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Contracts II
University of Nebraska School of Law
Denicola, Robert C.

Chapter 4: Policing the Bargain
 
 
I. Unconscionability and Problems of Adhesion Contracts
 
I.       Adhesion/Standard Form Contracts: Boilerplate terms
When should a court look not at the fairness of the bargaining process but the fairness of the deal itself?
 
A.    Advantages and Disadvantages of Adhesion Contracts
1.      Advantages of Adhesion Contracts
a.       Uniform judicial interpretation – certainty
b.      Simplify planning and administration
c.       Represents experience and superior drafting skills.
 
2.      Disadvantages of Adhesion Contracts
a.       Unequal bargaining power
b.      Take-it-or-leave-it proposition.
c.       Non-drafting party: no time to scrutinize and hard to understand.
 
B.     Policing the Adhesion Contract:
 
1.      Contracts of Adhesion Fully Enforceable unless:
a.       Contract or provision does not fall within the reasonable expectations of the weaker/adhering party will not be enforced against him, or
b.      Unduly oppressive or “unconscionable.”
c.       Ex. Graham v. Scissor-Tail. 
 
2.      Term Interpretation: Strict Construction
a.       Interpreting the language of the term to favor the party held to that term. “Strict Construction” – technical reading of cause to limit applicability
i.        Ex. Exculpatory clauses. O’Callaghan v. Walter & Beckwith Realty Co. (p.370). Injured tenant sues for falling on defective pavement. Court holds that “Contracts by which one seeks to relieve himself from the consequences of his own negligence are generally enforced, “unless (1) it would be against the settled public policy of the State to do so, or (2) there is something in the social relationship of the parties militating against upholding the agreement.”
ii.      Usually, freedom of contract is justification for enforcing the contract.
 
3.      Writing/Terms not part of an offer: Unknowing assent
a.       Party did not read or understand the terms.
b.      Courts will generally uphold reasonable and expected terms.
c.       Terms should be conspicuous and intelligible.
d.      Does not reasonably appear to a party to contain the terms of a proposed contract.
i.        Ex. Tickets, passes, and stubs which contain contractual terms.
ii.      Ex. The claim check for the furs. “If bailee wants to limit his liability for negligence, must at least show it has given adequate notice of the special contract and that it has received the assent of the bailor.” 
iii.    However, reasonable conduct is indication of assent.
 
4.      Involuntary Assent
a.       No opportunity to bargain due to unequal bargaining power.
i.        Ex. Henningsen v. Bloomfield Motors, Inc. (p.380). – auto dealer purported to disclaim implied warranties of merchantability. Entire auto industry used similar disclaimers.
b.      No arms-length bargaining.
 
5.      Writing not an offer
i.        Does not apply to writings, such as insurance policies, warehouse receipts.
 
C.     The Duty to Read and the Duty to Disclose (C04-04).
1.      Duties: In the absence of fraud, one who

k of bargaining power + lack of understanding à can be unenforceable
d.      Absence of meaningful choice on one party + unreasonably favorable contract terms for the other party. 
e.       *Price unconscionability usually upheld unless really grossly unfavorable (See Jones v. Star Credit Corp.)
 
3.      Remedies for Unconscionability
a.       Refusal to enforce entire contract
i.        Ex. Williams v. Walker-Thomas (04-06). Provision kept lease payments applied to general bills; caused default. Unconscionable? Perhaps.
ii.      Ex. Jones v. Star Credit Corp (04-07). Stupid consumer taken advantage of by door-to-door salesman. Price unconscionability usu. upheld, but not here b/c of the business practices.
b.      Throw out the problematic provision/clause.
i.        Ex. Armendariz v. Foundation Health (04-08). Arbitration provision thrown out because of inequality: one-sidedness of arbitration term.
 
4.      Arguments against Unconscionability
a.       Remember that unconscionability is the desperate lawyer’s tactic. 
b.      (1) Freedom of contract
i.        Absent fraud, usually one who signs a contract is bound by its terms.
c.       (2) security of transaction are usually too strong to overturn.