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10.2 Unconscionable Contract Sales and Lease Contracts: Formation, title and Risk

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 Page 1
540 So.2d 713, 8 UCC Rep.Serv.2d 628
(Cite as: 540 So.2d 713)

scionability of contracts applies, by analogy, to lease

agreements. Code 1975, §§ 7-2-302, 7-2-302 comment;
Supreme Court of Alabama. U.C.C. § 2-302.
Jane WILSON
v. [2] Contracts 95 1
WORLD OMNI LEASING, INC., and Toyota Alabama,
Inc. 95 Contracts
87-1186. 95I Requisites and Validity
95I(A) Nature and Essentials in General
Jan. 13, 1989. 95k1 k. Nature and Grounds of Contractual
Rehearing Denied Feb. 17, 1989. Obligation. Most Cited Cases
When court determines that contract or clause thereof is
Pickup truck lessee filed suit against lessor, claiming unconscionable, court has discretion to refuse to enforce
that the requirement that the lessee pay the balance due contract as whole if it is permeated by unconscionabil-
under the lease agreement after the truck had been des- ity, to strike any single clause or group of clauses that is
troyed in an accident was unconscionable. On cross mo- so tainted or contrary to essential purpose of agreement,
tions for summary judgment, the Circuit Court, Jeffer- or to limit unconscionable clause so as to avoid uncon-
son County, Marvin Cherner, J., granted the lessor's scionable result. Code 1975, §§ 7-2-302, 7-2-302 com-
motion. Lessee appealed. The Supreme Court, Houston, ment; U.C.C. § 2-302.
J., held that: (1) the lessee was not in an unequal bar-
gaining position at the time she entered the contract, for [3] Contracts 95 153
purposes of determining whether the contract was un-
conscionable; (2) the lessee's failure to read the terms of 95 Contracts
the lease barred her from claiming unconscionability; 95II Construction and Operation
(3) the lease was not unconscionable, even if it did not 95II(A) General Rules of Construction
set out clearly and conspicuously that the lessee was li- 95k151 Language of Instrument
able for the amount by which the net outstanding bal- 95k153 k. Construction to Give Validity
ance exceeded the insurance proceeds; and (4) a federal and Effect to Contract. Most Cited Cases
statute's rebuttable presumption that the estimated resid- When faced with choice between valid and invalid con-
ual value of the truck was unreasonable, because the struction of contract, court has duty to accept construc-
difference between the estimated residual value and the tion that will uphold, rather than destroy, validity of
actual residual value was more than three times the av- contract.
erage monthly payment, did not apply to the extent that
[4] Contracts 95 259
the excess was caused by physical damage beyond reas-
onable wear and use. 95 Contracts
95IV Rescission and Abandonment
Affirmed.
95k257 Grounds for Rescission by Party
West Headnotes 95k259 k. Invalidity of Contract. Most Cited
Cases
[1] Bailment 50 3 Rescission of contract for unconscionability is ex-
traordinary remedy usually reserved for protection of
50 Bailment unsophisticated and uneducated.
50k3 k. Validity in General. Most Cited Cases
Uniform Commercial Code standard governing uncon- [5] Automobiles 48A 387

© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.


