Ora
Lee WILLIAMS v. WALKER-THOMAS FURNITURE COMPANY
UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT
121 U.S. App. D.C. 315; 350 F.2d 445; 1965 U.S. App. LEXIS 4673; 2
U.C.C. Rep. Serv. (Callaghan) 955; 18 A.L.R.3d 1297
April 9, 1965, Argued August 11, 1965, Decided
Appellee, Walker-Thomas Furniture Company, operates a retail furniture
store in the District of Columbia. During the period from 1957 to 1962
appellant purchased a number of household items
from Walker-Thomas, for which payment was to be made in installments.
The terms of each purchase were contained in a printed form contract
which set forth the value of the purchased item and purported to lease
the item to appellant for a stipulated monthly rent payment. The
contract then provided, in substance, that title would remain in
Walker-Thomas until the total of all the monthly payments made equaled
the stated value of the item, at which time appellants could take
title. In the event of a default in the payment of any monthly
installment, Walker-Thomas could repossess the item.
The contract further provided that "the amount of each periodical
installment payment to be made by [purchaser] to the Company under this
present lease shall be inclusive of and not in addition to the amount
of each installment payment to be made by [purchaser] under such prior
leases, bills or accounts; and 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 rather obscure provision was to keep a balance due on
every item purchased until the balance due on all items, whenever
purchased, was liquidated. As a result, the debt incurred at the time
of purchase of each item was secured by the right to repossess all the
items previously purchased by the same purchaser, and each new item
purchased automatically became subject to a security interest arising
out of the previous dealings. [Emphasis added]
On May 12, 1962, appellant Thorne purchased an item described as a
Daveno, three tables, and two lamps, having total stated value of
$391.10. Shortly thereafter, he defaulted on his monthly payments and
appellee sought to replevy all the items purchased since the first
transaction in 1958. Similarly, on April 17, 1962, appellant Williams
bought a stereo set of stated value of $514.95. n1 She too defaulted
shortly thereafter, and appellee sought to replevy all the items
purchased since December, 1957. The Court of General Sessions granted
judgment for appellee. The District of Columbia Court of Appeals
affirmed, and we granted appellants' motion for leave to appeal to this
court.
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -
n1 At the time of this purchase her account showed a balance of $164
still owing from her prior purchases. The total of all the purchases
made over the years in question came to $1,800. The total payments
amounted to $1,400.
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -
Appellants' principal contention, rejected by both the trial and the
appellate courts below, is that these contracts, or at least some of
them, are unconscionable and, hence, not enforceable. In its
opinion in Williams v. Walker-Thomas Furniture Company, 198
A.2d 914, 916 (1964), the District of Columbia Court of Appeals
explained its rejection of this contention as follows:
"Appellant's second argument presents a
more serious question. The record reveals that prior to the last
purchase appellant had reduced the balance in her account to $164. The
last purchase, a stereo set, raised the balance due to $678.
Significantly, at the time of this and the preceding purchases,
appellee was aware of appellant's financial position. The reverse side
of the stereo contract listed the name of appellant's social worker and
her $218 monthly stipend from the government. Nevertheless, with full
knowledge that appellant had to feed, clothe and support both herself
and seven children on this amount, appellee sold her a $514 stereo set.
"We cannot condemn too strongly
appellee's conduct. It raises serious questions of sharp practice and
irresponsible business dealings. A review of the legislation in the
District of Columbia affecting retail sales and the pertinent decisions
of the highest court in this jurisdiction disclose, however, no ground
upon which this court can declare the contracts in question contrary to
public policy. We note that were the Maryland Retail Installment Sales
Act, Art. 83 §§ 128-153, or its equivalent, in force in the
District of Columbia, we could grant appellant appropriate relief. We
think Congress should consider corrective legislation to protect the
public from such exploitive contracts as were utilized in the case at
bar."
We do not agree that the court lacked the power to refuse enforcement
to contracts found to be unconscionable. In other jurisdictions, it has
been held as a matter of common law that unconscionable contracts are
not enforceable. While no decision of this court so holding has been
found, the notion that an unconscionable bargain should not be given
full enforcement is by no means novel. In Scott v. United States, 79
U.S. (12 Wall.) 443, 445, 20 L. Ed. 438 (1870), the Supreme Court
stated:
"* * * If a contract be unreasonable
and unconscionable, but not void for fraud, a court of law will give to
the party who sues for its breach damages, not according to its letter,
but only such as he is equitably entitled to. * * *"
Since we have never adopted or rejected such a rule, the
question here presented is actually one of first impression.
Congress has recently enacted the Uniform Commercial Code, which
specifically provides that the court may refuse to enforce a contract
which it finds to be unconscionable at the time it was made. 28
D.C.CODE § 2-302. The enactment of this section,
which occurred subsequent to the contracts here in suit, does not mean
that the common law of the District of Columbia was otherwise at the
time of enactment, nor does it preclude the court from adopting a
similar rule in the exercise of its powers to develop the common law
for the District of Columbia. In fact, in view of the absence of prior
authority on the point, we consider the congressional adoption of
§ 2-302 persuasive authority for following the rationale of the
cases from which the section is explicitly derived. Accordingly, we
hold that where the element of unconscionability is present at the time
a contract is made, the contract should not be enforced.
