THE DOCTRINE OF UNCONSCIONABILITY
The Uniform Commercial Code has introduced into American jurisdictions one of the most significant bodies of statutory law that the
United States has seen to date. The almost universal adoption of the
Uniform Commercial Code has not only provided for uniformity of the
law but has also supplied the impetus for the formation of new concepts-thus the formation of new doctrines. 1 The doctrine of unconscionability is such a doctrine.
Since new doctrines in the law are often viewed with suspicion and
misunderstanding, it is imperative that the legal profession take every
opportunity to appreciate fully their meaning and importance. This
brief comment attempts to clarify the nature of the position that the
doctrine of unconscionability occupies in the law by examining its
meaning and its scope of application.
I
WHAT IS THE MEANING OF THE DOCTRINE OF UNCONSCIONABILITY?
Probably one of the most authoritative attempts to define an unconscionable contract was that given by Chief Justice Fuller: "[a contract]
...such as no man in his senses and not under delusion would make
on the one hand, and as no honest and fair man would accept on the
other ....-2 Because such an abstract definition is not susceptible of
easy application in varying fact situations, a full realization of the significance 3 of unconscionability must be obtained by an examination of
1 The concept of unconscionability has been most commonly recognized by
courts of equity as a defense in suits for specific performance. See, e.g., Pope Mfg.
Co. v. Gormully, 144 U.S. 224 (1892); Campbell Soup Co. v. Wentz, 172 F.2d
80 (3d Cir. 1948); Globe Woolen Co. v. Utica Gas & Elec. Co., 224 N.Y. 483,
121 N. E. 378 (1918). Unconscionability seems to have been available in some instances as a defense at law. See United States v. Bethlehem Steel Corp., 315 U.S.
289, 326 (1942) (dissenting opinion of Justice Frankfurter). But see I CoRBiN.
CoNTRACTs § 128 (1963), where the author indicates that the courts at common
law did not have a rule against unconscionability.
The concept of unconscionability seems to have been lying dormant in the law;
courts have applied the concept indirectly but can now apply it directly. See UNIFORM COMMERCIAL CODE § 2-302, comment I [hereinafter cited as UCC]. From
this aspect the concepts of the Code combined with those of the common law now
comprise the new doctrine of unconscionability.
2
Hume v. United States, 132 U.S. 406, 411 (1889).
3 For discussions on the meaning and significance of unconscionability see Comment, Policing Contracts Under the Proposed Commercial Code, 18 U. Cmll. L
REv. 146 (1950); Notes, Unconscionable Contracts: The Uniform Commercial
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LAW REVIEW
section 2-302 of the Uniform Commercial Code and some of the cases
that have applied the doctrine of unconscionability.
Section 2-302 provides that "if the court as a matter of law finds the
contract or any clause ...to have been unconscionable at the time it
was made the court may refuse to enforce the contract . ..'IThe com-
ment to the section reads in part, "This section is intended to make it
possible for the courts to police explicitly against the contract ... they
find to be unconscionable .... The principle is one of the prevention of
oppression and unfair surprise... and not of disturbance of allocation
of risks because of superior bargaining power...."I
The section is designed to deal with two types of situations. One
type of situation is that involving unfair surprise: where there has
actually been no assent to the terms of the contract. Contracts involving
unfair surprise are similar to contracts of adhesion. Most often these
contracts involve a party whose circumstances, perhaps his inexperience
or ignorance, when compared with the circumstances of the other party,
make his knowing assent to the fine print terms fictional.0 Courts have
Code, 45 IowA L. REV. 843 (1960); Unconscionable Contracts under the Uniform
Commercial Code, 109 U. PA. L. REV. 401 (1961); Unconscionable Sales Contracts and the Uniform Commercial Code. Section 2-302, 45 VA. L. REv. 583
(1959). Professor Llewellyn stated in the Hearings Before the New York Law
Revision Commission on the Uniform Commercial Code 121 (1954) [hereinafter
cited as 1954 Hearings], that he regarded section 2-302 "as perhaps the most
valuable section in the entire Code."
