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UNCONSCIONABILITY

UNCONSCIONABILITY. Two Types: 1) SUBSTANTIVE : Bad terms, surprise to one party; not commercially reasonable and thus no connection to risks and needs of the business 2) What is second type? Hint: Either your brain or your signature will be on that contract?. UNCONSCIONABILITY.

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UNCONSCIONABILITY

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  1. UNCONSCIONABILITY Two Types: 1) SUBSTANTIVE: Bad terms, surprise to one party; not commercially reasonable and thus no connection to risks and needs of the business 2) What is second type? Hint: Either your brain or your signature will be on that contract?

  2. UNCONSCIONABILITY SECOND TYPE IS PROCEDURAL: • PROCESS is unfair. • Can K be procedurally unconscionable if deal is fair? • EXAMPLES: • Pressure • Others?

  3. Unconscionability / Arbitration How can arbitration clauses be SUBSTANTIVELY unconscionable? - Any dispute between cardholder and Bank shall be decided by binding arbitration before the American Arbitration Association in a proceeding filed and litigated in Orange County, California. - Cardholder residing in DC alleges dispute for $100,000

  4. Unconscionability / Arbitration - Are filing fees in arbitrations higher or lower than filing fees in court? - How are arbitrators paid? - Do litigants in arbitration use any of these devices: depositions, interrogatories, document production requests, requests for admission, motions, etc.

  5. Brower v. Gateway Did the Court find a PROCEDURAL unconscionability? Why / Why not? The court determined that 2-207 (Additional Terms in Acceptance or Confirmation) did NOT apply. Why did this render the procedural unconscionability issue moot?

  6. Brower v. Gateway • What did the court decide about substantive unconscionability? • Was this enough to disturb the verdict of the lower court? • What about prior rulings in NY stating that need to prove BOTH procedural AND substantive? • See 2-302 text

  7. § 2-302. Unconscionable contract or Term. • (1) If the court as a matter of law finds the contract or any term of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable term, or it may so limit the application of any unconscionable term as to avoid any unconscionable result. • (2) If it is claimed or appears to the court that the contract or any term thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose, and effect to aid the court in making the determination.

  8. Factors (page 229) • Age, education, intellect • Business Acumen / experience • Relative Bargaining Power • Who drafted K? • Were K terms explained to weaker party • Were alterations of K terms permitted? • Alternative Sources of Supply?

  9. Limitation of Remedies Consequential Damages? Attorneys’ Fees? (American Rule) Example: Online retailer contracts with IT provider for IT services for $1000/month. IT fails for three days and retailer loses $50K in revenue. What are expectancy damages under K? What are consequentials? Practical Applications (beyond UCC bar Qs)

  10. Rheem v. Phelps (229) Though not stated in case, what made it hard for Phelps to claim unconscionability? Did the court uphold the limitation of the remedy? Why? What did Phelps say to potential customers about warranties?

  11. UCC 2-719 • (1) Subject to the provisions of subsections (2) and (3) of this section and of the preceding section on liquidation and limitation of damages, • (a) the agreement may provide for remedies in addition to or in substitution for those provided in this Article and may limit or alter the measure of damages recoverable under this Article, as by limiting the buyer's remedies to return of the goods and repayment of the price or to repair and replacement of non-conforming goods or parts;  and • (b) resort to a remedy as provided is optional unless the remedy is expressly agreed to be exclusive, in which case it is the sole remedy. • (2) Where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this Act. • (3) Consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable.  Limitation of consequential damages for injury to the person in the case of consumer goods is prima facie unconscionable but limitation of damages where the loss is commercial is not.

  12. Problem 43 (page 237) Was the implied warranty of merchantability properly excluded? See excerpt from 2-316(2): (2) Subject to subsection (3), to exclude or modify the implied warranty of merchantability or any part of it in a consumer contract the language must be in a record, be conspicuous, and state "The seller undertakes no responsibility for the quality of the goods except as otherwise provided in this contract," and in any other contract the language must mention merchantability and in case of a record must be conspicuous . . .

