Introduction

Financial contracts are mainly characterised by inherent risks undertaken by both parties. Investors in particular should never expect that contracts for the purchase of bonds or other financial titles would be subject to the rule (if any) of ‘adequacy of consideration’. Although issues like ‘contractual unconscionability’ are rarely discussed in relation to these types of contract, the economic balance of a financial contract might become a relevant issue for a court when the ‘consideration’ exchanged is striking in its unfairness. This was demonstrated in a case of ‘bad loans’ tendered by a Southern Italian bank: the transaction concerned loans subject to the purchase of ‘atypic’ titles – those which are expressly created and issued by the bank and unknown to the financial market – as well as the purchase of shares in mutual funds. The consideration for the loan charged to investors consisted of a 6.8 per cent interest rate. The overall economic aim of the financial transaction consisted of inducing investors to borrow money from the bank in order to purchase ‘atypic’ titles (named: ‘4 you’) issued by the lending bank itself; the loan would have a high interest rate (6.8 per cent per year), exceeding the titles' output. Once the titles proved to be false in their face value, investors sued for damages and the judge struck down the loan agreement on the basis of its ‘total failure of consideration’.