Mooney, Ralph James --- "Hands Across the Water: The Continuing Convergence of American and Australian Contract Law" [2000] UNSWLawJl 1; (2000) 23(1) UNSW Law Journal 1
[*] BA (Harv) JD (Mich); Kaapcke Professor of Law, University of Oregon. Visiting Professor of Law, 1998, University of New South Wales. My thanks to UNSW’s Denis Harley for many useful conversations and to Sydney University’s John Carter for a thoughtful review of an earlier draft.
[1] Hon LJ Priestley, “A Guide to a Comparison of Australian and United States Contract Law” [1989] UNSWLawJl 2; (1989) 12 UNSWLJ 4.
[2] Justice Priestley first described certain similarities between the two countries’ legal systems, then noted two significant differences: (1) unlike Australian states, each of the 50 American states has virtually unlimited sovereignty over its own contract law; and (2) unlike Australia’s High Court, the United States Supreme Court has jurisdiction to hear a contract dispute only in the rare instance that the case presents a substantial question of federal law. Thus, in the United States, “there are 51 final courts of appeal in matters of contract law”, whereas in Australia “there is one”. Ibid at 6.
[3] Others have expressed similar sentiments. See, for example, P Finn, “Commerce, The Common Law and Morality” [1989] MelbULawRw 5; (1989) 17 MULR 87 (describing a “growing divergence” of Australian common law from that of England and a “much closer kinship” with those of New Zealand, Canada, and the United States); K Mason, “Restitution Law in Australia” in PD Finn (ed), Essays on Restitution (1990) 20 (“American law was rarely cited before full borrowing rights to the library were tendered to Australian judges by Sir Anthony Mason at the time of his swearing in as Chief Justice”); AJ Duggan, “UCC Influences on the Development of Australian Commercial Law” (1996) 29 Loyola University of Los Angeles Law Review 991.
[4] I wish I could report that American judges are similarly becoming “Contracts Citizens of the English Speaking World”, but in truth American judges and scholars rarely look beyond our own shores for new ideas. Our principal excuse, I suppose, is that our own 50 states themselves produce such a diverse (and occasionally bewildering) array of approaches to most legal questions. But see EA Farnsworth, “Developments in Contract Law During the 1980’s: The Top Ten” (1990) 41 Case Western Reserve Law Review 203 (describing, inter alia, the “increasing internationalization” of American contract law).
[5] I recognise that some Australian lawyers prefer to conceptualise at least two of these areas, restitution and estoppel, as closely related to contract law rather than as part of it. See, for example, J Carter, “Contract, Restitution and Promissory Estoppel” [1989] UNSWLawJl 3; (1989) 12 UNSWLJ 30; AS Burrows, “Contract, Tort and Restitution: A Satisfactory Division?” (1983) 99 LQ Rev 217. Indeed, one of the courses I taught at UNSW, titled “Frontiers of Contract”, examined the ‘frontiers’ between contract and restitution, contract and estoppel, and contract and tort. While perhaps it hardly matters, I myself prefer the somewhat simpler, more inclusive view that doctrines like restitution and promissory estoppel are actually part of, rather than adjacent to, contract law.
[6] Much already has been spoken and written about the High Court’s recent contract law innovations. For overviews, both descriptive and normative, see J Carter and A Stewart, “Commerce and Conscience: The High Court’s Developing View of Contract” [1993] UWALawRw 4; (1993) 23 UWA L Rev 49 (describing the “remarkable flood of contract litigation” reaching the High Court during the 1980s, and how the Court has begun to fashion a “distinctive Australian contract law”); Hon AM Gleeson, “Innovations in Contract: An Australian Analysis” in P Birks (ed) The Frontiers of Liability (1994) 113; Hon LJ Priestley, “Contract – The Burgeoning Maelstrom” (1988) 1 Journal of Contract Law 15; N Seddon, “Australian Contract Law: Maelstrom or Measured Mutation?” (1994) 7 Journal of Contract Law 93.
[7] It certainly is more favourable than my view of much recent American contract law. See generally RJ Mooney, “The New Conceptualism in Contract Law” (1995) 74 Oregon Law Review 1131.
[8] “Classical contract law”, of course, refers to the relatively formalist system of abstract, interrelated rules that dominated the field for at least two generations a century ago. The most readable account of the birth, life, and ‘death’ of classical contract law remains G Gilmore, The Death of Contract, Ohio State University Press (1974). For a much longer, more scholarly rendering of similar developments, primarily in England, see PS Atiyah, The Rise and Fall of Freedom of Contract, Oxford University Press (1979). For the view that some American courts are regressing today back toward something like classical contract law, see RJ Mooney, note 8 supra.
[9] See, for example, Gardiner v Higgins 125 NE 561 (Mass 1920) (court will not imply promise by lessee to deliver premises free from subtenancy); Cashin v Pliter 134 NW 482 (Mich 1912) (construction company, whose express contract is void, may not recover building costs under implied contract theory); Verdi v Helper State Bank 196 P 225 (Utah 1921) (where express contract exists, implied contract to retain funds six additional months impermissible). See generally 66 American Jurisprudence 2d, Restitution and Implied Contracts, s 6.
