McKinnon v. Benedict
1968 Wisc. LEXIS 927, 157 N.W.2d 665, 38 Wis. 2d 607 (1968)
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Rule of Law:
A court exercising its equitable powers will not grant specific performance or an injunction to enforce a contract if the consideration is grossly inadequate and the terms of the contract are so oppressive and unreasonable as to impose a hardship on one party that is disproportionate to the benefit gained by the other.
Facts:
- The Benedicts sought to purchase Bent’s Camp, an American Plan summer resort.
- The McKinnons owned the adjacent property, which they used as a summer home.
- To complete the purchase, the Benedicts required an additional $5,000, which the McKinnons agreed to lend them.
- In exchange for the interest-free loan of $5,000 for seven months (secured by other property), the Benedicts signed an agreement on August 31, 1960.
- The agreement prohibited the Benedicts from building a trailer park or campsite on their property for 25 years and restricted any new construction to the footprint of the existing buildings.
- The McKinnons also made vague promises to help resolve an existing lease issue and generate business for the resort, but their efforts were minimal and unsuccessful.
- Facing financial difficulties with the resort, the Benedicts began constructing a campsite and trailer park on their property in violation of the agreement.
Procedural Posture:
- The McKinnons (plaintiffs) sued the Benedicts (defendants) in the trial court, seeking an injunction to enforce the restrictive agreement.
- The plaintiffs also brought a cause of action for trespass on a separate parcel of land.
- The trial court found for the plaintiffs and issued a judgment restraining the Benedicts from using their property as a trailer park or for any purpose other than an American Plan summer resort.
- The trial court also ruled that the restrictions were enforceable against any subsequent purchasers.
- The Benedicts (appellants) appealed the trial court's judgment to the Supreme Court of Wisconsin.
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Issue:
Is a restrictive covenant in a contract, which severely limits the use of land for 25 years, enforceable in equity through an injunction when the consideration is grossly inadequate and enforcement would impose a severe hardship on one party while providing only minimal benefit to the other?
Opinions:
Majority - Heffernan, J.
No. A contract's restrictions are not enforceable in equity where the terms are unconscionable, oppressive, and founded upon inadequate consideration. Courts of equity exercise discretion and will not grant an injunction where the hardship caused to the defendant is disproportionate to the benefit conferred on the plaintiff. In this case, the consideration for the Benedicts sacrificing their right to make lawful and reasonable use of their property for 25 years was grossly inadequate. The benefit of the $5,000 interest-free loan was valued at approximately $145, and the McKinnons' other promises of help were largely unfulfilled. The Benedicts' financial need put them in a position where they could not deal at arm's length, leading to an oppressive bargain. Enforcing the agreement would impose a severe hardship on the Benedicts, while the benefit to the McKinnons would be minimal, as the planned developments were barely visible from their property. Therefore, the contract fails the test of reasonableness required for enforcement in equity.
Analysis:
This case exemplifies the equitable doctrine of unconscionability, reinforcing that courts of equity are courts of conscience and will not enforce bargains that are shockingly unfair. The decision highlights that even if a contract is technically valid and could potentially support an action for damages at law, equitable remedies like specific performance and injunctions are discretionary and will be withheld if enforcement would be oppressive. The court's analysis, focusing on the gross inadequacy of consideration and the disparity in the parties' bargaining power and business experience, provides a framework for challenging the enforcement of harsh contractual terms. This precedent strengthens the position of parties who, due to necessity, enter into one-sided agreements, by affirming that equity looks to the substance of the transaction, not just its form.