540 So.2d 713, 8 UCC Rep.Serv.2d 628
(Cite as: 540 So.2d 713)
48A Automobiles
48AVIII Garage Keepers, Repairmen, Auto Livery-
men, and Filling Stations
48Ak386 Renting Out of Vehicle by Auto Livery-
men
48Ak387 k. In General. Most Cited Cases
Pickup truck lessee was not in unequal bargaining posi-
tion at time she entered lease, for purposes of determin-
ing whether lease was unconscionable; lessee was edu-
cated, she was employed, and she had experience in
commercial transactions, even though she claimed that
she lacked experience in leasing or purchasing vehicles.
[6] Automobiles 48A 387
48A Automobiles
48AVIII Garage Keepers, Repairmen, Auto Livery-
men, and Filling Stations
48Ak386 Renting Out of Vehicle by Auto Livery-
men
48Ak387 k. In General. Most Cited Cases
Pickup truck lessee had opportunity to read lease agree-
ment, to exercise reasonable care, and to safeguard her
interests and, thus, she could not claim that lease was
unconscionable for requiring her to pay balance due on
lease, including estimated residual value of truck, even
though she was not obligated to purchase truck when
lease terminated; lessee did not read lease before she
signed it and no one stopped her from doing so or
misled her in any way.
[7] Bailment 50 20
50 Bailment
50k20 k. Compensation of Bailor for Use of Prop-
erty. Most Cited Cases
(Formerly 48Ak387)
Pickup truck lease provision stating that lessee was li-
able for balance due under lease, even though truck had
been destroyed in accident and insurance proceeds were
insufficient to liquidate balance, was not unconscion-
able, even if provision had not been set out “clearly and
conspicuously” in accordance with federal law dealing
with consumer lease disclosures. Consumer Credit Pro-
tection Act, § 182, as amended, 15 U.S.C.A. § 1667a.
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 2
[8] Automobiles 48A 387
48A Automobiles
48AVIII Garage Keepers, Repairmen, Auto Livery-
men, and Filling Stations
48Ak386 Renting Out of Vehicle by Auto Livery-
men
48Ak387 k. In General. Most Cited Cases
Even if pickup truck lease paragraph stating that lessee
was liable for balance due under lease, when insurance
proceeds were insufficient to liquidate balance after
truck had been destroyed in accident, had been uncon-
scionable, that would not affect lessee's liability under
early termination and default provision. Code 1975, §§
5-19-16, 7-2-302.
[9] Consumer Credit 92B 66
92B Consumer Credit
92BII Federal Regulation
92BII(C) Effect of Violation of Regulations
92Bk64 Actions for Violations
92Bk66 k. Pleading and Evidence. Most
Cited Cases
(Formerly 48Ak387)
Rebuttable presumption that estimated residual value of
leased truck was unreasonable, to extent that estimated
residual value exceeded actual residual value by more
than three times average monthly payment under con-
sumer lease, did not apply where leased truck had been
destroyed in accident; federal statute's presumption did
not apply to extent that excess of estimated over actual
residual value was caused by physical damage beyond
reasonable wear and tear. Consumer Credit Protection
Act, § 184(a), as amended, 15 U.S.C.A. § 1667b(a).
*715 James H. Faulkner, Birmingham, for appellant.
Susan Lynne Stephens and Andrew Campbell of Leit-
man, Stephens & Campbell, Birmingham, for appellees.
HOUSTON, Justice.
This is an appeal from a summary judgment in favor of
the defendants, World Omni Leasing, Inc., and Toyota
FN1
Alabama, Inc., against Jane Wilson. We affirm.