  13. Problem 43 (Page 237) You are the buyer’s attorney, do you pursue the $342K? What if you think you probably will lose? How could 2-719 help the buyer? How long should seller have had to fix the generator? What code section helps . . .

  14. UCC 2-309 • § 2-309. Absence of Specific Time Provisions;  Notice of Termination. • (1) The time for shipment or delivery or any other action under a contract if not provided in this Article or agreed upon shall be a reasonable time.

  15. TENDER & RESPONSE Under 2-601, a buyer can reject goods if they “fail in any respect” to conform to K. This is called the: a) love me tender rule b) legal tender rule c) perfect tender rule d) try a little tender[ness] rule What are buyer’s options if goods don’t conform?

  16. § 2-601. Buyer's Rights on Improper Delivery. Subject to the provisions of this Article on breach in installment contracts (Section 2-612) and unless otherwise agreed under the sections on contractual limitations of remedy (Sections 2-718 and 2-719), if the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may • (a) reject the whole;  or • (b) accept the whole;  or • (c) accept any commercial unit or units and reject the rest.

  17. Campbell v. Ag Finder (240) Did soy beans conform? Did “FOB Farm” help Campbell or Ag Finder? Whose farm? What does “Sufficiency of Evidence” p242 mean for you as a practitioner if you are trying to distinguish this case in “real life?” Did Ag Finder accept or reject? Why?

  18. § 2-606. What Constitutes Acceptance of Goods. • (1) Acceptance of goods occurs when the buyer • (a) after a reasonable opportunity to inspect the goods signifies to the seller that the goods are conforming or that he will take or retain them in spite of their non-conformity;  or • (b) fails to make an effective rejection (subsection (1) of Section 2-602), but such acceptance does not occur until the buyer has had a reasonable opportunity to inspect them;  or • (c) does any act inconsistent with the seller's ownership;  but if such act is wrongful as against the seller it is an acceptance only if ratified by him. • (2) Acceptance of a part of any commercial unit is acceptance of that entire unit.

  19. Problem 44 & questions (244) Can P&T reject all? What if Clonics key boards are better than IBX keyboards? What are P&T’s options? (2-601) Assuming P&T can reject 5 nonconforming units, what does P&T pay? . . . (2-607(1) and comment 1 thereto)

  20. Problem 44 & questions How long does P&T have to reject? Which Code section helps? What does P&T do with nonconforming goods after rejecting them? (Same code section) Is stating “these computers suck” enough? 2-605

  21. Problem 45 (page 245) Does the implied warranty of merchantability apply? Why/Why not? Does the implied warranty of fitness for a particular purpose apply? Why/Why not? What triggers a buyer’s right to reject? Is that present here? What was the “promise?”

  22. Problem 46 (page 245) Is there a “nonconformity” with the goods? Are the goods perfect? Is the tender “perfect” in this case? Are the goods fit for their particular purpose?

  23. Problem 47 (page 247) Does “sole remedy” language in a) override perfect tender rule? See 2-601 (slide 16 above); see 2-719(1)(a) (slide 11 above) What about trade usage and course of dealing in b and c? 1-303; Part of K under Comment 2 to 2-202 – so is there nonconformity?

  24. Bad Faith / Neumiller case (247) K said potatoes had to “chip” [sic] to “buyer’s satisfaction. Buyer said not satisfied, so is that a proper rejection? Did seller have burden to show conformity & bad faith, or did buyer have burden to show nonconformity & good faith? How was burden met; what was evidence? Should you plead “Bad Faith” as a count?

  25. Problem 48 (250) Seller is Northwestern Industries Sawmill (NW) and K says “FOB Northwestern Industries Sawmill.” Where does NW’s responsibility end? See 2-504: does K require NW to deliver goods “at a particular destination?” If not required to deliver “at a particular destination,” what are NW’s responsibilities under 2-504? Did NW meet 2-504 responsibilities? Can Buyer Reject?

