Jones v. Star Credit Corp.

Supreme Court of New York · 1969 · Contracts

Contractsunconscionabilityprice termUCC 2-302consumer protectionunconscionabilityUCC 2-302price term

Facts

On August 31, 1965, plaintiffs, who were welfare recipients, agreed to buy a home freezer unit for $900 after a home visit by a salesman. With time credit charges, insurance, and sales tax, the purchase price totaled $1,234.80, and defendant later claimed that with added charges for extension of time a balance of $819.81 remained due, although plaintiffs had already paid $619.88. Uncontroverted proof showed that the freezer had a maximum retail value of about $300 when purchased. Defendant argued that the June 15, 1966 contract was only a refinancing agreement, but that agreement was on the same retail installment contract form as the original and functioned as a replacement of the earlier agreement.

Issue

Whether the sale of a freezer with a retail value of approximately $300 for $900, and more with credit charges, was unconscionable as a matter of law under UCC 2-302. Also, whether the June 15, 1966 agreement should be treated as merely a financing agreement rather than a retail installment sales contract.

Rule

Under UCC 2-302, a court may determine as a matter of law that a contract, including its price term or the contract in toto, was unconscionable at the time it was made and may refuse to enforce it, excise the objectionable clause, or limit its application to avoid an unconscionable result. In making that determination, the court may consider gross price disparity, the buyer's limited financial resources known to the seller, and gross inequality of bargaining power negating meaningful choice; fraud is not required.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Cleveland, Nora Benton bought a used portable washer from Lakeview Home Sales on a retail installment contract. The washer had a fair retail value of about $250, but the contract listed a cash price of $780, and with credit charges and insurance the total obligation exceeded $1,100; the salesperson knew Nora lived on disability benefits and had no savings.

If Nora challenges the contract under UCC 2-302, which is the strongest analysis?

Explanation. The majority held that UCC 2-302 reaches the price term and even the contract in toto. A gross disparity between value and price, along with the seller's knowledge of the buyer's limited financial resources and resulting inequality of bargaining power, can make the agreement unconscionable as a matter of law. Fraud is not required, and legitimate credit practices do not justify an exorbitant transaction.