P, welfare recipients, agreed to purchase a freezer for $900 from D. After finance charges, the total would be more than $1200. The retail price of the freezer was $300.
At the time of the suit, P had paid about $600 towards the purchase.
P sued D and prayed for contract rescission.
Procedural History:
NY Supreme Court found for P, terms unconscionable, contract amended. P gets freezer for the $600 already paid.
Issues:
Can gross inadequacy between an item's value and its purchase price be used by courts to determine the unconscionability of a contract?
Holding/Rule:
Gross inadequacy between an item's value and its purchase price can be used by courts to determine the unconscionability of a contract.
Reasoning:
It is important to preserve the integrity of agreements and the right of parties to contract freely; however, there is concern for the uneducated and often illiterate individual who is the victim of gross inequality of bargaining power.
The law is beginning to fight back against those who once took advantage of the poor and illiterate without risk of either exposure or interference.
The principle of unconscionability is one that attempts to prevent oppression and unfair surprise.
It permits a court to accomplish directly what was often accomplished by construction of language, manipulations of fluid rules of contract law, and determinations based upon a presumed public policy.
The UCC section on unconscionability was meant to encompass the price term of an agreement.
Credit charges alone exceed the value of the freezer.
The very limited financial resources of the purchaser, known to the sellers at the time of the sale, is entitled to weight in the balance.
There have been numerous other courts that have used gross inadequacy of consideration in deciding a contract is unconscionable.
Dissent:
None.
Notes:
There is a doctrine of price unconscionability.
There is a 3x rule. If a party is selling something for three times the value, there is a good chance it will be found to be substantially unconscionable.
Procedural unconscionability was found because it was an in-home sale because people are too polite when people come to their home.
