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84-2-302. 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.

(2) When it is claimed or appears to the court that the contract 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 the determination.

History: L. 1965, ch. 564, § 36; January 1, 1966.

KANSAS COMMENT, 1996

1. This section is a major innovation of Article 2 that since has become incorporated into the common law. See Restatement (Second) of Contracts§ 208; Wille v. Southwestern Bell Tel. Co., 219 K. 755, 549 P.2d 903 (1976) (relying on 84-2-302 by analogy). It permits courts to police the fairness of contracts directly without resort to general equitable principles, public policy, or strained constructions of the contract language. The Official Comments to this section cited Kansas Flour Mills Co. v. Dirks, 100 K. 376, 164 P. 273 (1917), along with other cases, to illustrate the underlying basis of this section.

2. The section does not define unconscionability. In Wille v. Southwestern Bell Tel., supra, the Kansas Supreme Court identified the following factors as aids for determining whether a contract clause is unconscionable: (1) use of contracts of adhesion; (2) significantly excessive price; (3) denial of basic rights and remedies to a consumer; (4) penalty clause; (5) the commercial setting, purpose, and effect of the contract; (6) hiding of disadvantageous clauses in "fine print trivia"; (7) use of incomprehensible language; (8) overall imbalance of rights and obligations; (9) exploitation of unsophisticated consumers; and (10) inequality of bargaining power. These factors can be divided between what some courts call procedural unconscionability (unfairness in the bargaining process) and substantive unconscionability (unfairness in the terms of the contract). Williams v. Walker-Thomas Furniture Co., 350 F.2d 445 (D.C. Cir. 1965). Courts generally require both procedural and substantive unfairness before finding a contract clause unconscionable.

3. Subsection (1) makes clear that the decision whether a contract is unconscionable is one for the court as a matter of law. Also, the court is not to consider subsequent events in evaluating whether the contract or clause is unconscionable: the contract or clause must have been unconscionable at the time the contract was made. If the court makes a finding of unconscionability, it may in its discretion refuse to enforce the entire contract, refuse to enforce the unconscionable clause, or limit the clause to avoid the unconscionable effect.

4. Subsection (2) indicates that the issue of unconscionability may be raised either by the parties or the court on its own motion. When the issue is raised, the parties are entitled to present evidence of the commercial setting, purpose, and effect of the clause before the court makes its determination.

5. Other Kansas statutes also contain unconscionability provisions that may have a broader reach than this section. See K.S.A. 50-627 (Kansas Consumer Protection Act), K.S.A. 16a-5-108 (Kansas Uniform Consumer Credit Code); see also K.S.A. 58-2544 (Kansas Residential Landlord and Tenant Act).

Law Review and Bar Journal References:

"Caveat Venditor—Strict Products Liability Under the Uniform Commercial Code," Norman E. Beal, 16 K.L.R. 285, 299 (1968).

Section designed to deal with unfair surprise and oppression; context in which transaction occurred important in determining reasonableness of contract, Robert D. Ochs, 7 W.L.J. 415, 418, 419, 420 (1968).

Impact of the Uniform Consumer Credit Code upon Kansas, Barkley Clark, 18 K.L.R. 277, 293 (1970).

Survey of Kansas commercial law (1965-1969), 18 K.L.R. 388, 391 (1970).

"The Bystander's Liberation Front—U.C.C. § 2-318 or Strict Liability," John B. Roesler, 19 K.L.R. 251, 253 (1971).

"URLTA, Kansas, and the Common Law," Michael J. Davis, 21 K.L.R. 387, 393 (1973).

Discussion of unconscionable practices in "The New Kansas Consumer Legislation," Barkley Clark, 42 J.B.A.K. 147, 189, 198 (1973).

Landlord-tenant implied warranty of habitability, 22 K.L.R. 666, 681 (1974).

"A New Kansas Approach to an Old Fraud," on consumer protection, Polly Higdon Wilhardt, 14 W.L.J. 623, 637, 638 (1975).

Arbitration of contractual disputes, 17 W.L.J. 657, 662 (1978).

"Comparative Fault and Strict Products Liability in Kansas: Reflections on the Distinction Between Initial Liability and Ultimate Loss Allocation," William Edward Westerbeke and Hal D. Meltzer, 28 K.L.R. 25, 97 (1979).

"Underlying Philosophy of Article 2," John E. Murray, Jr., 21 W.L.J. 1, 14 (1982).

"Express Contracts of Indemnity," Richard J. Lind, 65 J.K.B.A. No. 7, 36 (1996).

CASE ANNOTATIONS

1. Contract limiting company liability not unconscionable and contrary to public policy. Wille v. Southwestern Bell Tel. Co., 219 Kan. 755, 758, 759, 549 P.2d 903.

2. District court did not misuse unconscionability concept. Baker v. Ratzlaff, 1 Kan. App. 2d 285, 289, 564 P.2d 153.

3. Where lease agreements were intended to create security interests under 84-1-201(37)(b), provisions of Article 9 of UCC applicable. CIT Financial Services, Inc. v. Gott, 5 Kan. App. 2d 224, 229, 231, 615 P.2d 774.

4. The defendant committed a deceptive practice under the Kansas Consumer Protection Act when, without valid excuse, he delayed over three months to notify plaintiff that her order for a limited production car could not be filled. Willman v. Ewen, 6 Kan. App. 2d 321, 324, 325, 627 P.2d 1190.

5. Contract provision requiring written notice to Orkin company before suit does not render contract unconscionable. Aff'd and Reversed in part, remanded. Atkinson v. Orkin Exterminating Co., 5 Kan. App. 2d 739, 743, 625 P.2d 505.

6. Contract provision restricting dealer's liability for nondelivery of automobile not unconscionable. Willman v. Ewen, 230 Kan. 262, 265, 266, 634 P.2d 1061 (1981).

7. Trial court erred in granting equitable reformation of the rental rate for leased land; court should look at circumstances at time of contract not subsequent events. Estate of Link v. Wirtz, 7 Kan. App. 2d 186, 188, 189, 638 P.2d 985 (1982).

8. Issue of limitations on buyer's remedies discussed; nine factors relevant to unconscionability outlined and applied. Transamerica Oil Corp. v. Lynes, Inc., 723 F.2d 758, 764 (1983).

9. Cited; unconscionability of illegible liquidated damages clause in lease with disparity in sophistication between lessor and lessee farmer examined. John Deere Leasing Co. v. Blubaugh, 636 F. Supp. 1569, 1572 (1986).

10. Unconscionability under UCCC, consumer protection act and hereunder contrasted; unconscionability under UCCC question for trier of fact. Topeka Datsun Motor Co. v. Stratton, 12 Kan. App. 2d 95, 107, 736 P.2d 82 (1987).

11. Cited; disclaimers of warranties not unconscionable where no buyer-seller relationship exists. Wight v. Agristor Leasing, 652 F. Supp. 1000, 1012 (1987).

12. "Take or pay" clauses in natural gas contracts not unconscionable. Resources Inv. Corp. v. Enron Corp. 669 F. Supp. 1038, 1042 (D. Colo., 1987).

13. Whether price increases not anticipated or foreseeable at the time of contract formation render contract unconscionable examined. Kansas Baptist Convention v. Mesa Operating Limited Partnership, 253 Kan. 717, 734, 735, 864 P.2d 204 (1993).

14. Dealer supply agreements between gasoline service station owners and franchisees were not contracts of adhesion. Wayman v. Amoco Oil Co., 923 F. Supp. 1322, 1342 (1996).


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