Contracts – Prof. Merges
March 31, 2011

Onconscionability and Standard
Form Contracts
Fritz Kessler
One of the last surviving German legal scholar/refugees who fled Nazi Germany for the
United States in the 1930s, "Fritz" Kessler, as he was known, taught the law of contracts, negotiable instruments, insurance, jurisprudence and anti-trust.
Most of his career in the United States, starting in 1935, was spent at the Yale Law School, with a few intervening years at the University of Chicago and short terms as visiting professor at Harvard and
Berkeley.
After retiring from Yale in 1970, he taught as a member of the faculty at Boalt for seven years.

Legal system is efficient

• Pro’s • Con’s
• Cheaper to write, enforce
• National uniformity
• Consumers can
“shop” for terms if they care to
• Perversion of
“consent”
• No meaningful choice
• Disparities in power continue, are magnified

“[G]ross inequality of bargaining power, together with terms unreasonably favorable to the stronger party, may confirm indications that the transaction involved elements of deception or compulsion, or may show that the weaker party had no meaningful choice, no real alternative, or did not in fact assent or appear to assent to the unfair terms.”
Restatement Second, Contracts § 208,
Comment d.

Do consumers “shop” for terms?

Robert A. Hillman, On-Line
Boilerplate:Would Mandatory
Website Disclosure of E-Terms
Backfire?, 104 Mich. L. Rev. 837
(2006)
Most do not shop

• Competition and the Quality of Standard
Form Contracts: An Empirical Analysis of
Software License Agreements"
• BY: FLORENCIA MAROTTA-WURGLER,
New York University
School of Law

• Survey of 647 software license agreements
While software products' prices are highly sensitive to competitive conditions such as concentration and market share, license agreement terms are not.
By demonstrating that sellers with market power do not offer unusually harsh terms, the results suggest that an important aspect of the standard analysis of procedural unconscionability is misguided .

• Facts
• History

“It is agreed . . . That all disputes and matters whatsoever arising under . . . This Contract shall be litigated . . . Before a court located in the State of Florida . .
.”

• Clause enforceable

What factors were important to the Court?

• Notice
• “Business Justification”/Consumer benefits
• “Fairness”

• Is there discussion of “acceptance”?
• How does the Court address the issue of the “bindingness” of the term at issue?

• Is there discussion of “acceptance”?
• How does the Court address the issue of the “bindingness” of the term at issue?
 NOTICE concept: p. 484

• What is the motive of the large firm drafting the Contract?
• P. 392 bottom

• Top 484
• Does this makes sense to you?

• P. 484
• Convinced?
• “Retained option of rejecting K” – agree?

• Major points

• History
• Facts

The terms of each purchase were contained in a printed form contract which set forth the value of the purchased item and purported to lease the item to appellant for a stipulated monthly rent payment.
The contract then provided, in substance, that title would remain in Walker- Thomas until the total of all the monthly payments made equaled the stated value of the item, at which time appellants could take title.

“Unconscionability has generally been recognized to include 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.
…In many cases the meaningfulness of the choice is negated by a gross inequality of bargaining power.”

§ 2-302. Unconscionable contract or Clause.
(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 so 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.

Law of consideration relevant?
• Factors present here . . .

Law of consideration outdated?
• Factors present here . . .
• Gross disparity in price (vs. market)
• Limited financial resources of buyer –
• Known to seller

1. Status
2. Behavior/process
3. Substance

• 2.3 percent of U.S. households had used rent-to-own transactions in the last year, and
4.9 percent had done so in the last five years. Compared to households who had not used rent-to-own transactions, rent-toown customers were more likely to be
African American, younger, less educated, have lower incomes, have children in the household, rent their residence, live in the
South, and live in non-suburban areas.

• Seventy-five percent of rent-to-own customers were satisfied with their experience with rent-to-own transactions. Satisfied customers gave a wide variety of reasons for their satisfaction, favorably noting many aspects of the transaction, the merchandise and services, and the treatment they received from store employees.
http://www.ftc.gov/reports/renttoown/rtosummary.htm

• http://www.ftc.gov/bcp/conline/pubs/alerts/ pdayalrt.htm
• “Payday loans”

• Silva v. Rent-A-Center, Inc., 912
N.E.2d 945, 952 (Mass. 2009) – K was a lease, not a credit device; usury laws did not apply
• Contra: Perez v. Rent-A-Center,
Inc., 892 A.2d 1255, (2006), cert. denied, 549 U.S. 1115 (2007)

Forty-seven States, including
Massachusetts, as well as Guam,
Puerto Rico, and the District of
Columbia, have enacted rent-toown legislation. Only New
Jersey, Wisconsin, and North
Carolina have not. Hawkins,
Renting the Good Life, 49 Wm. &
Mary L. Rev. 2041, 2052 n. 37
(2008)

Over thirty-eight per cent of leases result in an actual purchase either by renting for the term of the agreement or through an early purchase. Anderson, Rent-To-
Own Agreements:  Purchases or
Rentals?, 20 J. Applied Bus. Res.
13, 15 (2004).