  26. Installment Ks / Prob 49(a) (p250) Does it matter that buyer is going to pay all at the same time? § 2-612. "Installment contract";  Breach. • (1) An "installment contract" is one which requires or authorizes the delivery of goods in separate lots to be separately accepted, even though the contract contains a clause "each delivery is a separate contract" or its equivalent.

  27. Problem 49(b) p251 Installment K requires IBX keyboards but first installment has Clonics keyboards. Is this a perfect tender? Can Seller use 2-612 to its advantage?

  28. Problem 49(c-f) p251 c) Were all installments substantially impaired by nonconforming keyboards in 1st installment d & e) Do parties have freedom of K to negotiate a “perfect tender rule” in installment K. Did P&T have “basis in reason” for requirement? Explained to seller? f) What about course of dealing?

  29. CURE; Probs 50-51 (p251-252) • § 2-508. Cure by Seller of Improper Tender or Delivery;  Replacement. • (1) Where any tender or delivery by the seller is rejected because non-conforming and the time for performance has not yet expired, the seller may seasonably notify the buyer of his intention to cure and may then within the contract time make a conforming delivery. • (2) Where the buyer rejects a non-conforming tender which the seller had reasonable grounds to believe would be acceptable with or without money allowance the seller may if he seasonably notifies the buyer have a further reasonable timeto substitute a conforming tender.

  30. Cure (cont) p253 Are repairs sufficient to “cure?” What about the “shaken faith” doctrine, particularly for cars?

  31. Problem 52 (p254) Can a late delivery be a “conforming tender” or a “conforming delivery”? What about 2-508(2) (slide 29)? Why doesn’t 2-508(2) help? Does 2-508(2) mention timing of initial delivery? What is difference between this and problem 51 p 252 re: timing of initial delivery? So is seller out of luck automatically when late? Is timing BINDING?

  32. Masterpiece Case (255) Installment K? Why or why not? How would it help seller if it was an installment K? At what point in time does acceptance occur? At drop off? (257) Does buyer need to particularize under 2-605 (“where the seller could have cured”) if goods are late?

  33. Problem 53 (259) Did buyer meet the TIMING element of 2-602(1)? If so, what are seller’s remedies? See 2-602(3) referring to 2-703. What is difference b/w damages under 2-703 and damages under 2-709?

  34. Problem 54 (page 259) Does installing and using good constitute “acceptance” under 2-606? What else shows buyer “accepted?” How long does buyer have to reject under 2-602? What in facts could buyer use to argue that it still had time to reject? SO, assuming buyer HAS accepted, what can buyer do now . . .

  35. Problem 54 cont (259) 2-608: revoke acceptance? Would buyer rather be in a position to revoke acceptance (2-608) or still be able to reject (2-602)? . . . .

  36. Problem 54 cont (259) Rejection easier; revocation (2-608) requires that: - nonconformity SUBSTANTIALLY impairs value of goods (vs. perfect tender) - buyer assumes cure and no cure OR buyer cannot repair w/o consid expense - buyer prove acceptance was reasonable - reas notice of revok w/i reas time - no substantial change in goods’ condition

  37. Haight case (260) Two factors for substantial impairment (261) Why did Haight lose at trial? What did trial court say re: substantial impairment issue? Why did Haight lose on appeal? What was std of review?

  38. Champion case & notes: 263-68 What about the “shaken faith” doctrine? Is substantial impairment to buyer a subjective or objective standard? Does seller have right to cure after revocation, similar to after rejection?

  39. Nonconformity for Revocation 2-608 Subjective v. Objective (268) Requires both nonconfomity AND Substantial impairment of value TO THE BUYER (“to him” 2-608(1))

  40. Prob 56 (270) Does buyer want to argue it accepted? Why/Why not? 2-607(4)

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