Contracts II
Chapter 4 Unconscionability and Adhesion Contracts
O’ Callaghan v. Waller & Beckwith Realty Co.
Facts: P was a tenant in a building owned by D and he slipped and fell on the pavement. P alleged that D was negligent because the pavement was defective.
Proc. Hist: Trial court- ruled for P. Appellate court reversed and said D should have won because of exculpatory clause in the lease that the P signed excusing the D for liability due to Ds negligence.
Issue: Was the exculpatory clause valid? was it a violation of public policy?
Holding: Yes- No
Rule/Reasoning: Exculpatory clauses will only be invalid when 1) it is against well settled public policy of the state to uphold it or 2) there is something in the social relationship of the parties militating against upholding the agreement.
-in the case at hand the P is not arguing that the clause wasn’t applicable, she is arguing that it is against public policy.
-the court thinks that the agreement between landlord and renter is a matter of private interest and the precedent is not to invalidate exculpatory clauses. the court says that there is no extreme difference in bargaining power (despite the housing shortage) and that there is no durable moral basis to decide that this clause was against public policy.
– NH is the only state that has a uniform rule against exculpatory clauses in leases.
Dissent: there was an obvious unequal bargaining power due to the shortage of housing- there is public policy to discourage negligence which this clause goes against. – court should have looked at the physical and economic well-being of the group agreeing to the release, their bargaining power, the amount of free choice actually exercised in agreeing to the exemption and the existence of competition among the group to be exempted.
The fact that all leases have an exculpatory clauses mean that landlords can escape the common law of negligence. Do the courts support this?
Graham v. Scissor-Tail, IncFacts: P entered into a contract with D who represented an artist- they signed four different contracts all prepared on the same type of form that said disputes would be settled with a union board. P sued for breach of contract, D sued to compel arbitration and won. P is appealing saying that the contract was unenforceable because it was a contract of adhesion and it was unconscionable.
Issue: Was the contract unenforceable?
Holding: YES
Rule/Reasoning:
Contracts of Adhesion-a standardized contract which imposed and drafted by the party of superior bargaining strength relagates to the opposing party only the opportunity to adhere to the contract or reject it.
Two ways judicial limitations would be 1)it does not fall within the reasonable expectations of the weaker or adhering party will not be enforced against him and 2)a contract, even if consistent with the reasonable expectation of the parties will be denied enforcement if, it is unduly oppressive or unconscionable.
**-in the case at hand- the contract was within Ps reasonable expectations so it was ok for the first limitation but the contract was unconscionable because it designated an arbitrator that was biased for one party.
Henningsen v. Blooomfield Motors, Inc (supreme court of new jersey, 1960)
Facts: P bought a new car and his wife was injured while she was driving it 10 days later due to a steering mechanism failure. Ps sued D for a breach of an implied warranty of mechantability. Ds said that the warranty was disclaimed on the back of the purchase contract which purported to limit liability for breach of warranty to replacement of defective parts for the period of 90 days or 4,000 miles. The purported disclaimer was on the back of the contract in smaller type.
Proc. Hist: Judgment for P
Issue: Was the disclaimer valid?
Holding: NO
Rule/Reasoning: Normally, in absence of fraud, one who does not choose to read a contract before signing it, cannot later relieve himself of his burdens but that rule cannot be applied on a strict basis.
-in this case the automobile manufacturers came up with the warranty and gave it to the dealers. these manufacturers who use the same contract take up 93.5% of the car production that ye
ppeals misinterpreted the Bremen case, the court did not define the circumstances that would make it unreasonable for a court to enforce a forum clause case- and the Bremen case was a business transaction with foreign people.
-In this case the clause is okay because 1)the cruise line has a special interest in limiting the forums which it potentially could be subject to suit, 2)because a cruise ship typically carries passengers from many places it could be subject to suit anywhere and 3)establishes a forum that will then save time and money to the litigants and 4) because of the clause and the money saved passengers get a lower fare.
-also the Ps had the burden of proof to set aside the clause on grounds for inconvenience and they didn’t do that.
-forum clauses are subject to judicial scrutiny for fundamental fairness: in this case there is no bad motive because the Ds had their principle place of business in florida and the Ps were made aware of the forum clause.
Dissent: thought bremen should apply and that these clauses shouldn’t be upheld under traditional contract law
UCC
§2-302: Unconscionable Contract or clause: only covers contracts for the sale of goods.
(1)It requires: if the court as a matter of law find 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 so limit the application of any unconscionable clause as to avoid any unconscionable result.
-basically this means that the court/judge- decides this as a matter of law as whether the clause is unconscionable or not
