UNCONSCIONABILITY
Two Types:
1) SUBSTANTIVE: Bad terms, surprise
to one party; not commercially
reasonable and thus no connection
to risks and needs of the business
2) What is second type? Hint: Either
your brain or your signature will be
on that contract?
UNCONSCIONABILITY
SECOND TYPE IS PROCEDURAL:
- PROCESS is unfair.
- Can K be procedurally unconscionable if
deal is fair?
- EXAMPLES:
- Pressure
- Others?
Unconscionability / Arbitration
How can arbitration clauses be
SUBSTANTIVELY unconscionable?
- Any dispute between cardholder and Bank
shall be decided by binding arbitration
before the American Arbitration
Association in a proceeding filed and
litigated in Orange County, California.
- Cardholder residing in DC alleges dispute
for $100,000
Unconscionability / Arbitration
- Are filing fees in arbitrations higher or
lower than filing fees in court?
- How are arbitrators paid?
- Do litigants in arbitration use any of
these devices: depositions, interrogatories,
document production requests, requests
for admission, motions, etc.
Brower v. Gateway
Did the Court find a PROCEDURAL
unconscionability? Why / Why not?
The court determined that 2-207 (Additional
Terms in Acceptance or Confirmation) did
NOT apply. Why did this render the
procedural unconscionability issue moot?
Brower v. Gateway
• What did the court decide about
substantive unconscionability?
• Was this enough to disturb the verdict of
the lower court?
• What about prior rulings in NY stating that
need to prove BOTH procedural AND
substantive?
• See 2-302 text
§ 2-302. Unconscionable contract or Term.
• (1) If the court as a matter of law finds the contract or
any term 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 term, or it may so
limit the application of any unconscionable term as to
avoid any unconscionable result.
• (2) If it is claimed or appears to the court that the
contract or any term 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.
Factors (page 229)
1.
2.
3.
4.
5.
6.
7.
Age, education, intellect
Business Acumen / experience
Relative Bargaining Power
Who drafted K?
Were K terms explained to weaker party
Were alterations of K terms permitted?
Alternative Sources of Supply?
Limitation of Remedies
Consequential Damages?
Attorneys’ Fees? (American Rule)
Example: Online retailer contracts with IT provider
for IT services for $1000/month. IT fails for three
days and retailer loses $50K in revenue. What
are expectancy damages under K? What are
consequentials?
Practical Applications (beyond UCC bar Qs)
Rheem v. Phelps (229)
Though not stated in case, what made it
hard for Phelps to claim unconscionability?
Did the court uphold the limitation of the
remedy? Why?
What did Phelps say to potential customers
about warranties?
UCC 2-719
•
•
•
•
•
(1) Subject to the provisions of subsections (2) and (3) of this section and of
the preceding section on liquidation and limitation of damages,
(a) the agreement may provide for remedies in addition to or in substitution
for those provided in this Article and may limit or alter the measure of
damages recoverable under this Article, as by limiting the buyer's remedies
to return of the goods and repayment of the price or to repair and
replacement of non-conforming goods or parts; and
(b) resort to a remedy as provided is optional unless the remedy is
expressly agreed to be exclusive, in which case it is the sole remedy.
(2) Where circumstances cause an exclusive or limited remedy to fail of its
essential purpose, remedy may be had as provided in this Act.
(3) Consequential damages may be limited or excluded unless the
limitation or exclusion is unconscionable. Limitation of consequential
damages for injury to the person in the case of consumer goods is prima
facie unconscionable but limitation of damages where the loss is
commercial is not.
Problem 43 (page 237)
Was the implied warranty of merchantability properly
excluded?
See excerpt from 2-316(2):
(2) Subject to subsection (3), to exclude or modify the
implied warranty of merchantability or any part of it in a
consumer contract the language must be in a record, be
conspicuous, and state "The seller undertakes no
responsibility for the quality of the goods except as
otherwise provided in this contract," and in any other
contract the language must mention merchantability and
in case of a record must be conspicuous . . .
