Morrison, a 79 year old widow, was persuaded by two men, Lowe and Kitely, to borrow $4,200 from the respondent Coast Finance Ltd. on a first mortgage on her home for that amount and interest to maturity and to lend the proceeds to them so that Lowe could repay $915 that he owed the finance company, and he and Kitely could pay the other respondent company $2,302 for two automobiles they were buying from it for resale. The proceeds of the loan were applied accordingly and the balance was repaid at once to the finance company and automobile company, respectively, by way of prepayment of monthly instalments, insurance premiums, and costs. The mortgage was to be repaid at the rate of $300 a month, which was to be secured from payments to be made by Lowe at the finance company's office on her account by way of repayment of the money lent to him and Kitely. She had no other means of repaying the money, and the house was her only substantial asset. She had no independent advice, although the evidence shows she wanted and asked for help. Lowe and Kitely failed to pay the appellant. She commenced action to have the mortgage set aside as having been procured by undue influence and as an unconscionable bargain made between persons in an unequal position.
The trial judge dismissed the action finding that there was not a sufficient relationship between the parties to create a presumption of undue influence.
- Is the mortgage voidable for unconscionability?
Appeal allowed, mortgage voided.
Davey, writing for a unanimous court, held that a bargain that is unconscionable invokes relief against an unfair advantage gained by an unconscientious use of power by a stronger party against the weaker. Proving this is the case requires proof of inequality in the position of the parties arising out of ignorance, need or distress, and proof of substantial unfairness of the bargain obtained by the stronger. Once these elements have been proven, there is a presumption of fraud which must be rebutted by the stronger party.
Applying this to the case at bar, the court held the finance company responsible because they "undertook the preparation of the documents" and took "advantage of her obvious ignorance and inexperience to further their respective business" raising a presumption of fraud.
An unfair deal with unequal power between the parties gives rise to a presumption of unconscionability; once this is raised the stronger party must rebut the presumption.