Clifton Jones V. Star Credit Corp., 59 Misc.

Introduction:

Contracts are legally enforceable promises. There are two requirements for contract formation: agreement and consideration. An agreement involves a valid offer being made by an offeror to an offeree and said offer being validly accepted by the offeree and communicated to the offeror. The second requirement is consideration, meaning the two parties exchange something of legal value. Contracts serve the purpose of ensuring stability, predictability, and certainty, as well as deterring defection, in business dealings. The objective theory of contract law states that only the language of the contract should be considered in contract interpretation. This theory ignores entirely the intent of the parties. However, contract law is largely

a matter of common law and decided upon using precedent. As such, contract law has evolved to include exemptions whereby under certain circumstances, contracts are not enforced exactly as written or contracts are created by the court. This paper will explore some of the circumstances under which this is true as well as analyze the impact of these exemptions.
Discussion:
Courts may not enforce contracts when the terms of the contract are unjust or overwhelmingly beneficial to one party.

In Clifton Jones, v. Star Credit Corp., 59 Misc.2d 189 (1969), for example, the plaintiffs, welfare recipients, agreed to purchase a freezer on credit from a salesman. Overall the purchase totaled $1,234.80, however, the freezer had a maximum retail value of $300. The court found the aforementioned contract to be unconscionable as the salesman took advantage of the poor, less educated plaintiff. Unconscionability, as a means to end a contract, was created under the Uniform Commercial Code, a statutory law intending to protect vulnerable consumers from predatory contracts. In Jones, the court ordered Star Credit Corp to revise and amend the contract so as to make the payments equivalent to those already made by the plaintiff, approximately $600. The Uniform Commercial Code and the associate use of unconscionability “tells not only the buyer but also the seller to beware. ” Flexibility in contract enforcement stemming from unconscionability has the self-evident benefit of protecting the ‘underdog’ from predatory business practices. Nevertheless, it comes with some risks. The principle of unconscionability undermines the precept that contracts are mutually agreed upon and as such considered fair. The court thus puts its self in a role of determining the fairness of contracts and undermines free market principles. Furthermore, it hampers businesses’

abilities to plan based on their contracts as it threatens the stability of contracts in a subjective manner.
Another case centering on claims of unconscionability is WXON-TV, Inc. v. A.C. Nielsen Company, 740 F. Supp. 1261 (1990). The plaintiff, WXON-TV, hired Nielsen “to provide statistical estimates of projected viewing audiences… for the purposes of marketing advertising time. ” Nielsen knowingly underestimated this number due to a flawed sample. However, in signing the contract, the plaintiff forfeited its right to make any claim against Nielsen in the case of “errors, inaccuracies or omissions. ” The plaintiff argues that the provision is unconscionable. However, the court ruled in favor of the defendant. The case is distinguished from Jones because the contract is not procedurally unconscionable, and the claim thus fails the two prong test set forth in Allen v. Mich. Bell Telephone Co., 18 Mich. App. 632, 171 N.W.2d 689 (1969). The court states that “unconscionability will rarely be found in a commercial contract,” because businesses are generally of similar competence to negotiate and enter contracts. Further, the court argues that there was sufficient competition in the industry to distinguish the case from Allen, which centered on a natural monopoly. The court goes even further to argue that the contract was not substantially unconscionable as the potential damages from inaccuracies “could be enormous. Thus, it concludes that limiting itself from these liabilities was reasonable on Nielsen’s part. This precedent benefits some businesses at the expense of others. While the aforementioned contract provision is essential to Nielsen’s ability to function as a business, it also harms businesses like WKON, who are essentially forced to agree to undesirable terms that do not allow Nielsen to be held accountable for its poor performance. Nevertheless, the precedent sets a higher barrier for unconscionability in business to business dealings, which is reasonable as businesses require less protection from nefarious contract terms than do consumers.
Courts may also not strictly enforce contracts depending on the degree to which the parties performed the contract.