540 So.2d 713, 8 UCC Rep.Serv.2d 628
(Cite as: 540 So.2d 713)
FN1. Toyota Alabama, Inc., was designated as
the lessor for purposes of the Federal Con-
sumer Leasing Act.
Ms. Wilson leased a Toyota pick-up truck from World
Omni, through Toyota Alabama, in October 1986. The
lease provided for a term of 60 months with payments
of $296.88 per month plus $4.45 use tax for a total of
$301.33 per month, and an option to purchase the truck
at the termination of the lease for $3,716.00. In addi-
tion, the lease required Ms. Wilson to provide and pay
for insurance coverage. After Ms. Wilson had made
eight payments totaling $2,410.64, the truck was demol-
ished in a two-vehicle collision. The insurance pro-
ceeds, which were paid to World Omni as a named in-
sured on Ms. Wilson's insurance policy, were insuffi-
cient to cover the outstanding balance due, as calculated
by World Omni, thereby leaving the amount of
$4,067.23 as the remaining balance due.
Ms. Wilson filed suit against World Omni and Toyota
Alabama for a claim based on Ala.Code 1975, §
5-19-16, which reads as follows:
“With respect to a consumer credit sale, consumer
lease or consumer loan, if the court as a matter of law
finds the agreement or any provision of the agreement
to have been unconscionable before, after or at the
time it was made, the court may refuse to enforce the
agreement, or it may enforce the remainder of the
agreement without the unconscionable provision, or it
may so limit the application of any unconscionable
provision as to avoid any unconscionable result.”
She contended that to require her to pay the balance due
under the lease agreement as computed by World Omni,
which included the estimated residual value of the truck
even though she was not obligated to purchase the truck
when the lease terminated, was oppressive, unreason-
able, unconscionable, and against public policy; that the
lease agreement should be declared void and unenforce-
able; and that World Omni extracted a finance charge in
excess of that permitted by the Alabama Mini Code.
Both Ms. Wilson and World Omni filed motions for
summary judgment. The trial court granted World
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 3
Omni's motion and denied Ms. Wilson's. Wilson ap-
peals from World Omni's summary judgment.
At this point, we should note that this action was com-
menced after June 11, 1987; therefore, the applicable
standard of review is the substantial evidence rule. See
Ala.Code 1975, § 12-21-12. However, as the following
discussion will show, Ms. Wilson failed to offer even a
scintilla of evidence in support of each element of her
causes of action to rebut the defendants' prima facie
showing that they were entitled to a judgment as a mat-
ter of law.
The dispositive issues before us are:
(1) Whether the lease agreement was unreasonable, un-
conscionable, and unenforceable; and
(2) Whether the charge to Ms. Wilson for the estimated
residual value of the truck *716 was unreasonable, un-
conscionable, and unenforceable.
[1][2] The leasing of consumer goods has become a
widely used substitute for purchase. As a result, courts
have held UCC § 2-302 applicable to leases either on
the basis of statutory interpretation or by analogy. See 1
J. Fonesca, Handling Consumer Credit Cases, § 4:7 (3d
ed. 1986). We affirmatively established in Lloyd v. Ser-
vice Corp. of Alabama, Inc., 453 So.2d 735 (Ala.1984),
that Ala.Code 1975, § 7-2-302, applies, by analogy, to
lease agreements. Section 7-2-302, in pertinent part,
reads as follows:
Ҥ 7-2-302. Unconscionable contract or clause.
“(1) If the court as a matter of law finds the con-
tract or any clause of the contract to have been uncon-
scionable at the time it was made the court may refuse
to enforce the contract, or it may enforce the re-
mainder of the contract without the unconscionable
clause, or it may so limit the application of any un-
conscionable clause as to avoid any unconscionable
result.”
Comment (1) of the official comments to § 7-2-302 sets
out the basic test to determine unconscionability:
“[W]hether, in the light of the general commercial

