Jones v. Star Credit Corp.
59 Misc.2d 189 (1969)
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Rule of Law:
A contract's price term can be deemed unconscionable as a matter of law under UCC § 2-302 when the price is excessive in relation to the fair market value of the item sold. A gross price-value disparity, especially when coupled with the seller's awareness of the buyer's limited financial resources and a significant inequality of bargaining power, can render the contract unenforceable.
Facts:
- The plaintiffs were welfare recipients.
- On August 31, 1965, a salesman from Your Shop At Home Service, Inc. visited the plaintiffs' home.
- The plaintiffs agreed to purchase a home freezer for a cash price of $900.
- The maximum retail value of this freezer was approximately $300.
- With the addition of time credit charges, insurance, and sales tax, the total purchase price amounted to $1,234.80.
- Over time, the plaintiffs made payments totaling $619.88.
- The contract was subsequently assigned to or refinanced by Star Credit Corp.
Procedural Posture:
- Star Credit Corp., the defendant, brought an action against the plaintiffs in a New York trial court to recover an alleged outstanding balance of $819.81 on a retail installment contract.
- The plaintiffs asserted as a defense that the contract was unconscionable under UCC § 2-302 and therefore unenforceable.
- The case proceeded to a trial on the merits.
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Issue:
Does a retail installment contract for the sale of a freezer at a cash price that is more than three times its maximum retail value, made with buyers known by the seller to be welfare recipients, constitute an unconscionable contract under UCC § 2-302?
Opinions:
Majority - Sol Wachtler, J.
Yes, the contract is unconscionable as a matter of law. Under UCC § 2-302, a court can find a contract or its terms unconscionable to prevent oppression and unfair surprise, and this principle explicitly extends to the price term. The court's reasoning was based on several factors: the gross disparity between the $300 retail value and the $900 contract price ($1,234.80 with financing) was 'exorbitant on its face'; the sellers were aware of the plaintiffs' 'very limited financial resources'; and there existed a 'gross inequality of bargaining power' that negated the 'meaningfulness of choice essential to the making of a contract'. While installment sales and credit are necessary, this transaction exceeded the bounds of commercial reasonability. The court rejected the defendant's claim that the agreement was merely for financing, finding it was a retail installment contract in substance. Since the plaintiffs had already paid more than double the freezer's value, the court reformed the contract to deem it fully paid.
Analysis:
This case is a landmark application of the Uniform Commercial Code's unconscionability doctrine to combat predatory pricing in consumer contracts. It firmly establishes that substantive unconscionability, particularly an excessive price term, can be sufficient grounds to render a contract unenforceable, even without evidence of procedural misconduct like fraud or duress. The decision marks a significant departure from the traditional 'caveat emptor' principle, empowering courts to police the fairness of agreements and protect vulnerable consumers. This precedent has been highly influential in consumer protection law, encouraging judicial scrutiny of contracts involving significant disparities in price and bargaining power.
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