CML – Toker v. Westerman, 1970, 274 A.3d 78 (NJDC) CB2 : 60 |
Jurisdiction
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USA
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Facts
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Westerman bought a fridge from Toker for $1230 when it was actually valued at between $350 and $400. They paid all but $574 of the purchase price, for which they are now being sued by Toker. They claim they should not have to pay it because it was an unconscionable contract.
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Issues
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Can the court refuse to enforce payment on grounds of unconscionability?
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Holding
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Yes Westerman.
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Reasoning
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McKenzie J:
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New Jersey statute provides the court with the power to refuse to enforce a contract or a clause which is deemed unconscionable in order to avoid an unconscionable result
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Uniform Commercial Code does not define “unconscionable”, but other states have judged that purchase price alone can be found unconscionable, although the seller should still be permitted to “reasonable profit”.
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In this case, the court finds the price “shocking, and therefore unconscionable” – it is 2.5 times its reasonable retail value.
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“Although courts continue to recognize that persons should not be unnecessarily restricted in their freedom to contract, there is an increasing willingness to invalidate unconscionable contractual provisions which clearly tend to injure the public in some way.”
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Ratio
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In the USA, an exorbitant purchase price is enough to render a contract unconscionable.
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Comments
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Even when courts apply existing rules, there seems to be a need at least to state that not everyone can just get out of their contracts
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This case is not representative of CML case law.
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Lesion (CVL)
(Similar to CML unconscionability)
3 categories:
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Art. 1405 (very limited)
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Art. 1406 (limited)
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S. 8 of CPA and Art. 1437 (not limited)
Historical Development of Lesion
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Thomas Aquinas, Summa Theologia II-II q. 77 a. 1.
“[…] Et ideo carius vendere aut vilius emere rem quam valeat est secundum se iniustum et illicitum.”
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Iustum pretium – roots in Medieval idea of just pricing (Christian morality)
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Thomas Hobbes, Leviathan, Part I, Chap. 15
“The value of all things contracted for, is measured by the appetite of the contractors: and therefore the just value, is that to which they consented to give.”
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Baudoin/Jobin, Obligations, p. 316, on the CCBC, 1865:
“La conception radicale de l’autonomie de la volonté de cette époque ne laissait pas de place à law lesion, car le contrat était nécessairement juste puisqu’il avait été voulu par les parties”
1) Article 1405: Lesion and Capacity
Article 1405
Except in the cases expressly provided by law, lesion vitiates consent only in respect of minors and persons of full age under protective supervision.
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Art. 1405 – vitiates consent only in respect to
Minors
Adults under protective supervision
Besides that: only in cases “expressly provided by the law”
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Consumer Protection Act – Statute
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K’s of Loan. Art 2332 of the CCQ or what was 1040c CCLC
Article 2332
In the case of a loan of a sum of money, the court may pronounce the nullity of the contract, order the reduction of the obligations arising from the contract or revise the terms and conditions of the performance of the obligations to the extent that it finds that, having regard to the risk and to all the circumstances, one of the parties has suffered lesion.
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2) Art. 1406: Lesion and Exploitation
Article 1406
Lesion results from the exploitation of one of the parties by the other, which creates a serious disproportion between the prestations of the parties; the fact that there is a serious disproportion creates a presumption of exploitation.
In cases involving a minor or a protected person of full age, lesion may also result from an obligation that is considered to be excessive in view of the patrimonial situation of the person, the advantages he gains from the contract and the general circumstances.
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Elements:
1. Exploitation PROCEDURAL, subjective Look at who parties are and circumstances they entered into K.
2. Prestation Disproportion SUBSTANTIVE, objective is this a fair deal?
3. Rebuttable Presumption of exploitation defn in Art 1373
General Principle from Art. 1406 (exploitation, serious disproportion)
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Disproportion creates presumption of exploitation
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Other Provisions Dealing with Lesion
Art. 424, 472 – renunciation of rights during separation (family law), Art. 2332 - loans
Article 424
Renunciation by one of the spouses, by notarial act, of partition of the family patrimony may be annulled by reason of lesion or any other cause of nullity of contracts.
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Article 472
Acceptance and renunciation are irrevocable. Renunciation may be annulled, however, by reason of lesion or any other cause of nullity of contracts.
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Application of the “Principle of Lesion” now:
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Situations in which there is an assumption of structural inequality of bargaining power
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Equilibrium is re-established by favouring the interests of the weaker party (see Gareau quoting L’Hereux-Dubé)
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Art. 8, 9 Consumer Protection Act – Gareau
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Art. 1437 CCQ – abusive clauses in consumer contracts and contracts of adhesion – Slush Puppie
3.Lesion through Statute - Consumer Protection Act
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Art. 1405 allows lesion in cases where the law provides – CPA s. 8 is such a law
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With the rise of consumer protection, there has been a greater assuming of ‘structural inequality of bargaining power’
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Equilibrium is re-established by favouring the interests of the weaker party (see Gareau quoting L’Heureux-Dubé)
Art. 8, 9 Consumer Protection Act
Consumer Protection Act
Title I – Contracts regarding goods and services
Chapter I – General Provisions
Annulment of contract, reduction of obligations
8. The consumer may demand the nullity of a contract or a reduction in his obligations thereunder where the disproportion between the respective obligations of the parties is so great as to amount to exploitation of the consumer or where the obligation of the consumer is excessive, harsh or unconscionable.
Degree of consumer’s consent.
9. Where the court must determine whether a consumer consented to a contract, it shall consider the condition of the parties, the circumstances in which the contract was entered into and the benefits arising from the contract for the consumer.
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S. 8 of CPA has TWO TYPES of lesion (rather than two requirements for lesion)
[1] Objective lesion - disproportion of prestations is so great as to amount to exploitation. [note…exploitation is here a fait accompli; it is not just a presumption as in art. 1406; not even rebuttable!]
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Just having a severe disparity b/n the prestations of the parties, there is lesion.
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Presumes that consumers are NEVER able to appreciate the economic value of what they are buying
Arguments against objective lesion: Should the court have to be the smart shopper? This is not the place for the law it is the place of the market, how can judge say that b/c it was twice the price (and only that fact) that it is lesion.
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