[10] The fundamental axiom of American restitution law appears in the very first section of the American Law Institute, Restatement of Restitution (1937): “A person who has been unjustly enriched at the expense of another is required to make restitution to the other”. “Restatements” of American law are products of the American Law Institute, an organisation of judges, law teachers, and practicing attorneys founded in 1923 to simplify and clarify portions of American law by “restating” them. Technically, Restatements are not ‘law’, except in the rare instance when a legislature or court formally adopts a “restated” principle, but typically they are persuasive evidence of a general American rule or principle. See generally NEH Hull, “Restatement and Reform: A New Perspective on the Origins of the American Law Institute” (1990) 8 Law and History Review 55.
Beyond the Restatement, the best general scholarly account of American restitution law is Professor George Palmer’s thorough four volume treatise, GE Palmer, The Law of Restitution, Little Brown and Co (1978). For much briefer versions, see A Kull, “Rationalizing Restitution” (1995) 83 California Law Review; D Laycock, “The Scope and Significance of Restitution” (1989) 67 Texas Law Review 1277.
[11] 104 SW 165 (Ark 1907).
[12] The only difficult issue on appeal concerned the amount recoverable. The trial court allowed the jury to consider, among other factors, “ability to pay”, but the Arkansas Supreme Court declared that to be an error. The plaintiff physicians were entitled simply to a “reasonable compensation” for their services, determined by market value, without regard either to medical success or failure or to the patient’s ability to pay. On restitution for emergency services generally, see American Law Institute, Restatement of Restitution (1937), ss 113-17.
[13] 158 F2d 631 (2d Cir 1946).
[14] The court explained that while it was generally “assiduous” in defeating attempts to “delve into the pockets of business firms through spurious claims”, the facts in Matarese fully justified a restitution recovery. The pre-existing employment relation, the supervisor’s promise of substantial compensation, the value and patentability of the stevedore's inventions, and the employer’s great cost savings from them, combined to present a clear case of unjust enrichment. Cf Smith v Recrion Corp 541 P2d 663 (Nev 1975) (hotel employee not entitled to restitution for value of RV-park suggestion, which he had made “officiously” and which failed the “concreteness and novelty” test).
[15] For example, Wisner v Wisner 631 P2d 115 (Ariz App 1981) (“unjust enrichment, as a legal concept, is not properly applied in the setting of a marital relationship”); Hubbard v Hubbard 603 P2d 747 (Okla 1979) (wife may recover in restitution money spent supporting husband during 12 years of medical training); Roubicek v Roubicek 21 So2d 244 (Ala 1945) (wife given credit in marital dissolution asset division for valuable work in husband’s business); Lewis v Lewis 245 SW 509 (Ky 1922) (wife may not recover in restitution even for “great services” rendered in husband’s store).
[16] 661 P2d 196 (Ariz 1983).
[17] The Arizona court noted the traditional American reluctance to grant restitution in marital relationship cases, but chose to join the “emerging consensus” in cases like Pyeatte that restitution to a working spouse is appropriate to prevent the other’s unjust enrichment. For a famous Hollywood decision expanding recovery theories for a nonmarital partner, see Marvin v Marvin 557 P2d 106 (Calif 1976) (inter alia, nonmarital partner may recover in restitution the “reasonable value of household services rendered” less the “reasonable value of support received”, if services rendered with an “expectation of monetary reward”). See also Eaton v Gurry 627 So2d 1317 (Fla App 1993) (plaintiff not precluded from restitution for value of her work at defendant’s restaurant merely because they were living together at the time); Shuraleff v Donnelly 817 P2d 764 (Or 1991) (reasonable value of individual contributions relevant to division of property accumulated during 15 year nonmarital domestic relationship).
[18] See generally American Law Institute, Restatement of Restitution (1937), ss 6-106 and 160-79; American Law Institute, Restatement (Second) of Contracts (1981), ss 141, 158, 197-9, 272 and 375-7; GE Palmer, note 11 supra, chs 6-8 and 12; JM Perillo, “Restitution in the Second Restatement of Contracts” (1981) 81 Columbia Law Review 37.
[19] 72 NE 63 (Mass 1904).
[20] See also Renner v Kehl 722 P2d 262 (Ariz 1986) (restitution following mutual mistake); Cazares v Saenz 256 Cal Rptr 209 (Cal App 1986) (restitution following impossibility); Edwards v City of Renton 409 P2d 153 (Wash 1965) (restitution following illegality).
