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Contracts Sample Answer

The following is a sample answer to the Contracts Practice Exam. If you have not already done so, take the exam and then compare your answer to this sample. If necessary, you can also
review the Contracts Rules of Law for this exam. Since law school professors vary in what they consider excellent work, this answer is only presented as a sample.

This problem raises the issue of whether the agreement between fast Eddie (Ed) and Laura (L) should be enforced or instead should either be modified or rendered void because it was
unconscionable.

This agreement should be interpreted by the relevant provisions of the UCC because it involves the sale of goods. (UCC 2-102). Normally, bargains are enforced according to their terms.
However, courts may choose not to enforce contracts, which they deem unconscionable. (UCC 2-302). The case law states that unconscionable contracts have two major elements -- procedural
and substantive -- and that both elements must be established to prevail on this defense. Traditionally courts have applied a "sliding scale" analysis to unconscionability claims: the greater the
procedural unconscionability, the less the plaintiff must show substantive unconscionability and vice versa.

L could prove procedural unconscionability in one of two ways. She could demonstrate that there was unfair surprise in the bargaining process or she could show that there was an inequality of
bargaining power, which left her no meaningful choice. Per the former, L's argument would be that she didn't understand the contract provisions regarding what would happen should she
default. Her argument is bolstered if we assume, as the facts suggest, that she has little formal education and that Ed didn't explain the default provision (he only said "Here's the contract.").
Courts often consider the plaintiff's lack of education, the technical wording of the default clause and the fact that the clause was buried in fine print in holding that there was procedural
unconscionability.

Ed's best argument would be that L read the contract and should reasonably have known what she was agreeing to. Ed could bolster his case by showing that the default clause was written in
plain English and was prominently located in the contract. A court armed with these facts could well find for Ed. However, the facts we have lead me to conclude that L could likely establish
unfair surprise.

L has a strong case that she had no meaningful choice in this decision. Ed was the only car dealer in the West End, L needed a car to get to work, and L had to work in order to survive. Ed's
response would be that L didn't have to accept employment, which required a car and that she could have gone to the North End to buy a car. This is a situation where more facts would be
helpful in establishing the merits of each side's arguments. If we assume, however, that L did job-hunt and that this job best fit her needs and qualifications, she would have a strong case..
Here, L could establish that she tried to find other work before settling on this position. Further, it is possible that a dealer in the North End would not have sold L a car because she was a poor
credit risk. Therefore, she may not have had a choice in car dealers. Again, this is a close call but on these facts I would conclude that L has a better-than-even chance of prevailing on this
prong of the procedural unconscionability analysis.

Substantively, L will have difficulty establishing unconscionability, at least with respect to the purchase price. The basic rule is that a contract is substantively unconscionable if involves an
overly harsh allocation of risks or costs. L's argument is that the car cost twice what it did in the North End. However, Ed can make a strong case for his pricing scheme. His security costs are
presumably greater than those dealers must bear in the North End. The facts state he had to install an expensive fence and hire security guards and that despite these measures, one out of every
six of his cars will still be stolen. Ed may also have a lower sales volume than dealers in the North End because his shop is located in a poor community. Further, he does not require full
payment up front. Given that interest rates in the city hover around 20%, the effective price of the car is $2000. This price may be justified given his costs and sales volume.

L can make a better case that the default clause which allowed Ed to repossess the car and keep all payments previously tendered is unconscionable. Ed was fully aware of L's precarious
financial position. This clause smacks of bad faith and I believe it likely that a court would render this provision void. Alternatively, it might, as allowed under the UCC, modify the
arrangement so that L could be given additional time to make the last two payments plus pay additional interest at the prevailing rate until she does so.

In sum, L can probably show that the default provision of the contract was both procedurally and substantively unconscionable. I think the price would stand but that the court would either
allow her additional time to make the payment or would have her return the car and receive most of her money back.

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