540 So.2d 713, 8 UCC Rep.Serv.2d 628
(Cite as: 540 So.2d 713)
background and the commercial needs of the particu-
lar trade or case, the clauses involved are so one-
sided as to be unconscionable under the circum-
stances existing at the time of the making of the con-
tract.... The principle is one of the prevention of op-
pression and unfair surprise ... and not of disturbance
of allocation of risks because of superior bargaining
power.”
The intention of this section is to allow the courts to
pass directly on the unconscionability of the contract or
the particular clause therein and to make a determina-
tion as to its unconscionability. Id. It is within the
court's discretion to refuse to enforce the contract as a
whole if it is permeated by unconscionability, or to
strike any single clause or group of clauses that are so
tainted or that are contrary to the essential purpose of
the agreement, or to simply limit the unconscionable
clause so as to avoid unconscionable results. Comment
2, Ala.Code 1975, § 7-2-302; 1 J. Fonesca, Handling
Consumer Credit Cases § 4:9 (3d ed. 1986).
[3] With a choice between a valid and an invalid con-
struction, the court has a duty to accept the construction
that will uphold, rather than destroy, the validity of the
contract. West Point-Pepperell, Inc. v. Bradshaw, 377
F.Supp. 154 (M.D.Ala.1974).
“It is fundamental, of course, that parties may con-
tract as they see fit so long as they do not offend
some rule of law or contravene public policy, and a
court will not attempt to alter the expressed intentions
of the parties if they are clear and unambiguous. Var-
daman v. Benefit Association of Railway Employees,
263 Ala. 236, 82 So.2d 272 (1955).”
Advertiser Co. v. Electronic Engineers, 527 So.2d 1317
(Ala.Civ.App.1988), at 1319.
In West Point-Pepperell, supra, the United States dis-
trict court took the position that the question of uncon-
scionability of a contract before the court was a matter
of law; that an unconscionable bargain or contract was
one that no man in his senses, not under delusion, would
make on the one hand, and that no fair and honest man
would accept on the other, Hume v. United States, 132
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 4
U.S. 406, 10 S.Ct. 134, 33 L.Ed. 393 (1889); that un-
conscionability includes an absence of meaningful
choice on the part of one of the parties, together with
contract terms that are unreasonably favorable to the
other party. Williams v. Walker-Thomas Furniture Co.,
121 U.S.App.D.C. 315, 350 F.2d 445, 18 A.L.R.3d
1297 (D.C.Cir.1965). The court in West Point-
Pepperell, supra, citing Williams v. Walker-Thomas
Furniture Co., supra, further stated:
“The presence of a meaningful choice can only be de-
termined by consideration of all the circumstances
surrounding the transaction, and might be negated by
‘gross inequality of bargaining power’, it being relev-
ant to ascertain whether ‘each party * * * considering
the obvious education or lack of it (had) a reasonable
*717 opportunity to understand the terms of the con-
tract or (whether) the important terms (were) hidden
in a maze of fine print and minimized by deceptive
sales and practices.’ ”
377 F.Supp. at 158.
[4][5] Rescission of a contract for unconscionability is
an extraordinary remedy usually reserved for the protec-
tion of the unsophisticated and the uneducated. E & W
Building Material Co. v. American Savings & Loan As-
sociation of Brazoria County, Texas, 648 F.Supp. 289
(M.D.Ala.1986). However, Alabama law provides no
explicit standard of unconscionability and each case
must be considered on its own facts. Id. In Lloyd v. Ser-
vice Corp. of Alabama, Inc., supra, we held that it was
the unequal bargaining power of the parties that gave
rise to an unconscionable contract. Ms. Wilson contends
that she was placed in an unequal bargaining position
because she lacked experience in leasing or purchasing
vehicles. However, in considering her educational back-
ground, her line of employment, and her past experience
in commercial transactions, as revealed in her depos-
ition testimony, we conclude that Ms. Wilson was not in
an unequal bargaining position at the time the contract
was made.
[6] Ms. Wilson also contends that the lease agreement
was unconscionable because she had no opportunity to
read and understand the terms of the contract. In her de-