Unconscionability has generally been
recognized to include an absence of meaningful choice on the part of
one of the parties together with contract terms which are unreasonably
favorable to the other party. Whether a meaningful choice is present in
a particular case can only be determined by consideration of all the
circumstances surrounding the transaction. In many cases the
meaningfulness of the choice is negated by a gross inequality of
bargaining power. n7 [Emphasis added] The manner in which the
contract was entered is also relevant to this consideration. Did each
party to the contract, considering his obvious education or lack of it,
have a reasonable opportunity to understand the terms of the contract,
or were the important terms hidden in a maze of fine print and
minimized by deceptive sales practices? Ordinarily, one who signs an
agreement without full knowledge of its terms might be held to assume
the risk that he has entered a one-sided bargain. n8 But when a party of little bargaining
power, and hence little real choice, signs a commercially unreasonable
contract with little or no knowledge of its terms, it is hardly likely
that his consent, or even an objective manifestation of his consent,
was ever given to all the terms. In such a case the usual rule that the
terms of the agreement are not to be questioned should be abandoned
and the court should consider whether the terms of the contract are so
unfair that enforcement should be withheld. [Emphasis added]
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -
n7 See Henningsen v. Bloomfield Motors, Inc., and authorities there
cited. Inquiry into the relative bargaining
power of the two parties is not an inquiry wholly divorced from the
general question of unconscionability, since a one-sided bargain is
itself evidence of the inequality of the bargaining parties. This fact
was vaguely recognized in the common law doctrine of intrinsic fraud,
that is, fraud which can be presumed from the grossly unfair nature of
the terms of the contract. See the oft-quoted statement of Lord
Hardwicke in Earl of Chesterfield v. Janssen, 28 Eng. Rep. 82, 100
(1751):
"* * * [Fraud] may be apparent from the
intrinsic nature and subject of the bargain itself; such as no man in
his senses and not under delusion would make * * *."
And cf. Hume v. United States, supra Note 3, 132 U.S. at 413, 10 S. Ct.
at 137, where the Court characterized the English cases as "cases in
which one party took advantage of the other's ignorance of arithmetic
to impose upon him, and the fraud was apparent from the face of the
contracts."
n8 See also Daley v. People's Building, Loan & Savings
Ass'n, 178 Mass. 13 (1901), in which Mr. Justice
Holmes, while sitting on the Supreme Judicial Court of Massachusetts,
made this observation:
"* * * Courts are less and less
disposed to interfere with parties making such contracts as they
choose, so long as they interfere with no one's welfare but their own.
* * * It will be understood that we are speaking of parties standing in
an equal position where neither has any oppressive advantage or power *
* *."
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -
In determining reasonableness or fairness, the primary concern must be
with the terms of the contract considered in light of the circumstances
existing when the contract was made. The test is not simple, nor can it
be mechanically applied. The terms are to be considered "in the light
of the general commercial background and the commercial needs of the
particular trade or case." Corbin suggests the test as being
whether the terms are "so extreme as to appear unconscionable according
to the mores and business practices of the time and place." n12 We
think this formulation correctly states
the test to be applied in those cases where no meaningful choice was
exercised upon entering the contract.
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -
n12 The traditional test as
stated in Greer v. Tweed, is
"such as no man in his senses and not under delusion would make on the
one hand, and as no honest or fair man would accept, on the other."
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -
Because the trial court and the appellate court did not feel that
enforcement could be refused, no findings were made on the possible
unconscionability of the contracts in these cases. Since the record is
not sufficient for our deciding the issue as a matter of law, the cases
must be remanded to the trial court for further proceedings.
So ordered.
DISSENT: DANAHER, Circuit Judge (dissenting):
The District of Columbia Court of Appeals obviously was as unhappy
about the situation here presented as any of us can possibly be. Its
opinion in the Williams case, quoted in the majority text, concludes:
"We think Congress should consider corrective legislation to protect
the public from such exploitive contracts as were utilized in the case
at bar."
My view is thus summed up by an able court which made no finding that
there had actually been sharp practice. Rather the appellant seems to
have known precisely where she stood.
There are many aspects of public policy here involved. What is a luxury
to some may seem an outright necessity to others. Is public oversight
to be required of the expenditures of relief funds? A washing machine,
e.g., in the hands of a relief client might become a fruitful source of
income. Many relief clients may well need credit, and certain business
establishments will take long chances on the sale of items, expecting
their pricing policies will afford a degree of protection commensurate
with the risk. Perhaps a remedy when necessary will be found within the
provisions of the "Loan Shark" law, D.C.CODE §§ 26-601 et
seq. (1961).
I mention such matters only to emphasize the desirability of a cautious
approach to any such problem, particularly since the law for so long
has allowed parties such great latitude in making their own contracts.
I dare say there must annually be thousands upon thousands of
installment credit transactions in this jurisdiction, and one can only
speculate as to the effect the decision in these cases will have.
I join the District of Columbia Court of Appeals in its disposition of
the issues.