4 UCC § 2-302(1).
5 UCC § 2-302, comment 1.
6 Typical among contracts of adhesion is the disclaimer of warranty provisions
in the manufacturer's standard form contract. Manufacturers' standard disclaimers are in effect limitations of remedy to replacement of defective parts
under the set terms. The uniform warranty of the Automobile Manufacturer's Association as quoted in Henningsen v. Bloomfield Motors, Inc. reads as follows:
It is expressly agreed that there are no warranties,express or implied, made
by either the dealer or the manufacturer on the motor vehicle, chassis, or parts
furnished hereunder except as follows.
The manufacturer warrants each new motor vehicle (including original equipment placed thereon by the manufacturer except tires), chassis or parts manufactured by it to be free from defects in material or workmanship under normal
use and service. Its obligation under this warranty being limited to making good
at its factory any part or parts thereof which shall, within ninety (90) days
after delivery of such vehicle to the original purchaser or before such vehicle
has been driven 4,000 miles, whichever shall first occur, be returned to it with
transportation charges prepaid and which its examination shall disclose to its
satisfaction to have been thus defective; this warranty being expressly in lieu of
all other warranties expressed or implied, and all other obligations or liabilities
on its part, and it neither assumes nor authorizes any other person to assume for
it any other liability in connection with the sale of its vehicles." (Emphasis
added.) 32 N.J. 358, 367, 161 A.2d 69, 74 (1960).
UNCONSCIONABILITY
often found in these circumstances an absence of a meaningful bargain."
The other situation is that involving oppression: where, although
there has been actual assent, the agreement, surrounding facts, and
relative bargaining positions of the parties indicate the possibility of
gross over-reaching on the part of either party. Oppression and economic duress in a contract seem to be inseparably linked to an inequality of bargaining power s The economic position of the parties is such
that one becomes vulnerable to a grossly unequal bargain.'
In many instances the facts of a case may involve both unfair surprise and oppression, but the presence of either situation may be
grounds for finding a contract to be unconscionable. The evil involved
in both situations is the absence of a meaningful bargain or of an understanding that a certain risk is present. In dealing with situations of oppression and unfair surprise, two recent decisions have set out some
guidelines in applying the doctrine of unconscionability.
In Williams v. Walker-Thomas Furniture Co.1" the court, interpreting section 2-302, defined unconscionability to include: an absence
of a meaningful choice on the part of one party to a contract, together
See Ehrenzweig, Adhesion Contracts its the Conflict of Laws. 53 CoLuM. L.
REV. 1072 (1953); Kessler. Contracts of Adhesion--Some Thoug'hts About Freedom of Contract, 43 COLUI. L. REV. 629 (1943); Wilson, Freedom of Contract
and Adhesion Contracts, 14 INT'L & Cotip. L.Q. 172 (1965).
"Henningsen v. Bloomfield Motors, Inc., supra note 6.
8See Comment, Bargaining Power and Unconscionability: A Suggested Approach to UCC Section 2-302, 114 U. PA. L. Rrv. 998. 1001-02 (1966). where it
is suggested that inequality of bargaining power should be a sine qua non: of a
finding of unconscionability. But the writer also concludes that when the bargaining
element is lacking it does not always follow that a court should refuse to enforce.
under UCC 2-302, what appears to be an unfair bargain.
9
E.g., Campbell Soup Co. v. Wentz, 172 F.2d 80 (3d Cir. 1948), 58 YALE L.
1161 (1949).
10350 F.2d 445 (D.C. Cir. 1965). reversing 198 A.2d 914 (D.C. Ct. App.
1964). The defendant Williams purchased a $500 stereo set on an installment
contract with the plaintiff. The plaintiff sold this stereo set knowing that the
defendant supported herself and seven children on a monthly welfare payment of
$218. The defendant already owed a debt of S164 on thirteen prior purchases.