540 So.2d 713, 8 UCC Rep.Serv.2d 628
(Cite as: 540 So.2d 713)
position, however, she testified that she clearly under-
stood that her agreement with World Omni defined the
rights and duties of the parties; that in prior transactions
she had read the contracts before signing them; and that
in this case she did not review the contract although no
one stopped her from reading it or told her she could not
read it or misled her in any way. Furthermore, the re-
cord showed that Ms. Wilson signed the “Lease Ac-
knowledgement Form,” which in pertinent part reads as
follows:
“I acknowledge that if I turn this vehicle in before
the end of my lease term, I will remain obligated un-
der the provisions of the Vehicle Lease Agreement
concerning Early Termination and Default, which
could result in significant penalties and costs. I under-
stand that this form does not change any provision in
the Lease Agreement I am signing as well.
“ I CERTIFY THAT I HAVE READ AND THAT I
UNDERSTAND EACH ITEM MENTIONED ABOVE.”
(Emphasis added.)
In Munroe v. Pritchett, 16 Ala. 785, 789 (1849), this
Court stated: “If the purchaser blindly trusts, where he
should not, and closes his eyes where ordinary diligence
requires him to see, he is willingly deceived, and the
FN2
maxim applies, ‘volenti non fit injuria.’ ”
FN2. “The maxim ‘volenti non fit injuria’
means that if one, knowing and comprehending
the danger, voluntarily exposes himself to it,
though not negligent in doing so, he is deemed
to have assumed the risk and is precluded from
a recovery for an injury resulting therefrom.”
Black's Law Dictionary, 1412 (5th ed. 1979).
In an effort to discourage negligence and inattention to
one's own interest, this Court in Torres v. State Farm
Fire & Casualty Co., 438 So.2d 757, 759 (Ala.1983),
held that the right of reliance comes with a duty on the
part of plaintiffs to “exercise some measure of precau-
tion to safeguard their interests.”
We also noted in Century Plaza Co. v. Hibbett Sporting
Goods, Inc., 382 So.2d 7 (Ala.1986), that “it is true gen-
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 5
erally that where a party, having the ability to read and
understand an instrument, fails to do so, and signs it
without reading it, he cannot avoid the obligations em-
bodied in the instrument by pleading ignorance of its
contents.” Id. at 8-9.
Furthermore, in Syx v. Midfield Volkswagen, Inc., 518
So.2d 94 (Ala.1987), this Court, affirming the defend-
ant's summary judgment, took the position that the
plaintiff had made a conscious decision not to read the
application or his policy; that the plaintiff simply did
not exercise any degree of precaution to safeguard his
interests; and, as a result, that the plaintiff could not re-
cover.
*718 In the instant case, Ms. Wilson had the opportun-
ity to read the lease agreement, had the opportunity to
exercise reasonable care, and had the opportunity to
safeguard her interests. Because of her conscious de-
cision not to take advantage of any of these opportunit-
ies, she cannot now complain that the lease agreement is
unconscionable by pleading ignorance of its contents.
Included in the lease agreement at issue are the follow-
ing pertinent provisions:
“11. PURCHASE OPTION. Upon the normal sched-
uled termination of this lease you will have the op-
tion, but not the obligation, to purchase the Vehicle....
The price you will pay us will be $3,716.00 .... The
parties agree that such sum represents the estimated
Fair Market Value of the Vehicle at the scheduled ter-
mination of this lease.....” (Emphasis added.)
This paragraph specifically stated that Ms. Wilson and
World Omni agreed that the amount of $3,716.00 rep-
resented the estimated fair market value at the lease ter-
mination.
“16. EARLY TERMINATION AND DEFAULT.
“(c)(i) Upon early termination, the amount you will
owe us will be determined by adding (A) the amount
of the future monthly Lease Payments for the remain-
ing scheduled term of this Lease, ... plus (B) the es-
timated fair market value of your vehicle at the nor-
mal scheduled termination date of this Lease, ... and

540 So.2d 713, 8 UCC Rep.Serv.2d 628
(Cite as: 540 So.2d 713)
by then subtracting (A) Any unearned charges, using
FN3
the Rule of 78's, (B) the net proceeds [See
FN4
16(c)(ii) ] from the sale of this vehicle. If there is
a balance due by you to us after we make the above
computation, you agree to pay it promptly.”
(Emphasis in lease agreement.)
FN3. See Ala.Code 1975, § 5-19-4(c).
FN4. “(c)(ii) If the vehicle is not purchased by
you, we will sell it at wholesale in a commer-
5
52 remaining payments of $296.88
FN5. The $4.45 use tax is not figured in this
computation.
Residual value provided in lease
Total
Less:
Unearned monthly lease payments calculated according to the Rule of 78's
Payment from insurance company for damage to vehicle
Vehicle sold for salvage
Remaining balance owed
Furthermore, when Ms. Wilson signed the “Lease Ac-
knowledgement Form,” supra, she acknowledged that, if
she turned in the leased vehicle before the end of the
lease term, she would remain obligated under the provi-
sions of 16(c)(i), which could result in significant pen-
alties and costs.
“20. INSURANCE. World Omni Leasing, Inc.
(WOLI) must be named as ‘additional insured’ and
‘loss payee’ on any insurance policy which you are
required to obtain under this Lease.... We will credit
you with the proceeds of any insurance which we re-
ceive for any loss which you have made good.... In
the event of an occurrence which results in an insur-
ance settlement which fails to liquidate the net out-
standing balance of your lease agreement, you agree
to pay the remaining balance due. Examples of such
occurrences ... losses due to collision .... You will re-
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 6
cially reasonable manner.”
In the instant case, there is no vehicle to sell.
This procedure, as set out in 16(c)(i), which properly
determined Ms. Wilson's liability, was followed by
World Omni when it computed the remaining balance
due:
$15,437.76
3,716.00
$19,153.76
$ 3,836.70
10,127.00
1,122.63
- 15,086.33
$ 4,067.43
main liable to World Omni Leasing, Inc. for any un-
paid balance of the lease regardless of the responsib-
ility for the loss.” (Emphasis added.)
[7][8] Among the various charges made by Ms. Wilson
to sustain her claim in this action was the charge that
paragraph 20 of the agreement, providing that she was
liable for the balance due under the lease even though
the property was destroyed in an accident and the insur-
ance proceeds *719 were insufficient to liquidate the
balance, was not set out clearly and conspicuously in
accordance with 15 U.S.C. § 1667a (1982). Section
1667a, dealing with consumer lease disclosures, re-
quires that the lessor give the lessee, prior to the con-
summation of the lease, a dated written statement on
which the lessor and lessee are identified, setting out ac-
curately, in a clear and conspicuous manner, consumer
leasing disclosures. From the record before us, we find
nothing to give credible support to Ms. Wilson's charge
 Page 7
540 So.2d 713, 8 UCC Rep.Serv.2d 628
(Cite as: 540 So.2d 713)