Problem 43 (Page 237)
You are the buyer’s attorney, do you pursue
the $342K? What if you think you
probably will lose?
How could 2-719 help the buyer?
How long should seller have had to fix the
generator? What code section helps . . .
UCC 2-309
• § 2-309. Absence of Specific Time
Provisions; Notice of Termination.
• (1) The time for shipment or delivery or
any other action under a contract if not
provided in this Article or agreed upon
shall be a reasonable time.
TENDER & RESPONSE
Under 2-601, a buyer can reject goods if they “fail
in any respect” to conform to K.
This is called the:
a) love me tender rule
b) legal tender rule
c) perfect tender rule
d) try a little tender[ness] rule
What are buyer’s options if goods don’t conform?
§ 2-601. Buyer's Rights on Improper Delivery.
Subject to the provisions of this Article on breach
in installment contracts (Section 2-612) and
unless otherwise agreed under the sections
on contractual limitations of remedy
(Sections 2-718 and 2-719), if the goods or the
tender of delivery fail in any respect to conform
to the contract, the buyer may
• (a) reject the whole; or
• (b) accept the whole; or
• (c) accept any commercial unit or units and
reject the rest.
Campbell v. Ag Finder (240)
Did soy beans conform?
Did “FOB Farm” help Campbell or Ag
Finder? Whose farm?
What does “Sufficiency of Evidence” p242
mean for you as a practitioner if you are
trying to distinguish this case in “real life?”
Did Ag Finder accept or reject? Why?
§ 2-606. What Constitutes
Acceptance of Goods.
• (1) Acceptance of goods occurs when the buyer
– (a) after a reasonable opportunity to inspect the goods signifies
to the seller that the goods are conforming or that he will take or
retain them in spite of their non-conformity; or
– (b) fails to make an effective rejection (subsection (1) of Section
2-602), but such acceptance does not occur until the buyer has
had a reasonable opportunity to inspect them; or
– (c) does any act inconsistent with the seller's ownership; but if
such act is wrongful as against the seller it is an acceptance only
if ratified by him.
• (2) Acceptance of a part of any commercial unit is
acceptance of that entire unit.
Problem 44 & questions (244)
Can P&T reject all? What if Clonics key
boards are better than IBX keyboards?
What are P&T’s options? (2-601)
Assuming P&T can reject 5 nonconforming
units, what does P&T pay? . . .
(2-607(1) and comment 1 thereto)
Problem 44 & questions
How long does P&T have to reject? Which
Code section helps?
What does P&T do with nonconforming
goods after rejecting them? (Same code
section)
Is stating “these computers suck” enough?
2-605
Problem 45 (page 245)
Does the implied warranty of merchantability
apply? Why/Why not?
Does the implied warranty of fitness for a
particular purpose apply? Why/Why not?
What triggers a buyer’s right to reject? Is
that present here? What was the
“promise?”
Problem 46 (page 245)
Is there a “nonconformity” with the goods?
Are the goods perfect? Is the tender
“perfect” in this case?
Are the goods fit for their particular purpose?
Problem 47 (page 247)
Does “sole remedy” language in a) override perfect
tender rule?
See 2-601 (slide 16 above); see 2-719(1)(a) (slide
11 above)
What about trade usage and course of dealing in b
and c? 1-303; Part of K under Comment 2 to 2202 – so is there nonconformity?
Bad Faith / Neumiller case (247)
K said potatoes had to “chip” [sic] to “buyer’s
satisfaction. Buyer said not satisfied, so is
that a proper rejection?
Did seller have burden to show conformity &
bad faith, or did buyer have burden to
show nonconformity & good faith? How
was burden met; what was evidence?
Should you plead “Bad Faith” as a count?
Problem 48 (250)
Seller is Northwestern Industries Sawmill (NW)
and K says “FOB Northwestern Industries
Sawmill.” Where does NW’s responsibility end?
See 2-504: does K require NW to deliver goods “at
a particular destination?”
