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Contracts
University of California, Davis School of Law
Joo, Thomas W.

Contracts Outline – Second Semester
 
Policing the Bargain
 
IV. Unconscionability and Problems of Adhesion Contracts
a.      Form Contracts
a.       Adhesion contract
                                                                           i.      A contract that you don’t have any choice in
                                                                         ii.      Not forced in the sense of duress but rather your bargaining power is so limited that you have to take the contract as presented to you
                                                                        iii.      Ex. – buying cars, computers, open a securities account
                                                                       iv.      Not necessarily unconscionable – but it might be
                                                                         v.      When analyzing at a potential adhesion contract, look at
1.      Status of the parties
a.       Is there a big bargaining power disparity between the parties?
2.      Behavior of party pushing the contract
a.       Is the term buried in the contract or specifically pointed out?
3.      Substance of clause
a.       Does the clause purport to sign away an important right?
 
[O’Callaghan v. Waller: During housing shortage after WWII, the plaintiff, a tenant of the defendant’s, was injured when she fell crossing the paved courtyard on her way from the garage to her apartment. Her lease contained an exculpatory clause whereby the plaintiff released the defendant from any liability for injuries due to the defendant’s negligence. The trial court directed verdict for the defendant and this was affirmed. The clause was held not to be unconscionable.]  
b.      The use of a form contract does not of itself establish disparity of bargaining power.
c.       Factors for deeming a clause void
                                                                           i.      Physical and economic well-being of the group agreeing to the release
                                                                         ii.      Their bargaining power
                                                                        iii.      The amount of free choice actually exercised in agreeing to the exemption
                                                                       iv.      The existence of competition among the group to be exempted
 
[Henningsen v. Bloomfield: Claus Henningsen purchased a new automobile from Bloomfield Motors. His wife Helen was injured when the steering mechanism failed while she was driving it ten days after it had been delivered. They sued Bloomfield and Chrysler for breach of an implied warranty of merchantability imposed by the Uniform Sales Act. The defendants contended that that warranty was disclaimed on the back of the purchase contract among 8 ½ inches of fine print in 6 point type that limited liability to replacement of defective parts. Court held that, since a car was a necessity and all of the manufacturers used the clause, it was void as against public policy.]  
d.      In the absence of fraud, one who does not choose to read a contract before signing it, cannot later relieve himself of hi

ly made and that there was no force
                                                                        iii.      If it was freely made then the courts shouldn’t quibble about what comes out
h.       Eisenberg’s view:
                                                                           i.      But if every manufacturer has the same contract then it is almost acting like a law made by private parties – takes away freedom
                                                                         ii.      Freedom of contract is a tool by which we achieve fair and efficient results
                                                                        iii.      Unequal bargaining power and imperfect competition
 
b.      Unconscionability
a.       An absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party
b.      Something is so unfair and bad that it won’t be tolerated – shocking to the conscious 
c.       UCC § 2-302 Unconscionable Contract or Clause
If the 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