Takem's Case

TAKEM’S: A Question of Law and Morality.

Judy Dunnagan

Liberty University

Dr. Dean Portier

Abstract

Takem’s is an appliance store in the state of Virginia serving the residents of the Appalachian regions of Virginia, Kentucky, Tennessee, and West Virginia. The business model which is currently being conducted in the appliance store has been called into question by one of the customers who has recently purchased a computer on credit. The owner of the store, Tommy, is now contemplating what should be done to handle this situation and protect his interest in the future. In this discourse, the author attempts to reveal to the reader the alleged infractions that Takem’s may be liable for regarding the situation with his customer, Ms. Sally

Walker. This paper also offers advice on ways that Takem’s might be able to protect the company while serving his clientele. Unconscionability, punitive damages, contract law, and Biblical law are discussed and suggestions regarding each issue of law were conferred. The issues outlaid to my client provided him facts regarding the law and offered my potential solutions to bring his business model in line with a Biblical worldview.

Introduction
In this discourse, the author will attempt to expose ways in which Takem’s, an appliance store in the Southwest area of the state of Virginia is both illegally and immorally overcharging his customers.

The issues of unconscionability, punitive damages, contract law, and holder-in-due-course will be deliberated. In addition, the law of the Bible will be conferred to reveal what God, the Creator of law, says regarding treatment of the poor.

Overview

Tommy Takem owns a small appliance store in the southwest part of the state of Virginia. Tommy has built his business on targeting the poor, unsophisticated, and uneducated in the Appalachian regions of Virginia, Kentucky, Tennessee, and West Virginia. There is little competition in the region where he sells his goods; therefore, he charges 10-20% higher prices than the nearest retail competition. Furthermore, as a ruse to increase sales, Takem’s has hired a few high pressure salespeople to go door-to-door selling the appliances and electronics at a markup of 30% more than his retail location, though this information is not disclosed to the purchaser. Also, as most of Tommy’s clientele have poor credit, the financing is handled by Takem’s Appliances as well, with an additional charge of 15% plus the highest interest rate allowable by

