 Hello, it's Waylon Chow and this is Contractual Terms and Defects Module 2B Part E. In this part, we'll look at the contractual defects of duress, undue influence, and unconscionability. All of these three defects can be grouped under the heading of unfairness that occurs during the bargaining process of a contract. Daria again asked Jamal, do you want to buy my Apple laptop for $500? Jamal says no, I don't need another computer. And then Daria says, I really need the money. If you don't buy it, perhaps your girlfriend would be interested in knowing about our affair. Jamal replies, okay, I'll buy your computer. Does Jamal have to buy Daria's laptop? Let's look at the contractual defect called duress. Duress is considered to be some kind of illegitimate threat of harm. If there is duress, a contract is considered to be voidable at the victim's option. There are three different types of duress. There is duress of person that's threat of harm to a party or a loved one, including a threat of harm to reputation. Duress of goods is a threat to detain, damage, or destroy goods. And economic duress is a threat of financial harm. Economic duress involves the making of threats of financial harm. The difficulty in determining whether or not there is actually economic duress in a particular situation is that business people quite often make threats of financial harm in order to put pressure on another party in order to get a better deal. So the difficulty is to determine when that pressure is considered to be illegitimate versus being just normal commercial pressure. Now the courts have determined a number of different factors which would indicate that there is economic duress that would make a contract voidable. So these factors include where the threat is made in bad faith, the victim could not reasonably resist, the victim acted promptly once pressure was removed, the victim protested at the time of the threat if it was practical to do so, and the victim did not have legal advice before succumbing. So all those different factors could point towards a conclusion that there was illegitimate pressure that amounts to economic duress which makes a contract voidable. So does Jamal have to buy Daria's laptop? Jamal was under duress of person when he entered into the contract due to Daria's threat to tell his girlfriend about their affair. Therefore the contract is considered to be voidable and Jamal may exercise his option to cancel the contract. Let's now say Daria is Jamal's professor and Jamal trusts Daria's judgment. Daria asks Jamal, do you want to buy my Apple laptop for $500? Jamal says, I don't know, is this a good computer at a good price? Daria says, yes, of course it is, you really need this to succeed at school. Jamal replies, okay, since you think it's a good idea, I'll buy it. Does Jamal have to buy Daria's laptop? The contractual defect of undue influence is where someone has been psychologically manipulated into entering a contract. To prove undue influence, a plaintiff must show two things. First is influence, second is that that influence causes a contract to be created. The first requirement of influence. Did one person exercise influence over another person? Influence is assumed where there is a fiduciary relationship between the two parties. A fiduciary relationship is considered to be a relationship based on trust or confidence, such as the relationship between a lawyer and a client, a physician and a patient, a parent and a minor child. The stronger party in a fiduciary relationship is assumed to have influenced the weaker party. The second requirement is causation. The stronger parties influence needs to have actually caused the weaker party to enter into the contract. Causation is presumed if the transaction was considered to be suspicious. A transaction is suspicious if it creates little benefit or great risk for the weaker party. That presumption can be rebutted by evidence that the influence did not actually cause the other party to enter into the contract. So does Jamal have to buy Daria's laptop? A teacher-student relationship is recognized to be fiduciary in nature. Therefore Daria is presumed to have exerted undue influence on Jamal to enter into the contract to purchase the laptop. Unless Daria can rebut that presumption by showing that the contract was fair, Jamal may cancel the contract. Daria knows that Jamal knows very little about computers. Daria asked Jamal, do you want to buy my Apple laptop for $2,000? Jamal says, I don't know. Is this a good computer at a good price? Daria says, yes, this is an amazing computer at an amazing price. However, Daria knows the laptop is really worth only $500. Jamal replies, okay, I'll buy it for $2,000. Does Jamal have to buy Daria's laptop? The contractual defect of unconscionability is when one person exploits another person's weakness to create an unfair deal. Unconscionability is presumed if we have two things. First, a substantial inequality of bargaining power where one person is much stronger and the other party is much weaker. And this may be due to personal traits such as illiteracy, naivety, inexperience or gullibility, or situational factors such as poverty, depression, infatuation, distress or drunkenness. The second requirement to raise a presumption of unconscionability is substantial unfairness of terms. This is where the transaction is substantially one-sided in favor of the stronger party. Once a presumption of unconscionability is raised, it can be rebutted by proof that the bargaining process was fair, such as the weaker party having received independent legal advice before entering into the contract. The leading case in unconscionability is the Supreme Court of Canada decision in Uber Technologies and Heller. In that case, there was someone named David Heller who was a driver for Uber delivering food. To become a driver for Uber, he had to accept a standard form contract provided by Uber. Within that contract was an arbitration clause that required any disputes under that agreement to be resolved through mediation and arbitration in the Netherlands. The arbitration clause also required an upfront administrative and filing fee of $14,500 plus the payment of any legal fees and other costs of participating in the dispute resolution process. Mr. Heller earned between $400 and $600 a week driving for Uber. Those fees under the arbitration clause represented most of his annual income. The legal issue that the court examined was whether or not that arbitration clause was invalid on the basis of unconscionability. The court examined the law of unconscionability. It pointed out that unconscionability requires both an inequality of bargaining power and a resulting improvident bargain. An inequality of bargaining power exists when one party cannot adequately protect their interests in the contracting process. A bargain is improvident if it unduly advantages the stronger party or unduly disadvantages the more vulnerable. The court also pointed out that unconscionability can be established without proof that the stronger party knowingly took advantage of the weaker party. In other words, the stronger party does not need to intentionally take advantage of the weaker party. So in applying that law to the facts of this case, the Supreme Court found that there was clearly inequality of bargaining power between Uber and Mr. Heller. It pointed out that the arbitration agreement was a part of a standard form contract and that Mr. Heller was powerless to negotiate any of its terms. His only contractual option was to either accept or reject that contract. The court also pointed out that there was a significant gulf in sophistication between Mr. Heller as a food delivery man in Toronto and Uber, a large multinational corporation. As well, the arbitration agreement contains no information about the cost of mediation and arbitration in the Netherlands. A person in Mr. Heller's position could not be expected to appreciate the financial and legal implications of agreeing to arbitrate under ICC rules or under Dutch law. The court, in determining that the contract was improvident or that the arbitration clause was improvident, said that the mediation arbitration process is required $14,500 in upfront administrative fees. And that this amount is close to Mr. Heller's annual income and does not include the potential costs of travel, accommodation and legal representation or lost wages. The court noted that these costs are disproportionate to the size of an arbitration award that could reasonably have been foreseen when the contract was entered into. And that the arbitration agreement also designates the law of the Netherlands as the governing law and Amsterdam as the place of the arbitration. This gives Mr. Heller and the other Uber drivers in Ontario the clear impression that they have little choice but to travel at their own expense to the Netherlands to individually pursue claims against Uber through mandatory mediation and arbitration in Uber's home jurisdiction. Since Daria is obviously trying to rip off Jamal, does Jamal have to buy Daria's laptop? The contract is presumed to be unconscionable in this case because the contract was improvident due to the fact that the price was four times the market value of the laptop. It was $2,000 versus $500 and there was an inequality of bargaining power in that Daria took advantage of Jamal's very limited knowledge of computers. That presumption of unconscionability is not rebutted since there is no evidence that the bargaining process was fair or that Jamal received any independent legal advice. Therefore the contract is voidable at Jamal's option.