6 Intro to US Legal system week 6 (May 2 and 4) 6 Intro to US Legal system week 6 (May 2 and 4)
The readings for Monday, May 2 and Wednesday, May 4 are below.Monday, May 2 (contracts)1. Fletcher and Sheppard chapter 192. Williams-Walker Furniture Co (below)3. Introductory note on the Parole Evidence rule from Contracts: cases and Materials, by Kessler, Gilmore and Kronman (see https://h2o.law.harvard.edu/playlists/711 for the full playlist). Note that this reading can be done after class.Wednesday, May 4 Comparative roundtable on Freedom of ExpressionNo new readings, but please review the FoE readings and your class notes, and come prepared with questions or comments to put to our guests, who include a scholar of Swedish constitutional law.
6.1 Williams v. Walker-Thomas Furniture Company 6.1 Williams v. Walker-Thomas Furniture Company
350 F.2d 445 (1965)
Ora Lee WILLIAMS, Appellant,
v.
WALKER-THOMAS FURNITURE COMPANY, Appellee.
William THORNE et al., Appellants,
v.
WALKER-THOMAS FURNITURE COMPANY, Appellee.
Nos. 18604, 18605.
United States Court of Appeals District of Columbia Circuit.
Argued April 9, 1965.
Decided August 11, 1965.
[350 F.2d 446]
COPYRIGHT MATERIAL OMITTED
[350 F.2d 447]
Mr. Pierre E. Dostert, Washington, D. C., counsel for appellants in No. 18,605, argued for all appellants.
Mr. R. R. Curry, Washington, D. C., for appellant in No. 18,604.
Mr. Harry Protas, Washington, D. C., for appellee.
Mr. Gerhard P. Van Arkel (appointed by this court), Washington, D. C., as amicus curiae.
Before BAZELON, Chief Judge, and DANAHER and WRIGHT, Circuit Judges.
J. SKELLY WRIGHT, Circuit Judge:
Appellee, Walker-Thomas Furniture Company, operates a retail furniture store in the District of Columbia. During the period from 1957 to 1962 each appellant in these cases 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." Emphasis added.) 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.
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 $514.95.1 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.
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
[350 F.2d 448]
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.2 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. * * *"3
Since we have never adopted or rejected such a rule,4 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 (Supp. IV 1965). The enactment of this section, which occurred subsequent to the contracts here in suit, does not mean that
[350 F.2d 449]
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.5 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.6 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.7 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.8 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
[350 F.2d 450]
agreement are not to be questioned9 should be abandoned and the court should consider whether the terms of the contract are so unfair that enforcement should be withheld.10
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."11 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." 1 CORBIN, op. cit. supra Note 2.12 We think this formulation correctly states the test to be applied in those cases where no meaningful choice was exercised upon entering the contract.
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.
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
[350 F.2d 451]
as to the effect the decision in these cases will have.1
I join the District of Columbia Court of Appeals in its disposition of the issues.
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Notes:
1 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.
2 Campbell Soup Co. v. Wentz, 3 Cir., 172 F.2d 80 (1948); Indianapolis Morris Plan Corporation v. Sparks, 132 Ind.App. 145, 172 N.E.2d 899 (1961); Henningsen v. Bloomfield Motors, Inc., 32 N.J. 358, 161 A.2d 69, 84-96, 75 A.L.R.2d 1 (1960). Cf. 1 CORBIN, CONTRACTS § 128 (1963).
3 See Luing v. Peterson, 143 Minn. 6, 172 N.W. 692 (1919); Greer v. Tweed, N.Y. C.P., 13 Abb.Pr., N.S., 427 (1872); Schnell v. Nell, 17 Ind. 29 (1861); and see generally the discussion of the English authorities in Hume v. United States, 132 U.S. 406, 10 S.Ct. 134, 33 L.Ed. 393 (1889).
4 While some of the statements in the court's opinion in District of Columbia v. Harlan & Hollingsworth Co., 30 App.D.C. 270 (1908), may appear to reject the rule, in reaching its decision upholding the liquidated damages clause in that case the court considered the circumstances existing at the time the contract was made, see 30 App.D.C. at 279, and applied the usual rule on liquidated damages. See 5 CORBIN, CONTRACTS §§ 1054-1075 (1964); Note, 72 YALE L.J. 723, 746-755 (1963). Compare Jaeger v. O'Donoghue, 57 App.D.C. 191, 18 F.2d 1013 (1927).
5 See Comment, § 2-302, Uniform Commercial Code (1962). Compare Note, 45 VA.L.REV. 583, 590 (1959), where it is predicted that the rule of § 2-302 will be followed by analogy in cases which involve contracts not specifically covered by the section. Cf. 1 STATE OF NEW YORK LAW REVISION COMMISSION, REPORT AND RECORD OF HEARINGS ON THE UNIFORM COMMERCIAL CODE 108-110 (1954) (remarks of Professor Llewellyn).
