This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
The discussion of the facts which, in combination with inadequacy of con-sideration, avoid a contract has carried us well into the subject of the unconscionable contract. An unconscionable contract is said to be one "such as no man in his senses and not under a delusion would make on the one hand, and as no honest and fair man would accept on the other."1 To what extent inadequacy of consideration must go to make a contract unconscionable is difficult to state, except in abstract terms, which give but little practical help. It has been said that there must be "an inequality so strong, gross, and manifest, that it must be impossible to state it to a man of common sense without producing an exclamation at the inequality of it."2 Another form of stating the rule is that "where the inadequacy of price is so great that the mind revolts at it, the court will lay hold on the slightest circumstances of oppression or advantage to rescind the contract."3 It is also said that a contract will be regarded as unconscionable if the inadequacy is so gross as to shock the conscience.4 The fact that the contract is a foolish one for one of the parties, and a very advantageous one for the other, does not of itself establish the fact that it was unconscionable.5 No arbitrary rule can be laid down for determining whether a contract is unconscionable or not. "In the very nature of things,
2 Gwynne v. Heaton, 1 Brown Ch. 1, 9 [quoted in Stephens v. Ozbourne, 107 Tenn. 572, 577, 89 Am. St. Rep. 957, 960, 64 S. W. 902].
3 Hough v. Hunt, 2 Ohio 495, 502, 15 Am. Dec. 569, 571.
4 Wilson v. Mullins, - Ala. - 75 So. 900; Hodges v. Wilson, 165 N. Oar. 323, 81 S. E. 340; Bruner v. Cobb, 37 Okla. 228, L. R. A. 1916D, 377, 131 Pac. 165. See also, Pindall v. Waterman, 84 Ark. 575, 120 Am. St. Rep. 87, 106 S. W. 946; Rembe v. Ferguson, - la. - , 166 N. W. 720; Walker v. Bourgeois, 88 N. J. Eq. 124, 102 Atl. 250; Barker v. Wiseman (Okla.), 151 Pac. 1047.
8 United States. American Smelting & Refining Co. v. Bunker Hill & Sullivan. Mining & Concentrating Co., 248 Fed. 172.
Georgia. Equitable, etc, Co. v. Waring, 117 Ga. 599, 97 Am. St. Rep. 177, 62 L. R. A. 93, 44 S. E. 320.
Illinois. McDole v. Kingsley, 163 111. 433, 45 N. E. 281; Clarke v. Shirk, 170 111. 143, 48 N. E. 182; Van Gundy v. Steele, 261 111. 206, 103 N. E. 754.
Iowa. Mitchell v. Mutch, 180 la. 1281, 164 N. W. 212.
Kansas. Chanute Brick & Tile Co. v. Gas Belt Fuel Co., 82 Kan. 752, 109 Pac. 398.
New Jersey. Worth v. Watts, 74 N. J. Eq. 609, 70 Atl. 357.
Pennsylvania. Smiley v. Gallagher, 164 Pa. St. 498, 30 Atl. 713.
Virginia. Chesapeake, etc, By. v. Mosby, 93 Va. 93, 24 S. E. 916.
there can not be a hard and fast rule laid down which should apply to all cases, because the facts in each case are scarcely ever identical. So that, to this extent, each case must be governed by its own facts. The general rule that if one of the contracting parties does not have mind sufficient to comprehend the nature of the transaction, or to guard and protect his rights, the courts will interfere in his behalf, is everywhere understood. The rule that if an undue advantage is taken of one's situation and circumstances, by and through which an unfair and unconscionable contract is obtained from him, equity, upon proper application, will afford relief, is likewise well understood."6
Whether a consideration is so inadequate as to render the contract unconscionable, is to be determined by the facts as they existed at the time that the contract was entered into, and not by subsequent developments over which neither party had control.7 A's contract to devise or to transfer property to B, in consideration of B's living with A and caring for her, will be enforced specifically after A is dead and B has performed in full, even if B had to perform for only three and one-half years,8 or a few months.9 A conveyance of property which is the subject of pending and uncertain litigation,10 or the title to which is imperfect and which is heavily encumbered,11 or the value of which is speculative,12 can not be said to be for so inadequate a consideration as to justify rescission, even though for a price far less than the property ultimately proves to be worth. A contract to sell land for forty-four dollars an acre is valid, even though the vendor is subsequently offered fifty dollars an acre.13 However, equity denied specific performance of a contract upon a consideration which, as stated,
6Heraog v. Gipeon, 170 Ky. 320, 185 S. W. 1119.
