Citation. 22 Ill.350 F.2d 445, 121 U.S. App. D.C. 315 (D.C. Cir. 1965)
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Brief Fact Summary.
Appellants, who all purchased household items from Defendant Walker-Thomas furniture, alleged that the installment contracts that were entered into with Defendant were unconscionable and should therefore, be unenforceable.
Synopsis of Rule of Law.
Where the element of unconscionability is present at the time a contract is made, the contract should not be enforced.
Plaintiffs all entered into installment contracts with Defendant for the purchase of household goods. Plaintiffs were relatively unsophisticated buyers who, at the time of purchase, had little monthly income. The installment contracts contained boiler plate language which stated “all payments now and hereafter made by [purchaser] shall be credited pro rata on all outstanding leases, bills, and accounts due the Company by [purchaser] at the time each such payment is made.” The effect of this provision was to keep a balance on all items ever purchased under installment by Plaintiffs, so that if Plaintiff defaulted on payment, Defendants would have the ability to repossess each item, regardless of how much had actually been paid off, because each item would have an outstanding balance due until all items were paid off. The lower Court dismissed the case on the grounds that there was no statutory authority to provide protection to Plaintiffs in situations such as these.
Whether the contracts were unconscionable, and thus unenforceable, due to the boiler plate language on back of the installment contract.
The Court held that where there is an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to such party, such contract may be set aside. Meaningful choice can be determined by the equality of bargaining power and a reasonable understanding of contractual terms that each party has when entering into the contract. The Court remanded the case to determine whether, considering the lack of bargaining power held by Plaintiffs, coupled with the commercially unreasonable terms in the contract, the installment contract was so extreme as to appear unconscionable and render the contract unenforceable.
Would hold that it was the province of the legislature, not the Courts, to determine when such contracts are unenforceable from a public policy perspective. Many low income clients purchase items on credit out of necessity, and it is not the Court’s role to determine when such contracts should be annulled.
The case signifies that Courts may render a commercially unreasonable contract unenforceable when entered into between two parties of unequal bargaining power, especially where one party is commercially unsophisticated.