Unconscionability Revisited - A Comparative Approach
Unconscionability Revisited - A Comparative Approach
1992
Recommended Citation
Hunter, Richard J. Jr. (1992) "Unconscionability Revisited: A Comparative Approach," North Dakota Law
Review: Vol. 68: No. 1, Article 4.
Available at: https://commons.und.edu/ndlr/vol68/iss1/4
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UNCONSCIONABILITY REVISITED: A COMPARATIVE
APPROACH
of the drafters of the Code."19 The court went on to say that "[t]o
define the doctrine is to limit its application, and to limit its appli-
cation is to defeat its purpose. "20
The Official Comments are important in illuminating the leg-
islative purposes of the unconscionability provision:
This section is intended to make it possible for the
courts to police explicitly against the contracts or clauses
which they find to be unconscionable. In the past such
policing has been accomplished by adverse construction
of language, by manipulation of the rules of offer and
acceptance or by determinations that the clause is con-
trary to public policy or to the dominant purpose of the
contract. This section is intended to allow the court to
pass directly on the unconscionability of the contract or
particular clause therein and to make a conclusion of law
as to its unconscionability. The basic test is whether, in
the 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 mak-
ing of the contract .... The principle is one of the pre-
vention of oppression and unfair surprise and not of
disturbance of allocation of risks because of superior bar-
gaining power.2 1
The Code provision was designed to attain two purposes: (1)
Encourage courts to openly and directly strike down provisions of
agreements which had previously been denied enforcement
through indirect or "covert" means (Professor Karl Llewellyn,
principal author of the UCC, noted perhaps somewhat wryly:
"Covert tools are never reliable tools."); 22 and (2) Achieve a sub-
stantial merger of equity and law in the interests of a uniform
treatment of unconscionability.
Third, the text of the UCC makes it clear that the substantive
issue of unconscionability is one to be decided by the court as a
matter of law. 36 While challenged on the ground that such a pro-
vision denies a litigant an opportunity of a trial by jury, this section
has been upheld on the basis that the issue of unconscionability is,
at its core, an equitable issue for which no constitutional right to a
3
trial by jury exists. 1
54. See generally, Williams v. Walker-Thomas Furniture Co., 350 F.2d 445 (D.C. Cir.
1965); State v. ITM, Inc., 275 N.Y.S.2d 303 (Sup. Ct. 1966).
55. See, e.g., Campbell Soup Co. v. Wentz, 172 F.2d 80 (3d Cir. 1948), where the court
refused to award specific performance because Campbell Soup had driven an
unconscionable bargain.
56. Weaver v. American Oil Co., 276 N.E.2d 144, 148 (Ind. 1971).
57. Miller v. Coffeen, 280 S.W.2d 100, 104 (Mo. 1955). For a very early view, see also
Pope Mfg. Co. v. Gormully, 144 U.S. 224 (1892).
58. U.C.C. § 1-203 (1989). See LLEWELLYN, supra note 22, at 369.
59. U.C.C. § 1-201(19) (1989).
60. U.C.C. § 2-103(1Xb) (1989).
61. LLEWELLYN, supra note 22, at 369. This view of good faith as an "express
limitation (of) Article 2" was justified in an important 1972 Delaware case, Sherrock v.
Commercial Credit Corp., 290 A.2d 648, 651 (Del. 1972). See also Robert S. Summers,
"Good Faith "In GeneralContract Law and the Sales Provisions of the UCC, 54 VA. L. REV.
195 (1968).
1992] UNCONSCIONABILITY REVISITED
the case from Williams v. Walker-Thomas FurnitureCo., the court noted that "[w]e deal
here with a college educated buyer, one with some background in commercial law, who
shopped extensively for computer equipment to suit his needs." Id. The court stated that
the plaintiff had neither proved the absence of meaningful choice nor unreasonably
favorable terms, and noted that such a finding was the "gravamen of an unconscionability
claim." Id. at 304 (citing Williams v. Walker-Thomas Furniture Co., 350 F.2d 445, 449
(D.C. Cir. 1965)).
In 1988, the District Court for the Eastern District of Missouri heard an interesting and
novel case brought by a participant in an auto race who was injured when he was struck on
the leg and foot by a sprint car. Haines v. St. Charles Speedway, Inc., 689 F. Supp. 964
(E.D. Mo. 1988), aff'd, 874 F.2d 572 (8th Cir. 1989). The district court held that a release
signed by the plaintiff was not against public policy, had not been procured by pressure, and
was binding even if the plaintiff did not have the ability to read and understand it. Id. at
967-69. In rejecting the plaintiff's contentions, the court noted that despite the fact that
the plaintiff was a functional illiterate, unable to either read or understand the release, it
was "his duty to procure someone to read or explain the release to him before signing it."
