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Archives of Business Research – Vol. 11, No. 5
Publication Date: May 25, 2023
DOI:10.14738/abr.115.14685.
Hunter, R. J., Shannon, J. H., Amoroso, H. J., & Lozada, H. R. (2023). A Teaching Note on Unconscionable and Adhesive Contracts.
Archives of Business Research, 11(5). 54-71.
Services for Science and Education – United Kingdom
A Teaching Note on Unconscionable and Adhesive Contracts
Richard J. Hunter
Seton Hall University, and Business Law,
Collins College of Business, University of Tulsa
John H. Shannon
Seton Hall University
Henry J. Amoroso
Department of Economics and
Legal Studies, Seton Hall University
Hector R. Lozada
Institute for International Business
Seton Hall University
ABSTRACT
In this article, the authors, professors of legal studies, joined by a colleague from the
discipline of marketing, write about the topic of unconscionability as it relates to
the common law doctrines of “freedom of contract,” caveat emptor, and contracts of
adhesion. Unconscionability can be a “threshold” discussion, or it can be considered
at another point in a business law or legal environment of business course under
the topic of “genuineness of assent.”
Keywords: unconscionability, caveat emptor, adhesion, boiler plate contract, “as is”
clause
INTRODUCTION
Under the early common law, courts would regularly enforce contracts entered into by parties
under a principle known as freedom of contract—even contracts that appeared to be one-sided,
unfair, oppressive, burdensome, or unconscionable. Cserne (2021) writes:
“Freedom of contract is a principle of law, expressing three related ideas: Parties should be free
to choose their contracting partners (“party freedom”), to agree freely on the terms of their
agreement (“term freedom”), and where agreements have been freely made, parties should be
held to their bargains (“sanctity of contract”). A key contribution of economics to contract law
scholarship has been to systematize and rationalize both the principle and its limits in terms of
social welfare.”
Jensen (2020) comments that “As a general principle, parties should have the freedom to
contract. Courts should only intervene when the contract ‘violates some principle which is of
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Hunter, R. J., Shannon, J. H., Amoroso, H. J., & Lozada, H. R. (2023). A Teaching Note on Unconscionable and Adhesive Contracts. Archives of Business
Research, 11(5). 54-71.
URL: http://dx.doi.org/10.14738/abr.115.14685.
even greater importance to the general public’” (citing Christensen v. Eggen, 1998, p. 221).
Jensen (2020) continues: “People have a right to make legal contracts and to expect the courts
to honor and give binding effect to their agreements. . .. So important and unfettered is the right
to contract that courts have no authority to invalidate unwise or improvident agreements or to
rewrite them so as to achieve a fairer bargain for one party or another”(citing Pollock-Halvorson
v. McGuire, 1998).
The principle of freedom of contract was embodied in the concept of "caveat emptor," translated
as "let the buyer beware." Caveat emptor has been expressed in the following phrase: “Qui
ignorare non debuit quod jus alienum emit," which means "let a purchaser, who ought not be
ignorant of the amount and nature of the interest, which he is about to buy, exercise proper
caution" (quoted in Ollerman v. O’Rourke, 1980).
The Development of a Doctrine of Unconscionability
Jha (2020) discussed the chronology of the development of unconscionability as a doctrine that
would challenge the principle of absolute freedom of contract. The first indication that a break
from caveat emptor was possible under contract law can be traced to opinion of the United
States Supreme Court in Post v Jones (1857), where the Court noted:
“The contrivance of an auction sale under such circumstances, where the master of the
Richmond was hopeless, helpless, and passive — where there was no market, no money, no
competition — where one party had absolute power and the other no choice but submission —
where the vendor must take what is offered or get nothing — is a transaction which has no
characteristic of a valid contract.”
This concept was further explored in United States v Bethlehem Steel Corp. (1942), where the
court discussed the issues of bargaining power and inequality:
“But is there any principle which is more familiar or more firmly embedded in the history of
Anglo-American law than the basic doctrine that the courts will not permit themselves to be
used as instruments of inequity and injustice? Does any principle in our law have more
universal application than the doctrine that courts will not enforce transactions in which the
relative positions of the parties are such that one has unconscionably taken advantage of the
necessities of the other?”
The development of the concept unconscionability, however, remained with the courts and not
with the legislature (see Diener, 2016). Jha (2020) notes: “The landmark judgment which
brought about this change ... was that of Campbell Soup Co. v Wentz (1948), in which the court
opined ‘We do think, however, that a party who has offered and succeeded in getting an
agreement as tough as this one is, should not come to a chancellor and ask court help in the
enforcement of its terms. That equity does not enforce unconscionable bargains is too well
established to require elaborate citation.’”
Writing for the court in Jones v. Star Credit (1969), Judge Wachtler court noted: “There was a
time when the shield of ‘caveat emptor’ would protect the most unscrupulous in the
marketplace—a time when the law, in granting parties unbridled latitude to make their own
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Archives of Business Research (ABR) Vol. 11, Issue 5, May-2023
Services for Science and Education – United Kingdom
contracts, allowed exploitive and callous practices which shocked the conscience of both
legislative bodies and the courts.”
In Wille v. Southwestern Bell (1976), the court reflected:
“American Courts have traditionally taken the view that competent adults may make contracts
on their own terms, provided they are neither illegal nor contrary to public policy, and that in
the absence of fraud, mistake, or duress, a party who has fairly and voluntarily entered into
such a contract is bound thereby, notwithstanding it was unwise or disadvantageous to him.
Gradually, however, this principle of "freedom of contract" has been qualified by the Courts as
they were confronted by contracts so one-sided that no fair-minded person would view them
as tolerable.”
The Wille court had also provided its own insight into the origins of unconscionability, noting
that “An early definition of unconscionability was provided by Lord Chancellor Hardwicke, in
the case of Chesterfield v. Jensen (1750):
“A contract that such as no man in his senses and not under delusion would make on one hand,
and as no honest and fair man would accept on the other; which are unequitable and
unconscientious bargains; and of such even the Common Law has taken notice.”
The modern basis for unconscionability appears in the Uniform Commercial Code (UCC) Section
2-302 (Swanson, 2001), which changed the essential relationship between the parties from
"caveat emptor" to "caveat venditor," or let the seller beware (Kagan, 2023). Under the analysis
found in the UCC, the purpose of the doctrine of unconscionability is twofold: “prevention of
oppression (sometimes called substantive unconscionability) and unfair surprise (procedural
unconscionability).”
The court in Davis v. TWC Dealer Group, Inc. (2019) underscored this duality of purpose and
approach:
“The judicially created doctrine of unconscionability has both a procedural and a substantive
element, the former focusing on oppression or surprise due to unequal bargaining power, the
latter on overly harsh or one-sided results. Both procedural and substantive
unconscionability must both be present in order for a court to refuse to enforce a contract
under the doctrine of unconscionability. But they need not be present in the same degree. In
other words, the more substantively oppressive the contract term, the less evidence of
procedural unconscionability is required to come to the conclusion that the term is
unenforceable, and vice versa.”
In fashioning Section 2-302, the writers of the Uniform Commercial Code intentionally failed to
provide a precise definition of the term "unconscionable" in the belief that to do so might be to
limit and defeat the purposes of the rule. Farnsworth (1999, p. 310) stated: “Nowhere among
the Code's many definitions is there one for unconscionability. That the term is incapable of
precise definition is a source of both strength and weakness." Judge Harmon in Wille v.
Southwestern Bell Telephone Company (1976) added: “This doctrine received its greatest
impetus when it was enacted as a part of the Uniform Commercial Code but the writers did not