities, the courts have demonstrated a penchant to protect, inter alia, the poor, the impecunious, the ignorant, persons non-compos mentis, those non sui juris, the intoxicated, and the unadvised from being taken advantage of in contracts that, but for their circumstances in life, they wouldn’t have entered into.

In this article, the author focuses on the grounds upon which the courts will set aside a contract or a term therein for being unconscionable.

UNCONSCIONABLE AGREEMENT DEFINED

Blacks Law dictionary defines an unconscionable agreement as “An agreement that no promisor with any sense, and not under a delusion, would make, and that no honest and fair promise would accept.”

Therefore, an unconscionable agreement is one which shocks the conscience of the court such that any assistance by the court in its enforcement would end in an unconscionable outcome. Hence, when the courts are faced with an action alleging unconscionability, they look out for terms which a conscientious and reasonable man would not make nor accept. Such terms may be ignored and effect given to only those terms that can conscientiously and equitably be enforced under the circumstances.

“If a contract or term thereof is unconscionable at the time the contract is made, a court may refuse to enforce the contract, or may enforce the remainder of the contract without the unconscionable term, or may so limit the application of any unconscionable term as to avoid any unconscionable result.”

HOW COURTS DETERMINE AN AGREEMENT IS UNCONSCIONABLE

The doctrine of unconscionability was developed under the rules of equity through a line of cases which have clarified the grounds upon which a contract or a term therein may be deemed to be unconscionable. The earliest case on the doctrine of unconscionability of a contract is Wood v Abrey , where the High Court of Chancery set out the grounds for declaring a contract to be unconscionable.

The brief facts are that, Mr. Thomas Wood, a tenant for life, and his son, the remainder-man in tail, were in financial distress. The property in question had been leased out by Mr. Thomas Wood, the life tenant, to Oliver Whitehead for 21 years, if he lived that long, and he later used the rent as security for annuities payable within his own lifetime. His son, who was the remainder-man in tail, was a mere sergeant in the army and was in financial distress too.

Oliver Whitehead sublet the property to Mr. Abrey, the defendant who later convinced Mr. Thomas Wood and his son to sell the estate with its encumbrances for a small sum, to which they obliged due to their financial distress.

Mr. Thomas Wood later sought to have the transaction set aside on grounds of unconscionability. The court, in its judgment, ruled the sale invalid due to the inadequacy of the consideration, the sellers' dire financial state, and their lack of proper advice.

These grounds were restated in the case of Fry v Lane [4] as follows; 1. The complainant is poor and ignorant; 2. The sale was at a considerable undervalue; and 3. The complainant had no independent advice

In the more recent case of Cresswell v Potter, the court elaborated on who the modern poor and ignorant person is. Megarry J. stated that “I think that the plaintiff may fairly be described as falling within whatever the modern equivalent of “poor and ignorant”….When Fry v Lane was decided, social conditions were very different from those which exist today. I do not, however, think that the principle has changed, even though the euphemisms of the 20th century may require the word “poor” to be replaced by “a member of the lower income group” or the like, and the word “ignorant” by “less educated””

In the Ghanaian case of CFC Construction (WA) Ltd & Rita Read v Ramsom Divine Attitsogbe [6]. The Supreme Court, through Date-Bah JSC, as he then was, held that “In our opinion, therefore, the courts in Ghana have the right to set aside as unconscionable any dealing, whether by contract or by gift, where on account of the special disability of one of the parties, he or she is placed at a serious disadvantage in relation to the other….Poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary: these are all circumstances which, in the right context, can justify the courts’ intervention on the basis of the equitable principles embodied in the doctrine of unconscionable bargain.”

FATE OF AN UNCONSCIONABLE CONTRACT WHEN SUCCESSFULLY CHALLENGED

The Uniform Commercial Code (UCC), a comprehensive set of laws governing all commercial transactions in the United States, states that, if the court, as a matter of law, finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.

From the myriad of cases supra, the courts have demonstrated that where it is established that there was an unconscionable bargain, as the equities demand, the court may set aside the entire contract or those unconscionable terms therein.

CONCLUSION

From the foregoing, it is apparent that the general principle of sanctity of contract is not absolute, and the courts are willing to marshal the powers inherent in their equitable jurisdiction to intervene and do justice to the weak in society to prevent or ameliorate the exploitation of their circumstances by a powerful party.

From the line of cases supra, a party seeking to set aside a contract on the principle of unconscionability must demonstrate that:

1. He falls within the modern definition of “poor and ignorant” which includes poverty or need of any kind, sickness, young or old age, infirmity of the mind or body, drunkenness, illiteracy or lack of education, lack of assistance or explanation where such assistance or explanation is necessary;

2.The consideration parted with by the other party is a substantial undervalue; and

3.He did not receive independent advice from a lawyer