The form contract provided that plaintiff would retain title to all items purchased
until the purchaser had paid all amounts due in full, and that the debt on each
item was secured by the right to repossess all items purchased. Defendant defaulted shortly after the purchase and the plaintiff brought suit to replevy all of the
goods. The court reversed the finding of the lower court that the contract was not
unconscionable and remanded the case to hear evidence on the issue of unconscionability. The case is noted in 54 Gro. Li. 703 (1966); 79 HARv. L. REV.
1299 (1966).
For discussion of add-on and consolidated installment contracts, see CuRtR,,.
TRENDS IN CONSUMER CREDIT LEGISLATION 100 (1965); Hogan, A Survey of
State Retail Installment Sales Legislation, 44 CORNELL L. Q. 38 (1958).
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LAW REVIEW
with terms which are unreasonably favorable to the other party."1
Whether a meaningful choice is present depends on all the circumstances surrounding the transaction, and may be negated by a gross inequality of bargaining power. 12 The court's finding seems to indicate
that the absence of a meaningful choice (which is the result of oppression and unfair surprise) must be combined with terms in the contract
which are unreasonably favorable to one party; the existence of terms
in a contract which are unreasonably favorable to one party is a prerequisite to a finding of unconscionability. The court sets forth an objective standard and precludes the possibility of a party's claiming an
absence of a meaningful choice on a purely subjective basis. But what
constitutes unreasonable terms in a contract? A second decision interpreting section 2-302 has set forth some guidelines in answering this
question.
The court in In re Elkins-Dell Mfg. Co. 13 reversed a finding of a
referee in bankruptcy that a contract was unconscionable according to
its terms. The court held that the reasonableness of the terms of the
contract must be determined from a contract's commercial setting,
purpose, and effect. 14 But the more crucial point of the court's holding is
that a finding of unconscionability cannot be made solely on the terms
of the contract, but must be made only after the parties are afforded a
reasonable opportunity to present evidence as to the commercial setting,
purpose, and effect.' 5 The commercial context seems to be the most
important factor in determining the reasonableness of the terms of a
contract. Evidence as to the commercial context of a contract allows a
court to examine not only the oppressiveness or one-sidedness of the
contract but also whether these same terms have any reasonable rela6
tion to the business risks.1
"Williams v. Walker-Thomas Furniture Co., 350 F.2d 445, 449 (1965).
12 Ibid.
13 253 F. Supp. 864 (E. D. Pa. 1966). In this case the contract provided that
Fidelity American Financial Corporation (creditor) would lend funds to a corporation (debtor). The loans were to be secured, as they were made, by the
debtor's accounts receivable. Creditor would lend money up to seventy-five per cent
of the face value of the debtor's accounts receivable, which had to be approved by
the creditor. In addition, creditor had sole discretion to decide which accounts receivable constituted acceptable collateral, and debtor could not market any of its
receivables to any other lender without creditor's consent. The debtor could not
borrow money from anyone else without creditor's consent; he had to pay a high
interest rate on money borrowed, including a yearly fixed minimum interest payment unrelated to the amount actually borrowed; and he could not suspend business or go into voluntary bankruptcy without creditor's consent. After the debtor
went into involuntary bankruptcy, creditor filed its claim as a secured creditor.
14 In re Elkins-Dell Mfg. Co., 253 F. Supp. 864, 873 (E.D. Pa. 1966).
'5 Ibid.
16
Id.
at 873.