6 See Henningsen v. Bloomfield Motors, Inc., supra Note 2; Campbell Soup Co. v. Wentz, supra Note 2.
7 See Henningsen v. Bloomfield Motors, Inc., supra Note 2, 161 A.2d at 86, 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." See also Greer v. Tweed, supra Note 3.
8 See RESTATEMENT, CONTRACTS § 70 (1932); Note, 63 HARV.L.REV. 494 (1950). See also Daley v. People's Building, Loan & Savings Ass'n, 178 Mass. 13, 59 N.E. 452, 453 (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 * * *."
9 This rule has never been without exception. In cases involving merely the transfer of unequal amounts of the same commodity, the courts have held the bargain unenforceable for the reason that "in such a case, it is clear, that the law cannot indulge in the presumption of equivalence between the consideration and the promise." 1 WILLISTON, CONTRACTS § 115 (3d ed. 1957).
10 See the general discussion of "Boiler-Plate Agreements" in LLEWELLYN, THE COMMON LAW TRADITION 362-371 (1960).
11 Comment, Uniform Commercial Code § 2-307.
12 See Henningsen v. Bloomfield Motors, Inc., supra Note 2; Mandel v. Liebman, 303 N.Y. 88, 100 N.E.2d 149 (1951). The traditional test as stated in Greer v. Tweed, supra Note 3, 13 Abb.Pr.,N.S., at 429, 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."
1 However the provision ultimately may be applied or in what circumstances, D.C. CODE § 28-2-301 (Supp. IV, 1965) did not become effective until January 1, 1965.
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6.2 7.1.1.1 Introductory Note 6.2 7.1.1.1 Introductory Note
When two people make a contract, they create new law for themselves, new rights and duties that supplement or modify whatever entitlements they already possess. The law of contracts facilitates this process and may therefore aptly be described as an instrument of decentralized lawmaking.[1] There are, of course, limits to the lawmaking powers that private parties enjoy. A rule of criminal law, for example, cannot be displaced by private agreement and many of the nonconsensual duties deriving from the law of torts are similarly immune to contractual alteration.[2] Moreover, even if the subject matter of an agreement is perfectly innocent, the courts may refuse to enforce it if its terms are too one-sided or the agreement was reached by a route that is procedurally tainted through fraud, duress, or "unfair surprise".[3] In these respects, as well, the parties' power of self-rule is limited. Within these constraints, however, contracting parties enjoy a legislative preeminence: the rules they must follow are fixed by the terms of their own agreement and it is to the agreement that a court will look in deciding whether each has given or done all he should. This idea is sometimes expressed by saying "that the parties must be content to perform and to receive performance in accordance with their own agreement,"[4] and that the courts will not make a contract for them.
But even if an agreement is acknowledged to fall within the limits of permissible private lawmaking, its scope and the meaning of its terms may be uncertain. It may be unclear what the parties have agreed to, and where this is the case, even the least interventionist court must resolve a preliminary issue of interpretation before it can enforce the agreement according to its terms.
The need for interpretation can arise in many different ways. For example, the parties may have failed to address, or to even consider, a contingency whose occurrence has dramatically altered their original expectations. In cases of this sort, we speak of a "gap" in the contract, and the question the court must answer is, how shall the gap be filled? There are two possible responses: the court can either supply a term to fill the gap or do nothing, choosing instead to leave any losses where they may already have fallen. The first solution clearly requires an interpretive elaboration of the parties' bargain, typically through the implication of a risk-allocating term the court believes the parties themselves would have accepted had they addressed the matter at hand. Though less obviously, the second solution also represents an interpretation of the parties' agreement for it too is based upon a particular construction (or reconstruction) of their probable intent — why, after all, should losses that may have fallen in a wholly arbitrary way be allowed to remain where they are unless it is assumed this is what the parties would have wanted had they thought about the problem before it arose? These and related issues are explored more fully in Chapter 8, which deals with the gap-filling doctrines of mistake and impossibility.
Gaps are not, however, the only reason an agreement may require interpretation. What the parties have said, as well as what they have left unsaid, can be a source of confusion and controversy requiring an interpretive resolution. If, for example, the parties have included an ambiguous term in their agreement it may be necessary for the court to decide which of the term's several meanings to adopt. Statements and promises made in the course of negotiations but not explicitly included in the parties' final agreement constitute another fertile source of ambiguity. When are prior statements and promises to be deemed an integral part of the bargain and when should we assume that the parties meant to deny them legal effect through a calculated act of silence or exclusion? A. number of interpretive rules have been devised to help answer this question; often described collectively as the parol evidence rule, they are the subject of the present chapter.
We may begin with a black-letter statement of the rule itself:
When two parties have made a contract and have expressed it in a writing to which they have both assented as the complete and accurate integration of that contract, evidence, whether parol or otherwise, of antecedent understandings and negotiations will not be admitted for the purpose of varying or contradicting the writing.[5]
The definition is Corbin's and if it seems uncomplicated, we should remember that it is followed by more than two hundred pages of dense commentary. Each clause of the rule shines, deceptively, from innumerable glosses. Indeed, even its name is a deception for the parol evidence rule is not, properly speaking, a rule of evidence at all, nor is its application limited to parol (as distinct from written) agreements.
