Williams v. Walker-Thomas Furniture Co.

Brief Fact Summary.

Williams (Defendant) defaulted on her payments to Walker-Thomas Furniture Co. (Plaintiff) after making a number of purchases on credit.

Synopsis of Rule of Law.

A court may refuse to enforce a contract as unconscionable when it appears that a gross inequality of bargaining power between the parties has led to a contract with terms that were effectively dictated to the weaker party.

Facts.

In 1957, Plaintiff, a retail furniture company, began using a standard form contract for all of its credit transactions. One of the clauses in the contract allowed Plaintiff, upon default by a purchaser, to repossess all items still being paid for at the time of repossession. A separate clause of the contract provided that all credit purchases between a purchaser and Plaintiff would be handled under one account, with all payments made spread pro rata over all items purchased, no matter when the items were purchased. Defendant first purchased furniture from Plaintiff in 1957 and continued to do so through 1962 when she purchased a stereo set. Defendant defaulted on a payment and Plaintiff filed an action to repossess all of the items Defendant had purchased since 1957 since under the terms of the contract, she was still purchasing all of them. The trial court found for Plaintiff and Defendant appealed.

Issue.

When two parties to a contract have such grossly unequal bargaining power that one party has no meaningful choice in the terms of that contract, can a court find the contract to be unconscionable and unenforceable?

Held.

(Wright, J.) Yes. A court may refuse to enforce a contract as unconscionable when it appears that a gross inequality of bargaining power between the parties has led to a contract with terms that were effectively dictated to the weaker party. The common law adopts a caveat emptor rationale and does not examine the fairness of a contract unless there is evidence of fraud. However, § 2-302 of the Uniform Commercial Code (U.C.C.) has been adopted in this jurisdiction and encourages courts to try to prevent overreaching in contracts of adhesion such as this one. Defendant, and other customers like her, comes from a socioeconomic class that makes it difficult to be granted credit. Plaintiff cannot be allowed to exploit this difficulty by employing provisions like these. The contract is unconscionable. Remanded.

Dissent.

(Danaher, J.) The majority ignores many policy considerations in coming to its finding. For example, it does not address the risk that Plaintiff has taken by granting credit to the poor. A more cautious approach is appropriate here.

Discussion.

U.C.C. § 2-302 is most often applied to form contracts where the terms are not actually bargained for between the parties. The general rule regarding these contracts still follows the common law principle that a person who signs a form contract is responsible for any clauses or conditions which a reasonable consumer making a reasonable inspection of the form would discover. The U.C.C. rule further qualifies this rule in the case of form contracts where one of the parties has no real choice over whether to accept the contract terms because of his or her economic position. In those cases, the fact that the weaker party knows of the contract terms will not be enough to establish a “meeting of the minds” necessary to form a valid contract.