law.
The aggressive door-to-door sales tactics seemed to be producing greater sales volume until one of his clients, Ms. Sally Walker, the purchaser of a laptop, stopped paying her bill. Tommy has started collection efforts, to which he receives a threatening letter from Ms. Walker stating that the contract is unconscionable and therefore unenforceable. It also states that Ms. Walker will not be paying any more toward her contract and if Takem’s pursues collections further, she will file for punitive damages and reveal his shady dealings to various news outlets around the area.
Plaintiff’s Case
Tommy should take the threat seriously. There are several issues of questionable business practices within his business model. In Ms. Walker’s response to the collection attempts, she references unconscionability. Unconscionability is the defense that may allow a party to potentially avoid a contract on the grounds they suffered a grossly unfair burden that shocks the objective conscience (Chrismon, 2014). Did Ms. Walker suffer an unfair burden? According to Global Market Research Group (2014), an average laptop cost $513. With Takem’s 10-20% markup, plus the 30% markup of the door-to-door sales, Ms. Walker paid roughly $900 for her laptop which included Takem’s 15% financing fees as well as being charged the highest interest rate allowable in the state of Virginia. Based on this information, Ms. Walker, being poor and uneducated, has been rendered an extremely unfair burden. According to the Uniform Commercial Code §2-302; Unconscionable contract or clause:
(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.
According to our text, high pressure sales tactics that mislead the illiterate consumer may be one case in which a court would likely allow a party to avoid the contract (Chrisman, 2014). Section 128 of Arthur Linton Corbin’s work Corbin on Contracts is frequently cited in discussions of unconscionability in case law. Corbin saw unconscionability as something indicative of fraud, mistake, undue influence, or some other substantive or procedural problem resulting from unequal bargaining power, rather than as a problem in its own right. He suggested the courts might rely on the flexibility of the concepts of fraud, duress, misrepresentation, and undue influence “to enable the courts to avoid enforcement of a bargain that is shown to be unconscionable by gross inadequacy of consideration accompanied by other relevant factors” (Corbin, 1952, Section 128).
According to an often cited statement of the doctrine, an unconscionable contract is “such as no man in his senses and not under delusion would make on the one hand, and as no honest and fair man would accept on the other.”(Hume, 1889, Aaronson, 2013) In the same vein, courts say that it is a “fundamental principle of law that the courts will not enforce a bargain where one party has unconscionably taken advantage of the necessities and distress of the other” (Kazan, 2009, Aaronson, 2013). In Frye v Lane; “where a purchase is made from a poor and ignorant man at a considerable undervalue, the vendor having no independent advice, a Court of Equity will set aside the transaction” (Frye, 1888, Aaronson, 2013). Unconscionability is considered very ambiguous, but has had some success, so Mr. Takem should be aware there is a possible infraction of the law in Ms. Walker’s favor.
Ms. Walker has also threatened to file for punitive damages against Takem’s. Punitive damages are filed for one of two reasons: one is to reprove the wrong-doer and the other is to make an example of the person or company who has acted “wantonly, oppressively or with such malice as to evince a spirit of malice or criminal indifference to civil obligations” (Ford, 2008, p.1). The question is, what does acting in such a manner constitute? Negligence, both simple and gross are two of the ways a person or company can be considered to have acted in the manner. However, the third level of negligence, willful and wanton, is the type of punitive damages that Ms. Walker would most likely attempt to claim. When a person acts in conscious disregard of another with reckless indifference, this is willful and wanton. Ms. Walker could attempt to file a case for punitive damages stating that Takem’s salesperson was aware of her lack of education and poor financial condition so much so that he took advantage of her knowing the hardship it would induce on her. However, in the state of Virginia, the case will have to be successful through demurrer, which is when a request for dismissal is made because the case has no legal merit. Should the case make it through demurrer, a guarantee of punitive damages is still not secure. In the Woods v Mendez case, “the Supreme Court of Virginia concluded that punitive damage claims must include factual allegations sufficient to establish that the defendant’s conduct was willful or wanton” (Ford, 2008, p. 4). In the state of Virginia, punitive damages are most often decided in favor of the defendant.
The Defense
In so much as unconscionability favors Ms.

Walker, Takem’s has the statutory law of contracts in his favor. In a contract, the seller and the purchaser have certain rights and obligations. Four basics must be met for a contract to be created (Chrisman, 2014). First, the offer has to be made. In the case at hand, the door-to-door salesperson made an offer of a computer to Ms. Walker. Second, the consideration has to be accepted. Ms. Walker accepted the offer to purchase a computer. The third step is capacity. The purchaser must be legally capable of entering into a contract; minors and the mentally incompetent are excluded in this case. Takem’s has given Ms. Walker the computer in exchange for her payments on her store account. Finally, the intention to enter into a contract has to be present. Ms. Walker signed a bill of sale, a security agreement, and a negotiable promissory note- which is an unconditional promise to pay a certain sum of money at a certain time in the future. Though Takem’s has the advantage to combat her claims, Tommy needs to ensure that his salespeople have not made any false statements or misrepresentations to Ms. Walker as this could have legal implications for the store and against the contract (Vaccaro, 1987). Ms. Walker is legally bound by the contract she agreed to in exchange for the computer; however if there has been any misrepresentations or false statements Ms. Walker may be able, with legal assistance, to call the contract into question