Id. at 968. In this situation, where the exculpatory clause was found not to violate public
policy (see, e.g., Dunn v. Paducah Int'l Raceway, 599 F. Supp. 612 (W.D. Ky. 1984)), and in
the absence of proof of fraud, duress, mistake, or accident, the agreement would "be given
full force and effect." Haines,689 F. Supp. at 968 (citing Grand Motors, Inc. v. Ford Motor
Co., 564 F. Supp. 34, 38 (W.D. Mo. 1982)). The court tacitly recognized the requirement of
finding both procedural and substantive wrongdoing before it would entertain a decision as
to invalidity.
On appeal, the Eighth Circuit, deciding the release was not overbroad, affirmed the
decision of the district court and noted that "we are 'to effectuate the reasonable
expectations of the average member of the public who accepts it.'" Haines v. St. Charles
Speedway, Inc., 874 F.2d 572, 575 (8th Cir. 1989) (quoting Estrin Constr. Co., Inc. v. Aetna
Casualty and Sur. Co., 612 S.W.2d 413, 419 n.4 (Mo. Ct. App. 1981) (quoting RESTATEMENT
(SECOND) OF CONTRACTS § 237, cmt. e (tent. draft 1973)). Thus, while the word
"unconscionable" was not specifically used, the court employed the first part of the
Williams analysis in determining that the plaintiff was not entitled to relief from an
unambiguous document which bore his signature. Cf.Wille v. Southwestern Bell Tel. Co.,
549 P.2d 903 (Kan. 1976).
65. James Johnson, Unconscionability & The Federal Chancellors: A Survey of UCC.
Section 2-302 Interpretationsin the Federal Circuits During the Early Eighties, 5 SIMON
GREENLEAF L. REV. 115 (1985).
66. Id. at 119.
67. See, e.g., Transamerica Oil Corp. v. Lyons, Inc., 723 F.2d 758 (10th Cir. 1983).
1992] UNCONSCIONABILITY REVISITED
85. BGW Assocs., Inc. v. Valley Broadcasting Co., 532 F. Supp. 1112, 1114 (S.D.N.Y.
1981), upheld, 532 F. Supp. 1115 (S.D.N.Y. 1982).
86. 350 F.2d 445 (D.C. Cir. 1965).
87. BGW, 532 F. Supp. at 1114 (citations omitted).
88. Id. (noting that defendant had "ample opportunity to explore alternatives").
89. Id.
90. W. STORY, CONTRACTS 401-02 (1884).
91. Johnson, supra note 65, at 128 n.52.
92. 635 F.2d 1081 (3d Cir. 1980).
NORTH DAKOTA LAW REVIEW [Vol. 68:145
93. Chatlos Sys., Inc. v. National Cash Register Corp., 635 F.2d 1081, 1085-86 (3d Cir.
1980).
94. Id. at 1086-87.
95. 545 F. Supp. 395 (W.D. Pa. 1982).
96. Camerlo v. Howard Johnson Co., 545 F. Supp. 395, 398 (W.D. Pa. 1982).
97. Id.
98. 510 F. Supp. 807 (E.D. Pa. 1981), aff'd mem., 676 F.2d 688 (3d Cir. 1982).
99. 528 F. Supp. 583 (E.D. Pa. 1981).
100. 532 F. Supp. 1282 (E.D. Pa. 1981), aff'd mem., 696 F.2d 983 (3d Cir. 1982).
101. Stanley A. Klopp, Inc. v. John Deere Co., 510 F. Supp. 807, 810 (E.D. Pa. 1981),
aff.'d mem., 676 F.2d 688 (3d Cir. 1982).
102. Stanley A. Klopp, Inc., 510 F. Supp. at 810.
103. See Argo Welded Prods., Inc. v. J. T. Ryerson Steel & Sons, Inc., 528 F. Supp. 583,
593 (E.D. Pa. 1981).
104. Id.
1992] UNCONSCIONABILITY REVISITED
105. Melso v. Texaco, Inc. 532 F. Supp. 1280, 1281-82, 1285 (E.D. Pa. 1981), aff'd
mem., 696 F.2d 983 (3d Cir. 1982).
