Quick Auto And The Principle Of Unconscionability

Many business people are familiar with the basic requirements of an enforceable contract; clear offer and acceptance, some form of value given, and a 'meeting of the minds' between the contracting parties. These features are all necessary in the formation of a binding agreement, and the absence of any may provide the basis for one party's challenge of the contract. What may be surprising to some, however, is the existence of another element, lurking beneath the surface of all contractual arrangements; the principle of unconscionability. A recent Manitoba Queen's Bench decision - Quick Auto Lease v Jason Hogue et al., 2018 MBQB 126 [Quick Auto] - shed light on the role of unconscionability in the context of lending transactions, and what creditors and debtors should be aware of in entering same.

The principle of unconscionability applies where an inequality of bargaining power between parties is used to extract a substantially unfair bargain in favour of the 'stronger' party. Many jurisdictions have addressed issues surrounding unconscionability through legislation aimed at protecting the 'weaker' of the two parties. Manitoba's Unconscionable Transactions Relief Act, CCSM c U20 [Act], for example, allows a court - after having regard to all surrounding circumstances, including risk - to relieve all or a portion of a loan that is found to be excessive, harsh or unconscionable. Lenders and borrowers residing in Alberta should note that the wording in our own legislation (the Unconscionable Transactions Act, RSA 2000, c U-2) is virtually identical to that of Manitoba.

While unconscionability is a concept that can play a role in all contracts (as an equitable remedy), it should be noted that the aforementioned Act applies specifically to proceedings dealing with the lending of money. Under the Act, unconscionability is available as a statutory remedy. It is this context - unconscionability as it relates to lending contracts - that will be the focus of this particular blog post.

Section 2 of the Act was at center stage in the Quick Auto case. In Quick Auto, the lessee obtained a 2001 vehicle from the lessor by way of a financing lease with option to purchase. The acquisition cost ($18,273) differed significantly from the total transaction cost ($37,912), and the 29.9% interest rate was to be bumped up to 36%, compounded daily, in the event of default. The lessee did ultimately default, and subsequently brought an action under section 2 of the Act...