Frostifresh Corp. v. Reynoso
52 Misc. 2d 26 (1966)
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Rule of Law:
Under Uniform Commercial Code § 2-302, a court may refuse to enforce a contract for the sale of goods if it finds the agreement to be unconscionable, particularly when an excessively high price is combined with procedural unfairness such as deceptive sales practices and a language barrier.
Facts:
- A Spanish-speaking salesman for Frostifresh Corp. negotiated the sale of a refrigerator-freezer with the Reynosos, who only spoke Spanish.
- During the oral negotiation, Mr. Reynoso stated he could not afford the appliance as he only had one week of employment remaining.
- The salesman deceptively advised the Reynosos that the appliance would cost them nothing, as they would receive commissions for sales made to their friends and neighbors.
- Following the Spanish negotiation, the Reynosos signed a retail installment contract written entirely in English.
- The English-language contract was neither translated nor explained to the Reynosos.
- The contract specified a cash price of $900 and a credit charge of $245.88 for an appliance that cost Frostifresh Corp. only $348.
Procedural Posture:
- Frostifresh Corp. brought an action in a trial court against the Reynosos to recover the unpaid balance on a retail installment contract.
- The defendants did not plead the defense of fraud in their answer.
- During the trial, the court, on its own initiative, raised the issue of whether the contract was unconscionable under UCC § 2-302.
- The court adjourned the trial to allow both parties to present evidence regarding the 'commercial setting, purpose and effect' of the contract.
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Issue:
Under Uniform Commercial Code § 2-302, does a court have the power to refuse to enforce the price and credit provisions of a contract for the sale of goods if it determines those terms are unconscionable?
Opinions:
Majority - Francis J. Donovan, J.
Yes. A court has the power under UCC § 2-302 to refuse to enforce unconscionable contract terms to prevent an oppressive result. The principle of freedom of contract is modified by the UCC, which empowers courts to police against contracts that result from 'oppression and unfair surprise.' In this case, the sale was 'shocking to the conscience' due to both substantive and procedural unconscionability. The exorbitant price of $1,145.88 for an appliance that cost the seller only $348 was substantively unconscionable. Procedural unconscionability was present because the defendants were handicapped by a language barrier and a lack of commercial knowledge, and were misled by deceptive sales tactics. Therefore, the court refuses to enforce the contract's price terms, but since the defendants retained the appliance, they must reimburse the plaintiff for its actual cost of $348, less their initial payment.
Analysis:
This case is a foundational example of both procedural and substantive unconscionability under UCC § 2-302. It demonstrates that courts can find a contract's price term alone to be unconscionable, especially when coupled with deceptive bargaining practices that create 'unfair surprise,' like using a different language for negotiation and for the written contract. The decision empowers courts to reform contracts rather than simply voiding them, crafting an equitable remedy where the buyer pays the seller's actual cost. This precedent is crucial for consumer protection, establishing that the principle of 'freedom of contract' does not protect predatory agreements that exploit vulnerable parties.