UNCONSCIONABILITY
Admitting that these guidelines or standards can be useful in applying the doctrine of unconscionability, there are still those who would
insist on a concrete definition. But should we insist on a concrete definition? Is it necessary to define unconscionability? It is submitted that it
is neither necessary nor useful to do so. To define the doctrine of unconcionability is to limit its application. To limit its application is to defeat
the purpose for which the doctrine was founded. The doctrine of unconscionability was formed with the intention of making "it possible for
the courts to police explicitly against the contracts. .. which they find
to be unconscionable. 17 To insist on a concrete definition would limit
the effectiveness of the doctrine's policing power by providing a
skilled draftsman with an opportunity to avoid its policing function.
The doctrine of unconscionability should operate with flexibility sufficient to deter a skilled draftsman from drafting to the "absolute limit
8
of what the law can conceivably bear."'
This policing function, with its resulting deterrence, is viewed by
some as being inconsistent with traditional notions of freedom of contract. 19 To so conclude would give recognition to an "absolute" freedom
of contract. But recognizing an "absolute" freedom of contract is difficult to justify in light of a present trend toward protecting individual
consumers 20 and small business enterprises.21 The advent of standardized
form contracts led to the abuse of freedom of contract, and it is this
abuse that has made it necessary for the courts to engage in a policing
function. This policing function is not inconsistent with the concept of
freedom of contract since it is the abuse of the freedom, rather than the
freedom itself, that may be dealt with by courts. Freedom of contract
should imply a reasonably amount of freedom for both parties to the
transaction. 22 To allow absolute and unrestricted freedom of contract
UCC § 2-302, comment I. (Emphasis added.)
18 1954 Hearings, at 177.
19 See Kessler, supra note 6, at 630. See generally Pound. Liberty of Contract.
18 YALE L. J. 454 (1909); Williston, Freedom of Contract, 6 CORNELL L. Q. 365
(1921).
20 See Henningsen v. Bloomfield Motors, Inc., supra note 6; cf. REsTATEMENT
(SECOND), TORTS § 402 A (1965); Prosser, The Fall of the Citadel (Strict Liability to the Consumer), 50 MINN. L. REV. 791 (1966).
17
21See
Bisso v. Inland Waterways Corp., 349 U.S. 85 (1955).
Preservation of
the small business enterprise seems to be recognized as a major national policy.
therefore courts may feel justified in protecting small businesses from their own
shortcomings as an additional measure of protection. See, e.g., Adelman, Effective
Competition amnd the Antitrust Laws, 61 HARV. L. REV. 1289 (1948); Adelman.
Integration and Antitrust Policy, 63 HARv. L. REV. 27, 54-56 (1949). See also
Kessler, Automobile Dealer Franchises: Vertical Integration by Contract, 66 YALE
L.J. 1135, 1171-75 (1957).
22
See Llewellyn, Book Review, 52
HARV.
L.
REV.
700 (1939).
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would be to allow power by contract when significant conditions of inequality exist between the parties. 23 Such pernicious freedom provides
an opportunity to destroy the competitive economy it purports to nour24
ish and support.
A related concern is whether this policing function affects the stability of commercial transactions. It is difficult to deny that the doctrine of
unconscionability creates some uncertainty. But it is questionable
whether the uncertainty is any greater under a direct approach than it
was under an indirect approach. Courts have traditionally been concerned with unfair bargains; 25 the doctrine of unconscionability allows
courts only to do directly what they have done in the past indirectly.20
The ultimate configurations of unconscionability will depend on the
standards and guidelines which evolve from the case by case approach,
and a certain amount of faith is necessary in the ability of the judiciary
to develop workable standards which will obviate any uncertainty that
may exist.
