(i) Transactions with the Poor and Ignorant

Equity is willing to set aside certain transactions if they are made with somebody who is both poor and ignorant, because such people are assumed to be particularly vulnerable to exploitation. So, for example, in Fry v Lane214 a contract for sale at an undervalue was set aside where the vendor was characterized as poor and ignorant, because the temptation of receiving a sum of money immediately might mean that such a person did not consider the consequences of transacting with the defendant. This category of special disability continues to be relevant today, although the notions of poverty and ignorance were reinterpreted in Cresswell v Potter215 so that poor meant ‘a member of the lower income group’ and ignorant was to be interpreted as meaning ‘less highly educated’. In Cresswell the claimant, who was a telephonist, had released her interest in the matrimonial home to her husband on her divorce from him. This release was set aside because she was characterized as being poor and ignorant, it being sufficient that she was ignorant as to the operation of property transactions. It was also of crucial significance that the transaction had been at a significant undervalue and that she had not received any independent legal advice, something which was considered to be of particular importance in a conveyancing transaction.

In neither of these cases was the defendant’s conduct specifically characterized as unconscionable. Indeed, in Fry v Lane it was held that there was no evidence of moral fraud or misconduct on the part of the defendant. This suggests that, where the defendant has transacted with somebody who is poor and ignorant, then, at least where the transaction is at a considerable undervalue, it will be presumed that the defendant had acted unconscionably and he or she will bear the burden of proving that the transaction was fair, just and reasonable. This is because the fact that a transaction with somebody who was poor and ignorant was at a gross undervalue is itself evidence of equitable fraud.[1] But much will turn on careful analysis of the facts. For example, in Horry v Tate and Lyle Refineries Ltd217 an employee who had settled a personal injuries claim with his employer at an undervalue and without legal advice, was held not have been under a special disadvantage to justify relief on the ground of the settlement being unconscionable. Although there was inequality between the employee and the employer’s insurers through whom the claim was settled, it was held that no special disadvantage arose from this inequality, because the employee was not under any economic pressure at the time the settlement was made and was not so grossly ignorant as to be unable to deal with the negotiations.

  • [1] Fry v Lane (1888) 40 Ch D 312, 321 (Kay J). 217 [1982] 2 Lloyd’s Rep 416.
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