7 United States. Willard v. Tayloe, 75 U. S. (8 Wall.) 567, 19 L. ed. 501; Rutland Marble Co. v. Ripley, 77 U. S. (10 Wall.) 339, 19 L. ed. 955; Bradley v. Heyward, 164 Fed. 107.
Alabama. South, etc., Ry. v. Ry., 117 Ala. 395, 23 So. 973.
Illinois. Emerson v. Fleming, 246 111. 353, 92 N. E. 890; Anderson v. Anderson, 251 111. 415, 96 N. E. 265.
Kentucky. Cox v. Burgess, 139 Ky. 699, 96 S. W. 577.
West Virginia. Whittaker v. Improvement Co., 34 W. Va. 217, 12 S. E. 507. "
8 Warner v. Marshall, 166 Ind. 88, 75 N. E. 582.
9 Drefahl v. Security Savings Bank, 132 la. 563, 107 N. W. 179.
10Dakin v. Rumsey, 104 Mich. 636, 62 N. W. 990.
11 Brown v. Brown, 154 111. 35, 39 N. E. 983.
12 Evans v. Evans, 196 Mo. 1, 93 S. W. 969.
13Kilpatrick v. Wiley, 107 Mo. 123, 95 S. W. 213.
was one dollar, but which in reality was a discharge of prior indebtedness and an advance of money aggregating in all about twelve thousand dollars, for which A promised to convey to B one-fifth interest in all property which A might acquire in Alaska, if A in fact acquires property worth seven hundred and fifty thousand dollars.14
A common type of unconscionable contract exists where a borrower, in order to obtain a loan, enters into a collateral agreement to buy property at an exorbitant price,15 or to sell property far below its true value.16 A borrowing member of a building and loan association secured a loan of one thousand, five hundred dollars, which was to be repaid by his purchasing and paying for thirty shares of stock at one hundred dollars a share, and surrendering it to the company in payment of the loan, and also paying six per cent. interest on the loan. The payments for the stock were to extend over a period of nearly seven years. The result of the transaction was that the debtor was paying interest at the rate of twenty-six per cent. per annum. This was held to be "simply a cunning device to obscure the real transaction, and to induce the respondent to believe that by subscribing for the stock he would derive a benefit other than the advancement of the sum loaned." The contract was set aside as unconscionable, on payment by the debtor of the amount borrowed with six percent. interest.17 A similar, though less disguised form of unconscionable contract, exists where the borrowers agree to pay money greatly in excess of amounts borrowed by them.18 Where usury laws are in force, the rate of interest that can be exacted can be determined by such laws. If no usury laws exist, the doctrine of the unconscionable contract is often invoked to protect the borrower from agreements entered into by him under financial necessity. A loan to one in financial necessity, with interest at the rate of five percent. a month, payable monthly in advance, was held to be an unconscionable contract. The debtor was relieved on his paying the amount borrowed with reasonable interest.19 A contract to pay interest at the rate of four percent. a month has been held to be unconscionable.20 A contract to pay interest at the rate of ten percent. on a loan of twenty-five dollars for one month,21 has been held not to be so unconscionable as to be unenforceable. Where usury laws are in force, some courts seem to hold that the doctrine of the unconscionable contract as such is practically abrogated, and that the only question for discussion is whether the contract is illegal.22