Prof. Bill Long 2/8/05
After long reflection, I have decided that unconscionability is the legal word with most syllables that you will probably ever use regularly in your life. And then, if you combine "procedural" or "substantive" with it, you can easily fill in 15 or 20 syllables of a conversation that is lagging. But there is a serious side to it, and it is one of the three doctrines we will learn this week (along with trade terms and the parol evidence rule) that will help you considerably in preparing for the Bar exam and refine your knowledge of the way Article 2 redefines and clarifies the CLC.
Unconscionability ("U") is fraud light. What I mean by this is that in order to raise the defense of an unconscionable contract (and it is, like the SoF, a defense), one does not need to argue that the plaintiff actually defrauded you but only that s/he made it very easy for you to be misled either by the nature of the contract or by taking advantage of your ignorance. U grew up in the era when courts were skeptical whether the long-honored doctrine of "freedom of contract" should be fully-honored in the modern world. Caveat Emptor ("let the buyer beware") might have been a nice rallying cry for market capitalism in the 19th century, but with the difference in power between mega-corporations and the "little guy," the nature of contracts as agreements of adhesion ("take it or leave it") rather than negotiated deals, and the ability of the big sellers to dictate terms of the deal in language that most lawyers would have trouble deciphering, courts increasingly wanted to develop a doctrine that aided the innocent and ingenuous purchaser. U was the result. U, therefore, was seen as a tool to fight the power of the potentially oppressive seller in a transaction for goods.
As such, sometimes you catch a real "moral" flavor in the opinion of a judge who is applying the doctrine. The Jones case (p.138) is a perfect example. There, Judge Wachtler decided that a contract that sold a home freezer unit, which had a retail value of $300, for $900 + credit charges (total almost $1,450) was an unconscionable contract. As he himself confessed, "Concededly, deciding the issue is substantially easier than explaining it." In other words, the doctrine of U has a sort of "gut feel" to it, unlike many of the rules we have been considering. Thus, the judge decided that the contract preyed on the "poor and illiterate without risk of either exposure or interference," and that their having paid around $600 was sufficient to acquire the freezer. This is triumphal judicial activism, no doubt, but it illustrates nicely the use of U.
Once you catch the "flavor" of the doctrine as an instrument to help "level the playing field" between powerful sellers and (often ignorant) buyers, you are in a better position to understand the codification of the doctrine in the UCC. The section (2-302) is relatively brief, and I will quote it in full:
"(1) 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 without the unconscionable clause, or it may limit the application of any unconscionable clause as to avoid any unconscionable result.
(2) 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 effect to aid the court in making the determination."
The Code provides no definition of U. It is almost like Justice Potter Stewart's definition of pornography: "I know it when I see it." The UCC provision is meant to codify the CL doctrine, and the extensive case citations in Cmt. 1 show that it is a doctrine whose precise contours were not well worked out in the 1960s. Before getting to the statute, a few words about history.
The most helpful development in defining the law of U was a law review article by Professor Gordon Leff in 1967. Though calling U a doctrine with "no reality referent" that was really only "an emotionally satisfying incantation," he made a helpful distinction between Procedural U and Substantive U that courts have applied since that day. Basically, a contract would be be procedurally U in three kinds of circumstances: (1) where the seller took advantage of a buyer's limited understanding of English; (2) where the contract was so confusing and filled with opaque phrases that no one, really, could be charged with knowing what it meant; or (3) when the seller used "high pressure" tactics, removing the reality of "meaningful choice" to close the deal. Thus, procedural U was "bargaining naughtiness," as the professor called it. Substantive U, on the other hand, would focus on the ends of the bargaining process. That is, how one-sided are the actual terms of the contract? Everyone should expect that a contract reflects the interests of the drafting party, but how much was too much?
This background helps us understand the language of 2-302 and the cases that describe U. As Cmt 1 says, "The basic test is whether, in the light of the general commercial background and the commerical 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." Well, not much help, admittedly. But you will see discussions of terms like "one-sided" or "absence of meaningful choice" or "oppression" or "shocks the conscience" to try to get at what is meant. The Campbell Soup case from 1948 is one of the classics in trying to define the issue.
Applying the Doctrine
The statute gives us some hints at how it is used. It is the judge, rather than the jury, that decides if a term is U. When such a finding is made, the judge may strike the clause or void the entire contract. In addition, because of the factual nature of the inquiry, a hearing is almost always required before passing judgment on the unconscionability of a provision. In addition, as case law has developed, it will rarely be enough for procedural U alone to void a contract. Usually, you must either have both procedural and substantive U or just substantive U. Rarely can a corporation argue the doctrine successfully. Finally, the most difficult situation for the courts appears to be the instance where there is only what we might call "price U"--that the price of the item is so out of line that a court might be inclined to void the contract. Courts are split on this one, however. If the item was freely offered and if the person could have "checked around" and did not, should the courts protect the buyer by invoking U?
With this more "squishy" doctrine considered, let's turn to trade terms.
Copyright © 2004-2007 William R. Long