106. Melso, 532 F. Supp. at 1295.
107. 434 A.2d 1222 (Pa. 1981).
108. Melso, 532 F. Supp. at 1295.
109. Id. at 1296-97.
110. 883 F.2d 1114 (1st Cir. 1989).
111. Securities Indus. Ass'n v. Connolly, 883 F.2d 1114, 1119-21 (1st Cir. 1989).
112. Id. at 1116 (citing 9 U.S.C. §§ 1-14 (1982)).
162 NORTH DAKOTA LAW REVIEW [Vol. 68:145
113. Id. at 1116-17. See also Drayer v. Krasner, 572 F.2d 348 (2d Cir.), cert. denied,
436 U.S. 949 (1978) (discussing industry standards as to the use of arbitration claims).
114. Connolly, 883 F.2d at 1117 (citations omitted).
115. 482 U.S. 483 (1987).
116. Connolly, 883 F.2d at 1119 n.3. See also New England Energy, Inc. v. Keystone
Shipping Co., 855 F.2d 1 (1st Cir. 1988).
117. Connolly, 883 F.2d at 1124 n.9. The court also stated that "[fthe use of a standard
form contract between two parties of admittedly unequal bargaining power does not
invalidate an otherwise valid contractual provision." Id. (citing Webb v. R. Rowland & Co.,
Inc., 800 F.2d 803, 807 (8th Cir. 1986)).
118. For a collateral definition in a case involving an arbitration clause under UCC § 2-
207, see N&D Fashions, Inc. v. DHJ Indus., Inc., 548 F.2d 722 (8th Cir. 1976). See also
Anthony G. Eonas, Mediation: An ExpandingRole in Alternative Dispute Resolution, 23 N.
ATL. REG. Bus. L. REV. 27 (1990).
119. 856 F.2d 361 (1st Cir. 1988).
120. Boston Edison Co. v. FERC, 856 F.2d 361, 362-63 (1st Cir. 1988).
121. See id. at 364.
1992] UNCONSCIONABILITY REVISITED 163
most conspicuous print ... [;] [t]he contract was written in plain
English; ... [and] [t]here was no disparity in sophistication or bar-
gaining power. ' 136 Because the plaintiff had asserted no facts
whatsoever to support its bare contention that the contract was
unconscionable, the court concluded that Aetna had no legal
grounds for pursuing the appeal and directed that Aetna and its
attorney be required to pay double costs and all reasonable attor-
37
ney's fees expended by the plaintiff in defending the appeal.'
Perhaps the real importance of the Firemen'sFund case lies in
the clear indication that principles of unconscionability have
become so well-settled that the mere allegation of unconscionabil-
ity and nothing more is no guarantee of sympathy from a court
38
reviewing a record on appeal.'
136. Id. The court also noted that the officer who signed for Ashley admitted he
understood the meaning of the limitation clause and made no effort to negotiate different or
better terms. Id.
137. Id. at 1280. See also FED. R. App. P. 38 & 39 (allowing the sanction of attorney's
fees).
138. The Ashley court noted as follows: "Aetna's appeal in this case was wholly
without merit because the result was obvious. The overwhelming weight of precedent
militates against Aetna's position." E.H. Ashley, 907 F.2d at 1280.
139. 821 F.2d 897 (2d Cir. 1987).
140. Middle E. Banking Co. v. State St. Bank Int'l, 821 F.2d 897 (2d Cir. 1987). The
Clearing House Interbank Payment System (CHIPS) is a "computerized funds transfer
system used to process a large number of payments between banks." Id. at 900 n. 1. At the
time of Middle E. Banking, 140 banks participated in the system. Id.
141. Id. at 910. See generally 3 WILLISTON ON THE LAW OF CONTRACTS § 154 (4th ed.
1990); RESTATEMENT (SECOND) OF CONTRACTS § 153 (1979) (setting out the doctrine of
unilateral mistake).
1992] UNCONSCIONABILITY REVISITED
153. West 14th, 815 F.2d at 200 n.8 (quoting 15 U.S.C. § 3608(c) (1982)).
154. Id. at 201 (quoting 126 CONG. REC. 28, 179 (1980)).
155. 824 F.2d 1363 (3d Cir. 1987).
156. 202 Marketplace v. Evans Prods. Co., 824 F.2d 1363 (3d Cir. 1987).
157. Id. at 1366 (quoting Cleveland v. Salwen, 141 A. 155, 156 (Pa. 1928) (emphasis
added)).