If not required to deliver “at a particular
destination,” what are NW’s responsibilities
under 2-504? Did NW meet 2-504
responsibilities? Can Buyer Reject?
Installment Ks / Prob 49(a) (p250)
Does it matter that buyer is going to pay all
at the same time?
§ 2-612. "Installment contract"; Breach.
• (1) An "installment contract" is one which
requires or authorizes the delivery of
goods in separate lots to be separately
accepted, even though the contract
contains a clause "each delivery is a
separate contract" or its equivalent.
Problem 49(b) p251
Installment K requires IBX keyboards but
first installment has Clonics keyboards.
Is this a perfect tender?
Can Seller use 2-612 to its advantage?
Problem 49(c-f) p251
c) Were all installments substantially
impaired by nonconforming keyboards in
1st installment
d & e) Do parties have freedom of K to
negotiate a “perfect tender rule” in
installment K. Did P&T have “basis in
reason” for requirement? Explained to
seller?
f) What about course of dealing?
CURE; Probs 50-51 (p251-252)
• § 2-508. Cure by Seller of Improper Tender or
Delivery; Replacement.
• (1) Where any tender or delivery by the seller is rejected
because non-conforming and the time for performance
has not yet expired, the seller may seasonably notify
the buyer of his intention to cure and may then within the
contract time make a conforming delivery.
• (2) Where the buyer rejects a non-conforming tender
which the seller had reasonable grounds to believe
would be acceptable with or without money allowance
the seller may if he seasonably notifies the buyer have a
further reasonable time to substitute a conforming
tender.
Cure (cont) p253
Are repairs sufficient to “cure?”
What about the “shaken faith” doctrine,
particularly for cars?
Problem 52 (p254)
Can a late delivery be a “conforming tender” or a
“conforming delivery”?
What about 2-508(2) (slide 29)? Why doesn’t 2508(2) help? Does 2-508(2) mention timing of
initial delivery? What is difference between this
and problem 51 p 252 re: timing of initial
delivery?
So is seller out of luck automatically when late? Is
timing BINDING?
Masterpiece Case (255)
Installment K? Why or why not? How would
it help seller if it was an installment K?
At what point in time does acceptance
occur? At drop off? (257)
Does buyer need to particularize under 2605 (“where the seller could have cured”)
if goods are late?
Problem 53 (259)
Did buyer meet the TIMING element of 2602(1)? If so, what are seller’s remedies?
See 2-602(3) referring to 2-703.
What is difference b/w damages under 2703 and damages under 2-709?
Problem 54 (page 259)
Does installing and using good constitute
“acceptance” under 2-606? What else
shows buyer “accepted?”
How long does buyer have to reject under 2602? What in facts could buyer use to
argue that it still had time to reject?
SO, assuming buyer HAS accepted, what
can buyer do now . . .
Problem 54 cont (259)
2-608: revoke acceptance?
Would buyer rather be in a position to
revoke acceptance (2-608) or still be able
to reject (2-602)?
....
Problem 54 cont (259)
Rejection easier; revocation (2-608) requires
that:
- nonconformity SUBSTANTIALLY impairs
value of goods (vs. perfect tender)
- buyer assumes cure and no cure OR
buyer cannot repair w/o consid expense
- buyer prove acceptance was reasonable
- reas notice of revok w/i reas time
- no substantial change in goods’ condition
Haight case (260)
Two factors for substantial impairment (261)
Why did Haight lose at trial? What did trial
court say re: substantial impairment issue?
Why did Haight lose on appeal? What was
std of review?
Champion case & notes: 263-68
What about the “shaken faith” doctrine?
Is substantial impairment to buyer a
subjective or objective standard?
Does seller have right to cure after
revocation, similar to after rejection?
Nonconformity for Revocation 2-608
Subjective v. Objective (268)
Requires both nonconfomity
AND
Substantial impairment of value TO THE
BUYER (“to him” 2-608(1))
Prob 56 (270)
Does buyer want to argue it accepted?
Why/Why not? 2-607(4)