II
THE SCOPE OF THE DOCTRINE OF UNCONSCIONABILITY
Since "oppression" and "unfair surprise" are not exclusively confined
to sale of goods transactions, the question of extending the doctrine of
unconscionability becomes paramount. In 1908, Dean Pound predicted
that the course of legal development would lead us toward judicial reception of statutes as a premise for judicial reasoning; first, that the
courts would receive legislative innovation "into the body of the law to
be reasoned from by analogy the same as any other rule of law, regarding it, however, as of equal or co-ordinate authority in this respect
with judge-made rules upon the same general subject,' '2 7 and eventually
to receive it not only as "a rule to be applied, but a principle from
which to reason, and hold it, as a later and more direct expression of
the general will, of superior authority to judge-made rules... and so
reason from it by analogy in preference to them."28
The judiciary has been reluctant to adopt Pound's approach, but the
basis of this reluctance to reason from a statute is obscure. History indicates that statutes have never played such a confined role in the
development of the English law.2 9 Early extension of statutes through
2See Ehrenzweig, supra note 6, at 1089.
24 Ibid.
25 See supra note 1 and infra note 53.
26 UCC § 2-302, comment 1.
27 Pound, Common Law anid Legislation, 21 HARV. L. REV. 383, 385 (1908).
28 Ibid.
29 Landis, Statutes and the Sources of Law, in HARVARD LEGAL ESSAYs 213, 214
(1934).
86
UNCONSCIONABILITY
the doctrine of equity of the statute is but one example of the attitude of
early common law courts. 30 Nevertheless, courts of later years have rejected the doctrine of equity of statute and have refused to recognize an
appropriate juristic approach toward statutes as a source of the common law.
31
Although the prediction of Pound has not yet been realized, some
federal court decisions indicate an increasing liberality in statutory interpretation with an emphasis on the policy and purpose of the
statutes. 32 But extending a statute in one area into an analogous area is
still met by courts with much apathy and inertia. Neither tradition nor
concern over hastily drawn or ill-considered legislation can justify a
continuing indifference to statutes, especially the Uniform Commercial
Code. 33 If the prophesy of Pound is ever to be realized, it is now. The
Uniform Commercial Code, specifically the doctrine of unconscionability, is providing courts with an opportunity to overcome their apathy
and inertia, setting the stage for an evolutionary breakthrough in judicial reasoning.
The draftsmen prepared the Code in such a manner as to enable the
courts to apply it liberally in promoting uniformity and growth.3 The
30
1d. at 214-15.
31 Landis, supra note 29, at 219.
32
See, e.g., J. I. Case Co. v. Borak, 377 U. S. 426 (1964). 64 CoLUM. L. REV.
1336 (1964): United States v. Republic Steel Corp., 362 U. S 482 (1960); Textile Workers Union of America v. Lincoln Mills. 353 U. ;. 448 (1957): United
States v. Perma Paving Co.. 332 F.2d 754 (2d Cir. 1964), 65 COLUM. L. REV. 339
(1965); Beneficial Finance Co. v. Baker. 43 Misc. 2d 546. 251 N.Y.S.2d 556
(Sup. Ct. 1964).
'1-3
Legislation is prcsumcd immune to -principle"; its judgments zepcsent merely
the political pressure of a special class: it is both ignorant and pererse. Criticisms such as these. of course, have substance, but statutes are of all tpes. [The
Uniform Commercial Code is a different type]. The task of distinguishing between the deliberate and the ad hoc pronouncements of a legislature is not too
difficult. A course of legislation dealing continuously with a series of instance.
can be made to unfold a principle of action as easily as the sporadic judgments
of the courts.
Landis, Statutes and the Sources of Law, in HARVARD LLGAL ESSAYS 213, 222
(1934).
It is the fashion in our profession to lament both the quantity and quality of
our statute-making, not, it is true. without some justification. But our role has
been almost exclusively that of destructive critics, usually after the event, of the
inadequacies of legislatures. There has been little disposition to look to our own
shortcomings in failing, through adaptation of old skills and the development of
new ones, to realize more nearly than we have the ideal of a unified system of
judge-made and statute law woven into a seamless whole by the processes of
adjudication.
Stone, The Common Law in the United States, 50 HARV. L. REv. 4, 12 (1936).
