IV. UNCONSCIONABILITY AND ADHESION CONTRACTS

A. Adhesion contracts: "Adhesion contract" is an imprecise term used to describe a document containing non-bargained clauses that are in fine print, complicated, and/or exceptionally favorable to the draftsman.

1. Refusal to enforce: If the court is convinced that: (1) the contract or the clause in question was not negotiated; and (2) the draftsman had a gross disparity in bargaining power, the court may refuse to enforce the contract or clause.

2. Tickets and other "pseudo contracts": Refusal to enforce what the court finds to be a "adhesion contract" is especially likely where the transaction is one in which the non-draftsman does not even realize that he is entering into a contract at all. Parking-garage tickets, tickets for trains or planes, and tickets to sporting events, are examples: there is often contractual language in fine print on the back of the ticket, but the purchaser does not understand that by buying the ticket he is agreeing to the printed contractual terms.

a. Refusal to enforce: The language printed on the ticket will generally be enforced only if: (1) the purchaser signs or somehow manifests assent to the terms of the ticket; and (2) the purchaser has reason to believe that such tickets are regularly used to contain contractual terms like those in fact on the ticket. Even if the ticket is found to be generally enforceable, the court will strike unreasonable terms.

B. Unconscionability: If a court finds that a contract or clause is so unfair as to be "unconscionable," the court may decline to enforce that contract or clause. See UCC §2-302(1).

1. No definition: There is no accepted definition of unconscionability. The issue is whether the clause is so one-sided, so unfair, that a court should as a matter of judicial policy refuse to enforce it.

2. Consumers: Courts have very rarely allowed business people to claim unconscionability; only consumers are generally successful with an unconscionability defense.

3. Varieties: Clauses can be divided into two categories for unconscionability analysis: (1) "procedural" unconscionability; and (2) "substantive" unconscionability.

a. Procedural: The "procedural" sort occurs where one party is induced to enter the contract without having any meaningful choice. Here are some possible types: (1) burdensome clauses tucked away in the fine-print boilerplate; (2) high-pressure salespeople who mislead the uneducated consumer; and (3) industries with few players, all of whom offer the same unfair "adhesion contracts" to defeat bargaining (e.g., indoor parking lots in a downtown area, all disclaiming liability even for gross negligence).

b. Substantive: The "substantive" sort of unconscionability occurs where the clause or contract itself (rather than the process used to arrive at the contract) is unduly unfair and one-sided.

i. Excessive price: An important example of substantive unconscionability is where the seller charges an excessive price. Usually, an excessive price clause only comes about when there is also some sort of procedural unconscionability (e.g., an uneducated consumer who doesn't understand what he is agreeing to), since otherwise the consumer will usually simply find a cheaper supplier.

ii. Remedy-meddling: Also, a term may be substantively unfair because it unfairly limits the buyer's remedies for breach by the seller. Types of remedy-meddling that might be found to be unconscionable in a particular case include: (1) disclaimer or limitation of warranty, especially prohibiting consequential damages for personal injury; (2) limiting the remedy to repair or replacement, where this would be a valueless remedy; (3) unfairly broad rights of repossession by the seller on credit; (4) waiver of defenses by the buyer as against the seller's assignee; and (5) a cross-collateralization clause by which a secured seller who has sold multiple items to a buyer on credit has the right to repossess all items until the last penny of total debt is paid.

4. Remedies for unconscionability: Here are some of the things a court might do to remedy a clause or contract which it finds to be unconscionable:

a. Refusal to enforce clause: Most likely, the court will simply strike the offending clause, but enforce the rest of the contract;

b. Reformation: Alternatively, the court may "reform" the offending clause (e.g., by modifying an excessive price to make it a reasonable price);

c. Refusal to enforce whole contract: Very occasionally, the court may simply refuse to enforce the entire contract, denying P any recovery at all.

V. CAPACITY

A. Generally: Certain classes of persons have only a limited power to contract. Most important are infants and the mentally infirm. For these people, any contract they enter into is voidable at their option — they can enforce the contract or escape from it.

B. Infants: Until a person reaches majority, any contract which he enters into is voidable at his option. The age of majority is a matter of statute, and in most states is now 18. (Example: A, a 16 year old, agrees to sell Greenacre to B. A later changes his mind and refuses to go through with the sale. B may not enforce the agreement against A. But A, if he wishes, may enforce it against B, e.g., by suing B for damages for failure to go through with the purchase.)

1. Disaffirmance: In nearly every state, an infant may avoid the contract even before he reaches majority. This is called "disaffirmance." He may do this orally, by his conduct (e.g., refusing to go through with the deal), or by a defense when sued for breach.

a. Land conveyances: But where the contract is for a conveyance of land, most states do not allow the infant to disaffirm the contract until he has reached majority.

2. Ratification: A contract made by an infant is not void, but merely voidable, so the infant can choose to enforce it if he wishes. If he does this, he is said to have ratified the contract.

a. Must reach adulthood: The most important thing to remember about ratification is that the minor may not ratify until he has reached adulthood. Ratification may occur in three ways:

i. Failure to disaffirm: By inaction — if the infant does not disaffirm within a reasonable time after reaching majority, he will be held to have implicitly ratified.

ii. Express: Expressly — the contract may be ratified by words, either written or (in most states) oral.

iii. By conduct: By conduct — if the former infant actively induces the other party to perform, this conduct may constitute a ratification (e.g., both parties begin to exchange performances after the infant's majority). But mere part payment or part performance by the former infant is probably not by itself a ratification.

3. Economic adjustment: After disaffirmance, courts will try to make an economic adjustment to unwind the contract.

a. Where infant is defendant: If the infant is a defendant to a breach-of-contract suit brought by the non-infant, the latter will not be allowed to recover profits he would have made, or any other contract damages. But he will have a limited right of restitution, the right to require the defendant infant to return the goods or other value if he still has them.

b. Where infant in plaintiff: If the infant is a plaintiff who is suing to recover money already paid by him, the court will require the infant to return any value which he has, and will in fact subtract from the infant's recovery any value obtained and dissipated. (Example: Infant buys a car for $4,000 in cash from D. Infant then disaffirms and sues to recover his $4,000. To recover the $4,000, Infant will have to return the car. If Infant has wrecked the car, or sold it for money which he has then spent, the value of the car will be subtracted from any recovery by Infant. So if the car was in fact worth $4,000, Infant will recover nothing if he no longer has the car.)

4. Lies about age: If the infant lies about his age, all courts let the other party avoid the contract on grounds of fraud. In other words, the infant who falsely claims adulthood loses his power to ratify the contract.

C. Mental incompetents: A mental incompetent is governed by the same basic rules as an infant — he may either disaffirm the contract or ratify it. A person lacks capacity to contract because of mental incompetence if either: (1) he doesn't understand the contract; or (2) he understands it, but acts irrationally, and the other person knows he is acting irrationally.

D. Intoxication: Intoxication will give a party the power of avoidance only if: (1) he is so intoxicated that he cannot understand the nature of his transaction; and (2) the other party has a reason to know that this is the case.