Fry v Lane 10 Nov 1888 40 ChD 312, Ch D

Two poor, ignorant men sold their reversionary interests for a significant undervalue without independent legal advice. The court set the sales aside as an unconscionable bargain, establishing that equity will protect poor and ignorant persons from such exploitative transactions.

Facts

The plaintiffs were two brothers, John Bennett Fry (a plumber’s assistant) and George Fry (a laundryman). Under a will, they were each entitled to a one-fifth share of a trust fund, contingent on them surviving their aunt, who was the life tenant. This type of future inheritance is known as a reversionary interest. In 1878, J. B. Fry sold his reversionary share to the defendant, Mr. Lane, for £170. In 1880, George Fry sold his share for two sums totalling £270. In both transactions, the plaintiffs were represented by the same solicitor, who also acted for the purchaser, Lane. The plaintiffs received no independent legal advice. After their aunt died in 1886 and the fund became payable, it was discovered that the sale prices were considerably below the actual market value of the reversions. The plaintiffs brought an action to have the sales set aside.

Issues

The central legal issue was whether the court could set aside the sales of the reversionary interests on the grounds of unconscionable bargain. This involved two key sub-issues:

1. Did the Sales of Reversions Act 1867, which states that a purchase of a reversionary interest shall not be set aside ‘merely on the ground of undervalue,’ prevent the court from intervening?
2. If not, what were the conditions under which equity would set aside such a transaction, and were those conditions met on the facts of this case?

Judgment

Mr Justice Kay delivered the judgment, finding in favour of the plaintiffs and setting aside the sales. The court held that the Sales of Reversions Act 1867 did not abolish the court’s jurisdiction to set aside unconscionable bargains. The Act only prevented undervalue from being the *sole* reason for intervention. Where undervalue was coupled with other circumstances of oppression or inequality, the equitable doctrine remained applicable.

Reasoning of the Court

Kay J. analysed the history of equitable protection for ‘expectant heirs’ and concluded that the principle extends beyond this narrow class. He articulated a clear rule for when the court should intervene, famously stating:

The result of the decisions is that where a purchase is made from a poor and ignorant man at a considerable undervalue, the vendor having no independent advice, a Court of Equity will set aside the transaction.

He found that all three elements were present in this case:

1. Poverty and Ignorance: The plaintiffs were in a humble class of life, with limited education and understanding of the legal and financial implications of the sale of a reversionary interest. Their circumstances made them vulnerable to exploitation.
2. Considerable Undervalue: The court determined that the prices paid by the defendant were substantially below the true actuarial value of the interests at the time of the sales.
3. Lack of Independent Advice: The plaintiffs were not separately represented. The solicitor involved acted for the purchaser, creating a clear conflict of interest and failing to provide the vendors with the impartial guidance necessary to protect their interests.

The convergence of these three factors demonstrated that the transaction was not fair, just, and reasonable. The onus was on the purchaser (Lane) to prove that the transaction was fair, and he had failed to discharge this burden.

Implications

The decision in Fry v Lane is a landmark case in the development of the doctrine of unconscionable bargains. Its primary significance is the generalisation of equitable protection from the specific class of ‘expectant heirs’ to a broader category of ‘poor and ignorant’ persons. The case established a clear, three-part test (poverty/ignorance, undervalue, lack of independent advice) for identifying an unconscionable bargain, which has had a lasting influence on contract law. It powerfully reinforces the principle that equity will intervene to protect vulnerable parties from being exploited due to an inequality of bargaining power, and it underscores the critical importance of independent legal advice in upholding the fairness of a transaction.

Verdict: The court set aside the sales transactions. The plaintiffs were entitled to recover their shares upon repaying the defendant the purchase money they had received, plus interest at 5 per cent per annum.

Source: Fry v Lane 10 Nov 1888 40 ChD 312, Ch D