The rationale for the parol evidence rule was stated, with Elizabethan eloquence, in the Countess of Rutland Case, 5 Co. 26a, 77 Eng. Rep. 89 (1604). "[I]t would be inconvenient," declared Chief Justice Popham,
that matters in writing made by advice and on consideration, and which finally import the certain truth of the agreement of the parties should be controlled by averment of the parties to be proved by the uncertain testimony of slippery memory. And it would be dangerous to purchasers and farmers, and all others in such cases, if such averments against matter in writing should be admitted.
Since the days of Chief Justice Popham, if not earlier, the parol evidence rule has been defended as a device to preserve the security of transactions. Its policy goal has found its most forceful articulation in a well-known Minnesota case.[6] The defendants, when sued on a written instrument guaranteeing the payment of "any and all sums of money" requested by a milling company in which they were interested, pleaded an oral agreement limiting their liability. Since, in the court's view, the instrument was the "final expression of the contractual assent of the parties," it could not be varied or contradicted by parol evidence of preceding or contemporaneous agreement. Absent fraud or mistake, the court declared, the negotiations preceding the written contract were not its concern.
Were it otherwise, written contracts would be enforced not according to the plain effect of their language, but pursuant to the story of their negotiations as told by the litigant having at the time being the greater power of persuading the trier of fact. So far as contracts are concerned, the rule of law would give way to the mere notions of man as to who should win law suits. [Without the parol evidence rule] there would be no assurance of the enforceability of a written contract. If such assurance were removed today from our law, general disaster would result because of the consequent destruction of confidence, for the tremendous but closely adjusted machinery of modern business cannot function at all without confidence in the enforceability of contracts.[7]
In justification of its conclusion that the instrument sued on was the final and complete integration of the understanding of the parties, the court in the Cargill case invoked the doctrine, often repeated, that the test of completeness of a written contract is the document itself: if the document "appears to be complete, that ends the inquiry and parol evidence is inadmissible to prove first the fact, and then the purport, of the alleged omission."[8] The court conceded, however, that incompleteness need not "appear on the face of the document from mere inspection" and added a significant qualification: "it is enough that the omission appear when the court, aided if necessary, and only if necessary, by extrinsic evidence, comes to apply the contract to the designated subject matter."[9]
The modern history of the parol evidence rule has been marked by a growing appreciation of the consequences of this last observation and its implications for our view not only of the rule but of contract interpretation in general. The parol evidence rule bars the proof of prior agreements where the parties have embodied their contract in a writing that is meant to be a complete and accurate statement of its terms. Application of the rule in any particular case clearly requires, therefore, a preliminary judgment concerning the parties' intentions with regard to the writing itself: did they mean it to be an exclusive source of contractual liability or something less than this, a partial statement of the terms of their agreement requiring supplementation from other sources? To determine what the writing means, or meant, to the parties, it must be viewed against the background of their attitudes and expectations, and while the writing serves an important evidentiary function in the reconstruction of this background, it cannot provide its own interpretive framework (any more than a literary text can criticize itself). An object is never the same as a person's attitude toward it, though the object may provide evidence as to what that attitude is and help to make it interpretively accessible to us. No matter how complete and authoritative it appears to be, a written agreement is only a sign pointing to something it is not and logically can never be — the matrix of intentions in which it has its own place and meaning. It is from the standpoint of this invisible web of expectations that we must always take our bearings in attempting to determine what agreement the parties have made. A writing cannot provide the standpoint from which its own meaning may be assessed, and the skills of draftsmanship are as useless in this regard as speed in the effort to jump over one's shadow.
But to say that a writing can never be more than evidence of the parties' intentions is not to say that all writings should be treated equally: some provide better evidence of the parties' intentions than others do, and should be given greater weight in the court's interpretive deliberations. Where it seems obvious from an inspection of the writing that the parties did in fact assent to it as an integrated statement of their agreement, it may seem like a metaphysical quibble to insist that a writing can only have greater or lesser evidentiary weight and can never be self- validating. But quibbles of this sort, though of seemingly little practical consequence, can help us to a deeper philosophical understanding of the law and to a more realistic appraisal of its rules. Corbin's discussion of the parol evidence rule is exemplary in both respects.
[1] Max Weber, On Law in Economy and Society 89 (M. Rheinstein & E. Shils trans. 1954).
[2] For a discussion of when a promisor may and may not disclaim responsibility for losses resulting from his own negligence, see 6A Corbin §1472.
[3] See pp. 554-564 supra.
[4] 3 Corbin §541.
[5] 3 Corbin §573.
[6] Cargill Commn. Co. v. Swartwood, 159 Minn. 1, 198 N.W. 536 (1924).
[7] Id. at 6, 7, 198 N.W. at 538.
[8] Id. at 8, 198 N.W. at 538.
[9] Id. at 9, 198 N.W. at 539.