34 It has recently been suggested that in construing the Uniform Commercial
87
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commente 5 to section 1-102 provides that "the text of each section
should be read in the light of the purpose and policy of the rule or
principle in question, as also of the act as a whole, and the application
of the language should be construed narrowly or broadly, as the case
may be, in conformity with the purposes and policies involved." 3 The
purpose behind the doctrine of unconscionability (and the purpose and
policy behind the Code itself) justifies extending section 2-302 to
7
analogous areas to fulfill these purposes and policies.
Code one should "choose the provision (or interpretation based thereon) deemed
most likely to achieve the purpose (or redress the mischief) toward which that
provision... was aimed." Void, Construing the Uniform Commercial Code: Its
Own Twin Keys: Uniformity and Growth, 50 CORNELL L. Q. 49, 56 (1964).
For cases holding the Uniform Commercial Code comparable to a Restatement
see Fairbanks, Morse & Co. v. Consolidated Fisheries Co., 190 F.2d 817, 822 (3d
Cir. 1951). The federal court in resolving a conflict between an express warranty
clause and a disclaimer clause stated as one of the grounds for their decision:
The Uniform Sales Act has no provision covering the problem of conflict between express warranties and a disclaimer clause. It is of interest to note that
the Uniform Commercial Code [which had not yet been adopted in Delaware,
and was the applicable law in the case] ... expressly provides for the situation ....We think provisions of the Uniform Commercial Code which do not
conflict with statute or settled case law are entitled to as much respect and
weight as courts have been inclined to give to various Restatements. It like the
Restatements, has the stamp of approval of a large body of American scholarship.
In Budget Plan Inc. v. Savoy, the court follows the Fairbanks case as to the respect to be given the Code and in applying Connecticut law supported their decision by citing the UCC which had not been enacted in either Massachusetts or
Connecticut. 336 Mass. 322, 145 N.E.2d 710 (1957).
35 For two cases using the official comments in construction and application of
the Code, see In re Carter, 390 Pa. 365, 134 A.2d 908 (1957); Pennsylvania Co. v.
Wilmington Trust Co.................
Del........
166 A.2d 726 (1960).
36 UCC § 1-102, comment 1; see Alloway v. Stuart, 385 S.W.2d 41 (Ky. 1964)
(the Uniform Commercial Code should be liberally construed and applied to promote its underlying purposes and policies); Arcuri v. Weiss, 198 Pa. Super. 506,
508, 184 A.2d 24, 26 (1962) ("The purpose of the Uniform Commercial Code
which was written in terms of current commercial practices, was to meet the contemporary needs of a fast moving commercial society. It changed and simplified
much of the law which it has supplanted but it also sets forth many safeguards
against sharp commercial practices."); Girard Trust Bank v. Leply Ford, 12
Pa. D.&C.2d 351 (1957) ("The code is an attempt to codify all existing law
governing commercial transactions and reference should not be made to one section alone. The code must be considered as a whole, and each section should be
read in conjunction with others in order to ascertain the intent of the legislature.");
L. & N. Sales Co. v. Little Brown Jug, Inc., 12 Pa. D.&.C.2d 469 (1957) (The
general purpose of this code is to promote fair dealings in business transactions).
37
See Vold, supra note 34. Note, The Uniform Commercial Code as a Premise
for Judicial Reasoning, 65 COLtbM. L. REV. 880, 891-92 (1965); 1954 Hearings,
at 109-10, where Professor Llewellyn indicated that the "possibility of extension"
88
UNCONSCIONABILITY
The scope of the doctrine of unconscionability should extend beyond
sale of goods transactions and even beyond commercial transactions in
general. 38 The existence of oppression or unfair surprise in any contrac-
tual setting should be grounds for finding a contract unconscionable.
However, because of the reluctance to extend a statute by analogy, the
crucial question of extending the doctrine may depend on whether
courts treat the doctrine as judge-made or as statute-made law.