(Edwards, 1978). Furthermore, proof that Ms. Walker was aware of the existing contract as she made payments on said contract prior to the claims of unconscionability. It is my belief that with the material evidence my client holds, barring any misrepresentation or false statements by sales personnel, continued collection efforts are acceptable.
Mr. Takem has questioned the possibility of setting up a financing company and selling the negotiable promissory notes to that entity as a possible avenue of protecting his interest. By selling the contracts to the financing branch, he believes that he would become a holder-in-due-course and protected from having claims against him such as the claim Ms. Walker has made. However, according to our text, when there are claims connecting the transferor and the transferee, the courts view this as a pre-arrangement and negates the holder-in-due-course inapplicable (Chrisman, 2014). As my client, in an effort to avert claims against my company, I would add a waiver of defense clause to the contracts that I request from my potential customers as it would offer the same resolution to the issue at hand (Maggs, 1998). Another option for protection for Takem’s would be to get a certificate of estoppel from each consumer that purchases from his store with details of the sale (Edwards, 1978). This would prevent Takem’s from liability in a lawsuit. However, in my opinion, setting up a finance company would not give Tommy holder-in-due-course status.
As to the question of my view of my client’s business model, I would say that while he is making money and that is largely the main reason to be in business, I believe he is conducting his business in a highly unethical manner. Price gouging the uneducated, unsophisticated, and poor is immoral. They are not targets and should not be treated as such. According to Matthew 21:12-13 and John 2:14-17 (NKJV, 1997), Jesus drove the money changers out of the temple because they were selling overpriced doves to the people and charging them to trade for acceptable coinage to purchase the animals for sacrifice. He did this because they were defiling the temple but to protect the poor from paying too much for the dove sacrifices as well. In Exodus 22:23-27 (NKJV), God said that if money is given as a loan to the poor that the lender will not be a creditor nor shall interest be laid upon him. Three times the Bible is clear that we should not take interest on loans, the aforementioned verse and in Leviticus 25: 35-37 and Deuteronomy 23:19-20. In the latter verse, there is a promise of God’s blessing “in all to which you set your hand in the land which you are entering to possess.” In addition the Old Testament’s views on charging interest or price gouging, Jesus says to show compassion to the poor. He reminds us in Matthew 26:11 (NKJV) that the poor will always be with us and that whatever we do for the least of these, we to unto Him. In Deuteronomy 15: 10, God says that knowing him means defending the cause of the poor and needy. Proverbs 14:31 (NKJV) says, “He who honors Him has mercy on the needy.” I believe that my client needs to re-evaluate his business model and look to the Maker of the Law as his authority on how to run a business. Jesus commands us to love one another and love does not mean taking from the poor and needy to better our own condition.
While I believe Takem’s business model has some issues that need to be addressed, such as the percentage markups and door-to-door high pressure selling, in appearance, it is legal; however, I highly recommend that he re-evaluate and make some changes. I believe the first change that he should make would be to rectify the situation with Ms. Walker. Though he is in the more favorable position legally, he still has a moral and ethical responsibility to her, and as the business owner, he should contact her personally and work with her regarding her contract. Regarding the high markups, I believe that he should consider what the Bible says in regarding the poor among us and adjust his fee schedule. The Lord also says in Proverbs 14:31 (NKJV), “He who oppresses the poor reproaches his Maker”. Now taking all of this into consideration, nothing in the prompt says that Tommy is Christian. Therefore, one cannot just make the assumption that he adheres to the Holy Spirit’s convictions. That being said, as a Christian, my obligation would be to present the gospel to Tommy and share with him the blessings that I have been given in Christ. I would certainly share with him my personal experience and how the Lord has changed me and allowed me to see those that are less fortunate as opportunities to be a blessing. I would also share with him that the Bible says that we all sin and fall short of God’s glory (Romans 3:23 NKJV) in our own power, and that he is not the only one, but that he is the only one that can make the choice for his own life.
Conclusion
As a business owner, Mr. Takem has a great opportunity to serve the poor and needy in the Appalachian region of Virginia, Kentucky, Tennessee, and West Virginia. However, he is having to make some decisions on how he wants to run his business and his spiritual life. His current model oppresses the poor and needy in that area. While being legal in the eyes of the state of Virginia, Mr. Takem’s has a moral and ethical obligation to his customers as well, if he is a Christian. While a business can only continue to operate with a positive bottom line, it does not have to seek to deplete its customer base of their financial means in the original purchase, but to keep them coming back to do business with Takem’s. While running a business is not directly spoken of in the Bible, the guidance that the Bible instructs on treatment of others is very clear. Mr. Takem’s, with the advice of his accountant, must review and make decisions in light of eternity.