that paragraph 20 is unconscionable because it was not
set out in accordance with § 1667a. Even if we con-
cluded that paragraph 20 was indeed unconscionable, it
would be within our discretion to enforce the remainder
of the contract without the unconscionable clause. See
Ala.Code 1975, §§ 5-19-16, 7-2-302. Even if we disreg-
ard this paragraph, Ms. Wilson's liability in accordance
with 16(c)(i) would in no way be affected. The only dif-
ference would be that the remaining balance owed
would have to be computed without giving credit for the
insurance proceeds. As a result, the amount Ms. Wilson
would owe World Omni would be $14,194.43.
which is more than three times the average payment
($890.64). However, the above-quoted statute expressly
provides that the presumptions stated in that statute
shall not apply to the extent that the excess of estimated
over actual residual value is due to physical damage to
the property beyond reasonable wear and use. There-
fore, the presumptions of the reasonableness of the re-
sidual value are inapplicable in the instant case, because
the truck Ms. Wilson leased suffered extensive
“physical damage beyond reasonable wear and use.”
Consequently, the charge to Ms. Wilson of $3,716.00
does not violate § 1667b(a).

[9] Ms. Wilson further contends that the provisions of FN6. The $4.45 use tax is not figured in this
the lease agreement, concerning the residual value as computation.
part of her liability at the lease termination, violated 15
U.S.C. § 1667b(a) (1982). Section 1667b(a) reads as For the foregoing reasons, we find that the lease agree-
follows: ment between Ms. Wilson and World Omni was not un-
conscionable, nor was the charge to Ms. Wilson for the
“(a) Where the lessee's liability on expiration of a estimated residual value of the truck unconscionable.
consumer lease is based on the estimated residual
value of the property such estimated residual value The trial court did not err in granting summary judg-
shall be a reasonable approximation of the anticipated ment to World Omni and Toyota Alabama.
actual fair market value of the property on lease ex-
AFFIRMED.
piration. There shall be a rebuttable presumption that
the estimated residual value is unreasonable to the ex- TORBERT, C.J., and MADDOX, ALMON and
tent that the estimated residual value exceeds the ac- BEATTY, JJ., concur.
tual residual value by more than three times the aver- Ala.,1989.
age payment allocable to a monthly period under the Wilson v. World Omni Leasing, Inc.
lease. In addition, where the lessee has such liability 540 So.2d 713, 8 UCC Rep.Serv.2d 628
on expiration of a consumer lease there shall be a re-
buttable presumption that the lessor's estimated resid- END OF DOCUMENT
ual value is not in good faith to the extent that the es-
timated residual value exceeds the actual residual
value by more than three times the average payment
allocable to a monthly period under the lease.... The
presumptions stated in this section shall not apply to
the extent the excess of estimated over actual residual
value is due to physical damage to the property bey-
ond reasonable wear and use, or to excessive use....”
(Emphasis added.)

In the present case, three times the average payment

FN6
would be the sum of $890.64. It is true that the es-
timated residual value ($3,716.00) exceeds the actual
residual value (scrap value of $1,122.63) by $2,593.37,

© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.