Facts
- Herbert Bundy, a farmer, offered his farmhouse as security for his son's business overdraft with Lloyds Bank.
- Mr. Bundy had a longstanding relationship with the bank manager, who assured him the security was temporary.
- Despite these assurances, the son's business deteriorated and Lloyds Bank proceeded to foreclose on Mr. Bundy’s farm.
- Mr. Bundy claimed the contract should be voidable on the grounds of unequal bargaining power between himself and the bank.
Issues
- Whether the transaction between Mr. Bundy and Lloyds Bank was the result of an inequality of bargaining power sufficient to render the contract voidable.
- Whether the circumstances surrounding the security, including Mr. Bundy’s reliance on the bank and lack of independent legal advice, amounted to unconscionable conduct by the bank.
Decision
- The court found there was sufficient evidence of inequality of bargaining power in Mr. Bundy’s situation.
- It held that Mr. Bundy's emotional attachment to his farm, reliance on the bank manager, and lack of independent legal advice left him vulnerable.
- The bank was found to have exploited Mr. Bundy's vulnerability by obtaining security over his home, thus acting unconscionably.
- The transaction was set aside by the court.
Legal Principles
- Introduced the broader doctrine of inequality of bargaining power as grounds for judicial intervention beyond the traditional categories of undue influence and duress.
- Identified key factors for recognizing such inequality: the relationship between the parties, circumstances of the transaction, and relative bargaining positions.
- Affirmed that courts may set aside contracts where an unfair advantage is taken over a vulnerable party.
- Emphasized the importance of seeking independent legal advice in transactions involving potential disparities in power.
Conclusion
Lloyds Bank v Bundy marked a significant shift in English contract law by recognising a general doctrine of inequality of bargaining power, permitting courts to intervene where a party’s vulnerability has been unconscionably exploited in contractual dealings.