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Germantown Mfg. Co. v. Rawlinson

    Brief Fact Summary.

    Germantown Manufacturing appealed a lower court decision that denied a judgment note for the Rawlinson’s in the amount of $212,113.21 on the grounds of fraud, duress, misrepresentation, and lack of accountability.

    Synopsis of Rule of Law.

    A contract is unconscionable if the parties have unequal bargaining power and the weaker party has no choice but to agree to the stronger party’s terms.

    Facts.

    Robert Rawlinson (Robert) as fired from Germantown Manufacturing Company (Germantown) because for embezzling $327,011.22. A Germantown representative had Robert and his wife, Joan, sign two judgment notes, consenting to the judgments against them. The first judgment note was in the amount of $160,000 and the second judgment note was in the amount of $212,113.21. The Germantown representative assured the Rawlinsons that the judgment was satisfied when they signed the first judgment note because they had $160,000 readily available. The lower court granted judgment to Joan for the amount included in the second judgment note and Germantown appealed.

    Issue.

    Whether a contract is unconscionable if the parties have unequal bargaining power and the weaker party has no choice but to agree to the stronger party’s terms?

    Held.

    Yes. The judgment of the lower court is affirmed. Although German town issued two judgment notes totaling over $327,000, the German town representative implied that Joan’s liability was satisfied at $160,000. The statement is fraudulent because it was “uttered with such gross recklessness” and the statement is material because Joan would not have entered into the contract if she knew the terms. The judgment is also voidable for duress and unconscionability because: (1) there was an implied threat of prosecution, and (2) the risk of entering into the contract was not explained to Joan.

    Discussion.

    A contract is unconscionable and therefore voidable if the parties have unequal bargaining power and the weaker party has no choice in acceding to the contract. Misrepresentation renders a contract voidable if the misrepresentation is fraudulent or material.


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