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Loyola of Los Angeles International and Comparative Law Review Volume 14 Number 3 Symposium on Unconscionability around the World: Seven Perspectives on the Article 2 Contractual Doctrine 7-1-1992 Unconscionability and Impacticability: Reflections on woT U.C.C. Indeterminacy Principles Gerald T. McLaughlin Follow this and additional works at: https://digitalcommons.lmu.edu/ilr Part of the Law Commons Recommended Citation Gerald T. McLaughlin, Unconscionability and Impacticability: Reflections on woT U.C.C. Indeterminacy Principles, 14 Loy. L.A. Int'l & Comp. L. Rev. 439 (1992). Available at: https://digitalcommons.lmu.edu/ilr/vol14/iss3/2 This Symposium is brought to you for free and open access by the Law Reviews at Digital Commons @ Loyola Marymount University and Loyola Law School. It has been accepted for inclusion in Loyola of Los Angeles International and Comparative Law Review by an authorized administrator of Digital Commons@Loyola Marymount University and Loyola Law School. For more information, please contact [email protected]. Unconscionability and Impracticability: Reflections on Two U.C.C. Indeterminacy Principles GERALD T. MCLAUGHLIN* I. INTRODUCTION In The House at Pooh Corner, Rabbit says of Owl, "[Y]ou can't help respecting [some]body who can spell TUESDAY, even if he doesn't spell it ight... ."I While I would not go so far as to say that one should respect someone who can spell both "unconscionability" and "impracticability" and get their spellings right, I might go so far as to say that one should respect someone who can use both doctrines and use them correctly. Although Article 2 of the Uniform Commer- cial Code ("U.C.C.") includes provisions covering both unconsciona- bility2 and impracticability, 3 these provisions are not exactly blinding in their clarity. This Article first briefly describes the analytical framework ap- plied in Article 2 unconscionability cases. It demonstrates that a judi- cial determination of unconscionability is the product of a two- pronged analysis. The first prong of the analysis, usually referred to as "procedural unconscionability, ' '4 focuses on the contractual bar- gaining process to determine whether that process has been tainted by "bargaining naughtiness." 5 The second prong of the analysis, usually referred to as "substantive unconscionability,"' 6 focuses on the fairness of the actual terms of the contract. The Article will show that despite this analytical framework, unconscionability is an Article 2 doctrine that is essentially indeterminate in definition. The flexibility of uncon- scionability allows a court to excuse contractual performance when- * Dean and Professor of Law, Loyola Law School, Los Angeles, California. B.A., Fordham University, 1963; LL.B., New York University School of Law, 1966. 1. A.A. MILNE, THE HOUSE AT POOH CORNER 76 (1928). 2. U.C.C. § 2-302 (1990). See also U.C.C. section 2A-108 (1990) for a similar provision on unconscionability that applies to leases of goods. 3. Id. § 2-615 (1990). 4. Arthur A. Leff, Unconscionabilityand the Code-The Emperor's New Clause, 115 U. PA. L. REV. 485, 487 (1967). 5. Id. 6. Id. at 509. 440 Loy. L.A. Int'l & Comp. L.J [Vol. 14:439 ever, in its view, continued performance would be unfair or inequitable. This Article next demonstrates that impracticability is likewise a doctrine that is essentially indeterminate in definition. The product of a two-pronged analysis not unlike the procedural-substantive analysis for unconscionability, impracticability also allows courts to excuse performance on the grounds of fairness and equity. Finally, this Article concludes that even though unconscionabil- ity and impracticability are both indeterminate in definition, courts are far more willing to excuse performance on the ground of uncon- scionability than on the ground of impracticability, due mainly to the status of the parties seeking excuse in each case. II. UNCONSCIONABILITY A. Overview The amount of scholarly literature in the United States on the topic of unconscionability is enormous.7 In a short reflective piece such as this, no attempt will be made to review this literature. Rather, knowledge of its contents will be assumed in the subsequent discussion. U.C.C. section 2-302 is the Article 2 provision on unconsciona- bility. It reads: (1) If the court as a matter of law finds the contract or any clause 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 clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result. (2) When it is claimed or appears to the court that the con- tract or any clause 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 