If one party meets the threshold of substantial performance, meaning he completes the most significant aspects of the contract, but fails to fulfil some minor terms, the court will not necessarily enforce the contract exactly as written. Further, the court may not release the non-breaching party from his duties. Rather, the non-breaching party will be granted compensatory damages equivalent to the difference between the fair market value of what was to be performed under the contract and what was actually delivered. In Jacob & Youngs, Incorporated, v. George E. Kent, 230 N.Y. 239, the plaintiff, a construction company, built the defendant’s house mistakenly using a type of pipe that differed from the type specified in the contract. The defendant, upon discovery, refused to make his final payment and the plaintiff is suing for the remaining balance, demanding that the plaintiff make the costly renovations required to replace the pipes. The court ordered the defendant pay the remaining balance, reasoning that “an omission, both trivial and innocent, will sometimes be atoned for by allowance of the resulting damage, and will not always be the breach of a condition to be followed by a forfeiture. ” The court determined that the relevant measure of allowance for damages should be the difference in market value, rather than the cost of replacing, as the pipes,

unlike a work of art, were mere utilities with indistinguishable value. As a result of the pipes’ equivalent values, there can be no value assigned for damages.
This reasoning is troubling, insofar as it does not hold companies to a high standard or performance. The dissent argues that contract was not fulfilled “intentional[ly] or due to gross neglect. ” The dissent reasons that the defendant “had a right to contract for what he wanted,” and that the court should not empower businesses to ignore the requests of their clients. Using substantial performance as a form of equitable relief puts the court in a position of evaluating the “triviality” of an element of a contract. To do so is unjust as it ignores the subjective and personal interests of the parties of the contract. Nevertheless, this form of relief is an important tool in allowing the court to protect businesses from significant harm due to small errors. In the case of Jacob & Youngs, the construction company would have suffered significantly losses in order to correct an error that, to a reasonable person, is immaterial to the substance of the contract.
In some cases, courts provide a remedy to a dispute when a contract has not been formed. The doctrine of promissory estoppel provides a remedy for situations in which one party suffers as a result of a decision relying reasonably on the promise made by another party. Promissory estoppel awards reliance damages to the party who has suffered. In William A. Drennan v. Star Paving Company, 51 Cal. 2d 409 (1958), the plaintiff, a general contractor, prepared a bid that incorporated a subcontractor bid delivered to him by the defendant. The plaintiff won the bid. However, the defendant asserted, after the fact, that the company had erred in its bid and would require over twice the amount specified in the bid to complete the job. The plaintiff attempted to find an alternative subcontractor, but was only able to find one who could complete the job for $3,817 more than the defendant offered to. Thus, the plaintiffs seeks damages for the difference. The court awarded the damages to the plaintiff because the plaintiff should have been able to reasonably rely on the defendants promise to perform the job for the price of his bid, which included no mention of “irrevocability. ” While the defendant claims that the bid was an accident, and he should consequently be given relief under the precedents of M. F. Kemper Const. Co. v. City of Los Angeles, 37 Cal.2d 696 [235 P.2d 7], and Brunzell Const. Co. v. G. J. Weisbrod, Inc., 134 Cal.App.2d 278 [285 P.2d 989], the court distinguishes the circumstances because in these cases the plaintiffs knew, or reasonably should have known, that the plaintiffs made mistakes. In Drennan, on the other hand, the plaintiff had no way to know that the bid was a mistake, as it was not unreasonable given an average variance of 160 percent between high and low bids. Because the defendant had the obligation to prepare his bid with “reasonable care,” he is accountable for the plaintiff’s loss. Promissory estoppel benefits individuals and businesses by protecting them from being misled and incentivizing others to be considered when making promises or offers. Nevertheless, the doctrine is problematic insofar as it creates a contract between two parties where one may not exist and, in doing so, increases the risks associated with conducting business. These risks may result in higher transaction costs, as businesses and individuals feel a need to preemptively create contracts as a form of protection.
Conclusion:
Law intends to preserve the status quo, ensure stability, and proscribe guidelines for acceptable conduct. However, at its core, law is intended to promote justice and fairness. A strict adherence to the words of a contract ignores the common sense and mercy. The same is true for the failure to acknowledge the negligence or malice of false promises. The greatest benefit of the common law system is its flexibility, and this flexibility should be employed to develop a more nuanced interpretation of contracts. To argue that the weak should suffer simply because contracts are mutually agreed upon is immoral and unjust.
As demonstrated in the aforementioned cases, contracts are often not performed perfectly. By allowing for flexibility, the courts incentivize all parties in business dealings and contract formation to act fairly, which in effect supports free market ideals. The threat of a contract being deemed unconscionable incentivizes businesses from taking advantage of consumers; the threat of being held liable for promissory estoppel incentivizes businesses not to make promises that harm other individuals and businesses; and the promise of being granted substantial performance allows businesses to take on work without fearing disproportionate losses due to minor mistakes. While this flexibility necessarily forgoes a degree of stability and certainty, it makes up for the loss in promoting fair and sustainable business practices, which are more beneficial to society in the long-run.