Understanding the Doctrine of Unconscionable Bargain
The doctrine of unconscionable bargain is a tool in any litigator’s arsenal that can be used to attack transactions. It is deeply rooted in case law in Canada and England.
An older farmer and his neighbor enter into a transaction whereby he “sells” his farmland to the neighbor for a price well below fair market value. Let’s say that farmland is worth $500,000 and they transact to transfer the land to the neighbor for $50,000. The farmer is getting older in age, and although he may still have capacity to enter into the transaction, that fact is not certain. For capacity’s sake, he is in a “grey area.”
How can the doctrine of unconscionable bargain be applied in order to attack the transaction?
In order to apply the doctrine, one must prove two things:
- That the asset (land) was
conveyed to the individual for less than fair market value.
- The greater the discrepancy in sale price to fair market value, the greater the case for undervaluation.
- That the original owner of the asset (land)
was operating under a special disadvantage. Some examples of that disadvantage
are as follows:
- Lack of education;
- Lack of sophistication;
- English as a second language;
- Near incapacity.
Upon proof of those two factors, the onus shifts on the individual enriched by the transaction to prove its merit, thus creating a presumption working in favour of the attacker.
What about a gift?
One can alter the scenario to take the sale price all the way down to $500 or even $1, essentially creating a gift scenario with the land from farmer to neighbor. The miniscule consideration being transferred in exchange for the land does not change the ability of one to attack the transfer with unconscionable bargain. Though the case law in Canada in this scenario is rare, there are English cases that apply it in relation to gifts. The same principles hold.
Associate – Estate Litigation