7. See, e.g., William B. Davenport, Unconscionability and the Uniform Commercial Code, 22 U. MIAMI L. REV. 121 (1967); M.P. Ellinghaus, In Defense of Unconscionability, 78 YALE L.J. 757 (1969); E. Alan Farnsworth, PrecontractualLiability and PreliminaryAgree- ments: FairDealing and Failed Negotiations, 87 COLUM. L. REV. 217 (1987); Bruce W. Frier, One Hundred Years of Uniform State Laws: Interpreting Codes, 89 MICH. L. REV. 2201 (1991); Leff, supra note 4, at 485; Gerald T. McLaughlin & Neil B. Cohen, Unconscionability and Consequential Damages, N.Y. L.J., Jan. 15, 1992, at 3; Michael J. Phillips, Unconsciona- bility and Article 2 Implied Warranty Disclaimers, 62 CHi-KENT L. REV. 199 (1985); John A. Spanogle, Jr., Analyzing UnconscionabilityProblems, 117 U. PA. L. REV. 931 (1969). 1992] UnconscionabilityLaw in the US. the determination.8 Section 2-302 tells us several things about the doctrine of uncon- scionability. First, section 2-302(1) demonstrates that unconsciona- bility must exist at the time the contract for sale is made, not at some later time.9 Consequently, if a contract for sale is found to be fair and balanced at the time the contract is entered into, it will not be consid- ered unconscionable, even if at the time of performance the contract is found to be unfair and unbalanced.' 0 Second, section 2-302(1) states that unconscionability must be found by the court "as a matter of law.""II Unlike questions of good faith,' 2 unconscionability is not a question of fact to be decided by a jury. Therefore, since unconscionability is a question of law, an ap- pellate court can review a trial court's conclusion of unconscionability de noVo,13 while a jury determination on the question would normally be respected. Reserving the question of unconscionability for court determination emphasizes the equitable origins of the doctrine of unconscionability.'4 Third, section 2-302(2) provides that a court can raise the issue of unconscionability sua sponte.I5 Specifically, the section states that "[w]hen [unconscionability] is claimed or appears to the court," the parties shall be afforded an opportunity to present evidence to aid the court in making its ultimate determination.' 6 Again, the flexibility 8. U.C.C. § 2-302. 9. See id. § 2-302(1). 10. In contrast, U.C.C. section 1-203, which governs the doctrine of good faith, provides that "every [U.C.C.] contract or duty within this Act imposes an obligation of good faith in its performance or enforcement." U.C.C. § 1-.203 (1990). Therefore, if a contract for the sale of goods is challenged on the ground that a seller or buyer acted in bad faith, the alleged bad faith must have existed at the time the sale contract was performed or enforced, not at the time the contract was signed. Thus, events that occur after a contract is made are relevant for the purpose of a good faith analysis, but irrelevant for the purpose of an unconscionability analy- sis. Glopak Corp. v. United States, 851 F.2d 334 (Fed. Cir. 1988); see also Ellinghaus, supra note 7, at 803. 11. U.C.C. § 2-302(1). 12. See id § 1-203. 13. See ROBERT A. HILLMAN ET AL., COMMON LAW AND EQUITY UNDER THE U.C.C. 6.02(2)(d)(ii) n.11 (1985). 14. Id. 15. See U.C.C. § 2-302(2); JAMES J. WHITE & ROBERT S. SUMMERS, UNIFORM COM- MERCIAL CODE § 4-3, at 185 (3d ed. 1988). "Sua sponte" means that a court can raise the issue of unconscionability by its own will, without the motion of a party to the suit. BLACK'S LAW DICTIONARY 1424 (6th ed. 1990). 16. U.C.C. § 2-302(2) (emphasis added). Loy. L.A. Int'l & Comp. L.J. [Vol. 14:439 given courts in raising the question of unconscionability reflects its equitable origins. Fourth, as mentioned above, section 2-302(2) requires that a court allow the parties to present evidence regarding the commercial setting, purpose, and effect of a contract in order to aid the court in determining whether unconscionability exists. 17 This commercial evi- dence can give needed context to business practices that might other- wise appear harsh. For example, a price term in a contract for sale may appear excessive when viewed in isolation. A seller of goods, however, may be able to show that unusually high manufacturing or production costs justified the high price term in the sale contract. Finally, section 2-302 gives a court a wide range of remedial op- tions once it finds unconscionability. The court "may refuse to en- force the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable re- sult.' 8 Courts that have construed this language have ruled that the section does not permit an award of money damages upon a finding of unconscionability.
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