158. Id. at 1368.
1992] UNCONSCIONABILITY REVISITED
159. 893 F.2d 541 (3d Cir. 1990), cert. granted, 111 S. Ct. 1386 (1991).
160. Cipollone v. Liggett Group, Inc., 893 F.2d 541 (3d Cir. 1990), cert. granted, 111 S.
Ct. 1386 (1991).
161. Id. at 552.
162. Id. at 564. See, e.g., Winston Indus., Inc. v. Stuyvesant Ins. Co., 317 So. 2d 493
(Ala. Civ. App. 1975) (purchaser permitted to sue under § 2-313 for breach of a warranty he
never received), cert. denied, 317 So. 2d 500 (Ala. 1975); Royal Typewriter Co. v.
Xerographic Supplies Corp., 719 F.2d 1092, 1101 (1 th Cir. 1983) ("absence of reliance will
negate the existence of an express warranty").
163. Cipollone, 893 F.2d at 564.
164. 315 A.2d 30 (N.J. Sup. Ct. App. Div. 1973) (per curiam).
165. Cipollone, 893 F.2d at 564 n.24 (citing Collins v. Uniroyal, Inc., 315 A.2d 30 (N.J.
Sup. Ct. App. Div. 1973) (per curiam)).
166. Id.
167. Id..
168. 834 F.2d 1154 (3d Cir. 1987).
168 NORTH DAKOTA LAW REVIEW [Vol. 68:145
169. Berger v. United States Fidelity & Guar. Co., 834 F.2d 1154, 1161 (3d Cir. 1987)
(quoting County of Somerset v. Durling, 415 A.2d 371, 374 (N.J. Sup. Ct. Ch. Div. 1980)).
170. Id. at 1162 (quoting Meier v. New Jersey Life Ins. Co., 503 A.2d 862, 869 (N.J.
1986) (emphasis added)).
171. Linden Motor Freight Co., v. Travelers Ins. Co., 193 A.2d 217, 224 (N.J. 1963).
172. 858 F.2d 905 (3d Cir. 1988).
173. Hodes v. S.N.C. Achille Lauro ed Altri-Gestione, 858 F.2d 905 (3d Cir. 1988).
174. Id. at 906.
175. Id.
1992] UNCONSCIONABILITY REVISITED 169
8. Conclusion
The application of section 2-302 of the UCC to Code cases
may be practically limited to a showing of both procedural and
substantive unconscionability. This view has its clear origin in
Judge Wright's formulation of unconscionability in Williams as "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.' 1 79 Yet, in reality, there will be few instances
where a contract is so one-sided as to."shock the conscience of the
court" (substantive unconscionability) absent some strong evi-
dence of unfair surprise, clauses hidden in fine print, or the exer-
cise of grossly unequal bargaining power during the process of
contract formation (procedural unconscionability).
In a wide range of non-Code cases, decisions of the First, Sec-
ond and Third Federal Circuits in the 1980s indicate that the doc-
trine of unconscionability is a viable and valuable point of critical
reference for evaluating contracts that smack of one-sidedness, an
absence of meaningful choice, great inequality of bargaining
power, or the failure to directly communicate important contract
terms. At the same time, however, no longer will the naked "alle-
gation" of unconscionability result in a contract being striken by
the courts.
In contrast to the pre-Code application of the unconscionabil-
ity doctrine (which accomplished its intended purpose often
through an indirect "manipulation" of the common law), the com-
ment to section 2-302 suggests a "conspicuous intent"'' 10 of the
writers to use the doctrine of unconscionability to lessen the bur-
den contained in either boilerplate contracts or fine print clauses,
particularly in warranty disclaimers or limitation of remedy
clauses.' 8 ' Taken together with sections 2-316 [Exclusion or Modi-
fication of Warranties] and 2-719 [Contractual Modification or
Limitation of Remedy], and recognizing that a fine-print clause
can infact misrepresent the true and conscious agreement ("meet-
ing of the minds") between the parties, section 2-302 can serve
courts well, not only in their responsibility of equitable supervision
of contracts for the sale of goods, but also in other collateral con-
tracting matters. In doing so, the courts may facilitate the creation
of an equitable "corporate conscience" that reflects a fundamental
fairness and equity in contractual relations, decisively rejecting
the sordid history of caveat emptor and the empty notions of an
absolute "freedom of contract." This process may also point to the
further importance of federal precedent in fleshing out the param-
eters of the unconscionability doctrine in both Code and non-Code
cases.