The recent cases seem to treat the doctrine as one of broad coverage,
but any conclusion as to whether they are applying a statute-made law
or a judge-made law must be made on inference only. The New Jersey
court in Henningsen v. Bloomfield Motors, Inc.39 referred to "unconscionable provisions in long printed standardized contracts. '4' The
court made a direct reference to unconscionable contracts even though
the Code had not yet been enacted in New Jersey.41 A similiar situation
arose in Williams v. Walker-Thomas Furniture Co.42 where the court
used section 2-302 of the Code as persuasive authority in finding a
contract unconscionable even though the Code had been enacted after
the contracts were made.43 The court held that enactment of section
2-302, which occurred subsequent to the contracts in dispute, neither
indicated that the common law was otherwise at the time of enactment
nor precluded the court from adopting a similar rule in the exercise of
of the provisions in the Code was recognized by the draftsmen of the Code. Cf.
UCC § 1-205, comment 6:
The policy of this Act controlling explicit unconscionable contracts and clauses
(Sections 1-203, 2-302) applies to implicit clauses which rest on usage of trade
and carries forward the policy underlying the ancient requirement that a custom
or usage must be "reasonable." However, the emphasis is shifted. The very fact
of commercial acceptance makes out a prima facie case that the usage is reasonable, and the burden is no longer on the usage to establish itself as being
reasonable. But the anciently established policing of usage by the courts is continued to the extent necessary to cope with the situation arising if an unconscionable or dishonest practice should become standard. (Emphasis added.)
Here the code expressly provides that usage of the trade must not be unconscionable. And since usage of the trade is a concept that may be applied in non-sales
transactions, one can reasonably infer that the scope of the doctrine of unconscionability is not exclusive of non-sales transactions.
38 Ibid. For two cases applying the concept of unconscionability to real estate
transactions see Schaeffer v. Moore, 262 S.W.2d 854 (Mo. 1953); Sizemore v.
Miller, 196 Ore. 89, 247 P.2d 224 (1952), where both courts found transactions
which "shocked the conscience."
3932 N.J. 358, 161 A.2d 69 (1960).
40
Id. at 375, 161 A.2d at 86.
41
N. J. STAT. ANN. tit. 12A:2-302 (1962) (eff. January 1, 1963).
4350
F.2d 445 (D. C. Cir. 1965).
3 Williams v. Walker-Thomas Furniture Co., 350 F.2d 445, 447-48 (D. C.
Cir. 1965).
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its powers to develop the common law.44 The court seems to be willing
to give direct recognition to a statute as a source of law, while the court
45
in Henningsen was less precise in giving any such recognition.
Cases decided directly under section 2-302 also suggest the possibility of extending the doctrine of unconscionability. In American Home
Improvement, Inc. v. Maclver46 the New Hampshire court, as an alter-
native ground for their holding, interpreted section 2-302 and held a
contract unconscionable since the value of the goods and services was
less than half their cost. It has been suggested that since article 2 of the
Code covers the sale of goods, 47 and since the installation of siding
might be considered a contract for labor and materials, the court has
evaded the issue of extending section 2-302.48 Whether or not this observation is true, it is at least inferable that the court found no reason
to differentiate between these two types of contracts, and instead treated
unconscionability as a broader concept in conformance with its purpose
and policy. An analogous inference can be drawn from the Elkins-Deltlo
decision involving two bankruptcy cases. The court refused to consider
the applicability of section 2-302 to non-sales contracts, but remanded
the case for factual hearings on the question of unconscionability without disturbing the referee's extension of section 2-302 to article 9.50
The referee had held that section 1-102(3) imposed a general obligation of good faith and reasonableness, which may not be disclaimed by
agreement; and, although section 2-302 in itself related only to sales
contracts, it represents nothing more than a specific application to such
contracts of the basic underlying philosophy expressed in section
1-102. 51 Therefore, the court felt justified in extending the doctrine of
44 Id. at 448-49; accord, Fairbanks, Morse & Co. v. Consolidated Fisheries Co.,
supra note 34; Budget Plan Inc. v.Savoy, supra note 34.
