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Contracts Assignment #3
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Question:
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Tonight we will (hopefully) get the the doctrine of unconscionability, under which a court can set aside a transaction if the terms are very unfair to one party and it would be unconscionable to enforce the contract.
This doctrine has not been around forever. 50 years ago, court generally held fast to the rule that inadequacy of consideration is irrelevant and if you made a bad deal, too bad on you. A landmark case that started to change all that was Williams v. Walker-Thomas Furniture Co., 121 U.S. App. D.C. 315 (D.C. Cir. 1965). The Lexis overview for that case is:
The buyers entered into installment contracts with the furniture company for the sale of furniture. The buyers defaulted on payments that were due to the company and the lower court granted judgment in favor of the company. On appeal, the buyers contended that their contracts with the company were unenforceable due to unconscionability. The court stated that the court had authority to refuse to enforce a contract found to be unconscionable at the time it was made. In assessing unconscionability, the court was to consider the contract's terms in light of the general commercial background and the commercial needs of the particular trade or case.
In essence, the key facts were that the plaintiff convinced the defendant to uy lots of furniture that she really could not afford and that:
"The contract further provided that "the amount of each periodical installment payment to be made by [purchaser] to the Company under this present lease shall be inclusive of and not in addition to the amount of each installment [**2] payment to be made by [purchaser] under such prior leases, bills or accounts; and all payments now and hereafter made by [purchaser] shall be credited pro rata on all outstanding leases, bills and accounts due the Company by [purchaser] at the time each such payment is made.") The effect of this rather obscure provision was to keep a balance due on every item purchased until the balance due on all items, whenever purchased, was liquidated. As a result, the debt incurred at the time of purchase of each item was secured by the right to repossess all the items previously purchased by the same purchaser, and each new item purchased automatically became subject to a security interest arising out of the previous dealings." Eventually, the defendant defaulted on one of the loans and the plaintiff wanted to repossess all the furniture she had bought.
The court thought this was terribly unfair, and in spite of very weak if any precedent, the court found for the buyer and found that unconscionability could be used to disallow the repossessions.
The dissenting judge felt that the court is, by preventing "unfair" contracts, making it harder for people to contract for what they need. the dissenter said "There are many aspects of public policy here involved. What is a luxury to some may seem an outright necessity to others. Is public oversight to be required of the expenditures of relief funds? A washing machine, e.g., in the hands of a relief [**13] client might become a fruitful source of income. Many relief clients may well need credit, and certain business establishments will take long chances on the sale of items, expecting their pricing policies will afford a degree of protection commensurate with the risk....
I mention such matters only to emphasize the desirability of a cautious approach to any such problem, particularly since the law for so long has allowed parties such great latitude in making their own contracts. I dare say there must annually be thousands upon thousands of installment credit transactions in this jurisdiction, and one can only speculate [*451] as to the effect the decision in these cases will have. "
Who do you agree with? Should a court abide by the general rule that people are free to make bad deals for themselves? Or should the court step in and prevent people from being taken advantage of? Or are there different situations in which each view is appropriate? You may, but need not, use other case law in your answer.
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