I. AVOIDANCE OF CONTRACT
1. Adhesion Contracts
a. Standard form presented on a take-it-or-leave-it basis. For example, if you want to rent this apartment then here’s the lease and you have to sign it or no apartment. Therefore, there are no negotiations going back and forth and disadvantaged party has no bargaining power.
b. Most of the time courts hold them completely unenforceable. An adhesion contract by itself will not get you out of the contract. Need something else to make it unfair (it is an add-on).
c. Jones v. Star Credit Corp.
i. Price is 4X what the freezer is worth. Court declares the price to be unconscionable (very rare that they will do that).
ii. They also say that the contract was one of adhesion. They add that on the fact that the price was unfair. Adhesion contract b/c there was no bargaining b/t the parties and one had advantage over the other.
d. Due to nature of adhesion contracts, the FTC passed the Federal Sales Made at Home Regulations which require a three day cooling off period for door-to- door sales. If someone comes to my house and knocks on the door and I end up buying something from them then I have three days to change my mind and rescind the contract. If I call them and invite them over, however, then I don’t get three days to change my mind.
2. UCC 2-302 – Unconscionability
(a) If a court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may limit the application of any unconscionable clause as to avoid an unconscionable result.
(b) When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose and affect and to aid the court in making the determination.
NOTE: Technically, this only applies to the sale of goods yet courts still often discuss it and use it and most case law on this subject deals with it.
3. Fleet v. United States Consumer Council, Inc.
a. ∆ is a “debt counselor.” They identify people in financial trouble and claim to provide counseling services when in fact all they do is charge you to find you a lawyer.
b. Unconscionability is not an affirmative cause of action, it is an affirmative defense (i.e. must be pled or lost). Shield not a sword. Fraud, on the other hand, is an affirmative cause of action.
c. Unconscionability is a matter of law to be decided by the court. The burden is on the party asserting unconscionability. If court determines that contract unconscionable then can’t recover $. You just get out of the contract and don’t have to pay (here the debtors who used the service would not be awarded damages but would not have to pay the money allegedly owed).
d. Different from fraud in that there does not have to be a misrepresentation of a material fact. There is just unfairness and unfair bargaining positions where the disadvantaged party has no meaningful choice.
3. Ferguson v. Countrywide Credit Industries, Inc.
icted. Arbitration agreement parties signed will set out how discovery will be conducted. If limited, costs are lower.
iii. Generally quicker and doesn’t take as long.
iv. Decision is binding and no appeal
v. Only get decision with no opinion. Don’t know why they reached decision.
vi. Keeps the award lower. Awards generally not as large as jury awards b/c arbitrators are in business and want people to keep using them. Awards tend to be modest.
e. CA court says both substantive and procedural unconscionability required.
4. Weaver v. American Oil, Inc.
a. Involves a hold harmless clause in a gas station lease. The clause says that even if the gas company’s employees come onto the premises and cause an injury they cannot be held liable, even for their negligence. It disclaims all liability.
b. The court says that the test is “whether, in light of the general commercial background and the commercial needs of the particular trade or case, the clauses involved are so one-sided as to be unconscionable under the circumstances existing at the time of the making of the contract.”