Jones v. Star Credit Corp.
PARTIES AND LEGAL RELIEF REQUESTED
Welfare recipients (plaintiff), after talking with a salesman from Your Shop At Home Service, agreed to buy a $900 home freezer unit on August 31, 1965. After adding up additional charges (time credit charges, credit life insurance, credit property insurance, and tax), the resulting bill was $1234.80. Jones has already paid $619.88 but now Star Credit Corp claims that due to the added time, they now need to pay $819.81 more. The retail value of the fridge is $300.
Is the transaction and contract between Jones and Star Credit Corp unconscionable under terms defined in the Uniform Commercial Code (section 2-302)?
1. If the court finds that the agreement “unconscionable at the time it was made”, the court can refuse to enforce the contract or only enforce the contract portions that do not have the unconscionable clause.
2. Both parties can bring evidence (commercial setting, effects, purpose) to the court to help the court decide.
REASONING OF THE COURT
Yes, the agreement was unconscionable because the welfare recipients (poor and illiterate) were being taken advantage of. The court doesn’t consider fraud but focuses on the sale of a $300 retail value freezer unit for $900 (or with credit charges and $18 sales tax, $1,439.49).
This “shocked the conscience of the court” which is substantial unconscionability.
1. Value disparity. There is a great disparity between 300 and 900. Credit payments are supposed to be provide a hedge to defaults but this was not used that way responsibly.
2. Purchasers had limited financial resources
3. Gross inequality of bargaining power and “lack of understanding of bargaining terms”(procedural unconscionability)
1. American Home Improvement v. Machlver (supra): Supreme Court of New Hampshire ruled a home improvement contract for $2568 ($809.60 interest + carrying charges, $800 saleman’s commission) as unconscionable.
2. Matter of State of New York v. ITM (supra : Vacuum cleaner costing $140 and sold for $749 ($920.52) by credit – unconscionable.
3. Frostifresh Corp v. Reynoso (supra): Unconscionable to sell a refrigerator costing $349 for $900 (or $245.88) credit.
Plaintiffs get to keep the freezer for what they paid.
If the contract terms for an item are grossly unequal in terms of price and underlying value, the contract is unconscionable.