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Frostifresh Corp. v. Reynoso

Appellate Terms of the Supreme Court of New York
281 N.Y.S. 2d 964, 54 Misc. 2d 119, 4 U.C.C. Rep. Serv. (West) 300 (1967)
ELI5:

Rule of Law:

When a contract for the sale of goods is found to be unconscionable under UCC § 2-302, the appropriate remedy is not to render the contract unenforceable but to reform the price term, allowing the seller to recover its net cost for the goods, a reasonable profit, and necessary incidental charges.


Facts:

  • A salesman for Frostifresh Corp. visited the home of the Reynosos, a Spanish-speaking couple.
  • The salesman negotiated the sale of a refrigerator-freezer entirely in Spanish.
  • He represented that the appliance would cost them nothing because they would receive commissions for sales made to their friends, which would cover the purchase price.
  • The Reynosos, who could not read English, signed an installment contract written entirely in English.
  • The contract set a total price of $1,145.88 for the appliance.
  • The actual wholesale cost of the refrigerator-freezer to Frostifresh Corp. was $348.
  • After the purchase, the Reynosos made no payments on the contract.

Procedural Posture:

  • Frostifresh Corp. sued the Reynosos in the District Court of Nassau County, New York (a trial court) to recover the outstanding balance on the installment contract.
  • The trial court found that the contract was unconscionable under UCC § 2-302.
  • The trial court entered a judgment for Frostifresh Corp. but limited its recovery to its wholesale cost of $348, denying any profit or finance charges.
  • Frostifresh Corp. (as appellant) appealed the trial court's ruling on the amount of damages to the Supreme Court, Appellate Term (an intermediate appellate court).

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Issue:

After a court finds a contract unconscionable, is the seller's recovery limited only to its net cost for the goods, thereby precluding any recovery of profit or related charges?


Opinions:

Majority - Per Curiam

No. While the contract is unconscionable, the seller is not limited to recovering only its net cost but is entitled to a reasonable profit and other necessary charges. The court affirmed the lower court's finding of unconscionability but held that the remedy should not be punitive. Instead of rendering the contract completely unenforceable, which would give the buyer a windfall, the correct approach is to allow the seller to recover its total cost for the refrigerator-freezer, plus a reasonable profit, trucking and service charges, and reasonable finance charges. The case was therefore remanded for a new trial limited to calculating these damages.



Analysis:

This decision clarifies the remedial scope of UCC § 2-302, establishing that unconscionability does not automatically void a contract. Instead of treating the seller's conduct as a basis for a penalty (denial of all profit), the court opts for contract reformation. This approach prevents the buyer from being oppressed by the unfair term (the excessive price) while also preventing the buyer from being unjustly enriched by keeping the goods without paying a fair price. The precedent encourages courts to enforce the conscionable parts of a bargain or modify the unconscionable term to achieve a reasonable result, rather than taking an all-or-nothing approach.

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