45See Henningsen v. Bloomfield Motors, Inc., supra note 6, at 95.
46 105 N.H.435, 201 A.2d 886 (1964).
§ 2-102.
48 78 HARV. L.REv. 895, 898 (1965).
47UCC
49
1n re Elkins-Dell Mfg.Co., 253 F.Supp. 864 (1966).
50 Id. at 873 n.4.
51 It is not to be inferred from the mere absence of an "unconscionability" provision in Article 9 like that in Article 2, that the philosophy and applicability
thereof do not spill over into transactions under Article 9, for to so argue would
be to do violence to the basic fabric of the entire Code, as defined in Article 1,
which relates to all other articles. It would be the equivalent of saying that while
unconscionable contracts are verboten and vulnerable if they relate to sales
transactions, they are pure and wholesome and unassailable if they relate to
security interests under Article 9.
In re Dorset Steel Equip. Co., Bankruptcy No. 26352, E.D. Pa., Aug. 2, 1965,
also reported in 2 UCC Rep. Serv. 1016, 1019 (1965). Compare E. F. Hutton &
Co. v. Manufacturers Nat'l Bank, ...
F. Supp .........
E. D. Mich. 1966)
UNCONSCIONABILITY
unconscionability to cover a contract relating to security interests under
article 9 of the code. 52 The court seems to imply an approval of the
referee's decision to extend the doctrine of unconscionability.
The possible inferences drawn from these decisions seem to suggest
that courts are recognizing the Uniform Commercial Code as a direct
source of law to be reasoned from by analogy, but more important is
their application of the doctrine of unconscionability. The tendency
seems to be toward extending the doctrine with little concern over
whether it is regarded as a judge-made or statute-made law. A possible
justification for this approach is that the doctrine of unconscionability
actually represents a union of concepts derived from judge-made as
well as statute-made principles. The impetus provided by the Uniform
Commercial Code has made this union possible, and although the
Code's explicit formulation of the doctrine of unconscionability is new,
the end desired has always been in the minds of the courts., The Code
has acted only as a catalyst in elevating the notion of unconscionability
to the status of a doctrine to be applied liberally in a myriad of situations.
CONCLUSION
The true significance of the doctrine of unconscionability lies in the
policing function that it performs. History has indicated that freedom
of contract cannot be absolute. Our competitive economy has caused
the skilled draftsmen to lose sight of minimal standards of fairness and
decency; 54 thus a certain amount of deterrence is necessary to insure
that contracts remain a method by which parties can arrive at a meaningful bargain. The doctrine also allows courts to establish clearer
guidelines of fairness by precisely articulating previously vague premises of decision-making. Although the doctrine of unconscionability
has established its foothold in the law, its continued development and
growth is dependent upon a judicial acceptance of its purpose and
policy. If prevention of oppression and unfair surprise in contractual
situations are goals to be desired, then courts must be willing to take
cognizance of these goals in any contractual setting. Any reluctance to
extend the doctrine into analogous areas is likely to inhibit its development and growth.
Clinton A. Stuntebeck '68
(UCC article 3 was used to interpret article 8 despite the provision in article 3
that it does not apply to investment securities).
52 In re Dorset Steel Equip. Co.. supra note 5 1.
53 See UCC § 2-302, comment 1; Miami Tribe of Oklahoma v. United States,
281 F.2d 202 (1960); Indianapolis Morris Plan Corp. v. Sparks, 132 Ind. App.
145, 172 N.E.2d 899 (1961); Imperial Discount Corp. v. Aiken. 38 Misc. 2d 187,
238 N.Y.S.2d 269 (1963).
54 See Llewellyn, What Price Contract?-An Essay in Perspective, 40 YALE L.J.
704, 732 n.62 (1931).