For a later Massachusetts decision protecting both restitution and reliance interests following a declaration of impossibility, see Albre Marble & Tile Co v John Bowen Co 155 NE 2d 437 (Mass 1959) (subcontractor may recover from general contractor the value of labour and materials used in preparing non-wrought-in samples, shop drawings, and the like where the general contractor expressly requested such work, and the general’s own noncompliance with statutory bidding procedures caused state termination of the prime contract). American Law Institute, Restatement (Second) of Contracts (1981), s 272 also now validates such a result, authorising a court to grant relief in cases like Young and Albre Marble “as justice requires, including protection of the parties’ reliance interests”. See generally JP Dawson, “Judicial Revision of Frustrated Contracts: The United States” (1984) 64 Boston University Law Review 1.
[22] Professor Palmer reported that Britton remained the “minority” American position for personal services contracts as late as 1978. GE Palmer, note 11 supra, at 650.
[23] 597 P2d 1247 (Or 1979).
[24] A straightforward illustration of the rule is Michigan Central Ry Co v State 155 NE 50 (Ind App 1927). A railway company misdelivered a carload of coal to the Indiana state prison. The market value of coal then was $6.85 per ton, but the prison was able to buy it for $3.40/ton. Accordingly, the railway’s restitution recovery – quite literally the “value of the benefit conferred” – was $3.40/ton.
[25] 556 P2d 663 (Or 1976).
[26] See also Comm v Goodman 286 NE2d 758 (Ill App 1972) (noting difficulty of determining value of architect’s services to property developer); Utemark v Samuel 257 P2d 656 (Cal App 1953) (real estate buyer entitled to restitution from breaching seller, measured by “reasonable cost” of improvements made, not merely their “value”); Earthinfo v Hydrosphere Resource Consultants 900 P2d 113 (Colo 1995) (breaching buyer of computer software products liable for “restitution” of profits generated).
[27] Note 22 supra; see text accompanying notes 22-3 supra.
[28] [1973] USCA4 482; 479 F2d 638 (4th Cir 1973).
[29] See LL Fuller and WR Perdue Jr, “The Reliance Interest in Contract Damages” (1936) 46 Yale LJ 52 at 373, arguably the single most influential American contract law article.
[30] For similar examples of contractors recovering restitution in excess of expectation, see Acme Process Equipment Co v United States 347 F2d 509 (Ct Cl 1965); Boomer v Muir 24 P2d 570 (Cal App 1933). For a critique of such decisions, see A Kull, “Restitution as a Remedy for Breach of Contract” (1994) 67 Southern California Law Review 1465.
One especially difficult context of the expectation vs restitution debate is determining the appropriate recovery by a wrongfully discharged attorney. Some courts have awarded a traditional expectation recovery, ie, the agreed fee less a fair allowance for time and expenses saved by reason of the breach. For example, Bockman v Rorex 208 SW2d 991 (Ark 1948).
A compelling criticism of the ‘expectation’ approach, however, is that it unduly restricts a client’s freedom to discharge its attorney. Indeed, some courts have ruled that such a discharge does not even constitute a breach: a client’s confidence in its attorney is so important that there exists an ‘implied condition’ in every attorney-client agreement that the client may discharge the attorney at any time, with or without cause. For example, Lee v Ingalls Memorial Hospital 597 NE2d 747 (Ill App 1992); Jacobson v Sassower 489 NE2d 1283 (NY 1985). Courts holding such a view typically adopt restitution as the discharged attorney’s appropriate remedy: she or he may recover only the reasonable value of services actually performed, a remedy that arguably strikes the correct balance between a client’s right to discharge and an attorney’s right to fair compensation. For example, Lee v Ingalls Memorial Hospital; Simon v Metoyer 383 So2d 1321 (La 1980); Fracasse v Brent 494 P2d 9 (Calif 1972).
But what if the fair value of work performed exceeds the contract price? With few exceptions, for example, In re Montgomery 6 NE2d 40 (NY 1936), courts have treated the contract price as a ceiling in such cases. See generally Rosenberg v Levin 409 So2d 1016 (Fla 1982); SM Speiser, Attorneys’ Fees, Lawyers Cooperative Publishing Co (1973) at [4.24-4.36]; note, WD Hunter, “Limiting the Wrongfully Discharged Attorney’s Recovery to Quantum Meruit” (1973) 24 Hastings Law Journal 771.
[31] See, for example, Frontier Rock & Sand Inc v Heritage Ventures Inc 607 P2d 364 (Alaska 1980) (contractor denied restitution for excavation work and gravel delivered to construction site); Alaska Sales & Service Inc v Millet 735 P2d 743 (Alaska 1987) (repair shop denied restitution for $19 000 worth of truck repairs); Nelse Mortensen & Co v Group Health Cooperative 566 P2d 560 (Wash App 1977) (contractor denied restitution for cost overruns caused by owner’s own substantial delays); Hensel Phelps Construction Co v King County 787 P2d 58 (Wash App 1990) (similar); Gillette v Storm Circle Ranch 619 P2d 1116 (Idaho 1980) (lessee denied restitution for crop planting expense); Clampitt v AMR Corp 706 P2d 34 (Idaho 1985) (farm buyer denied restitution of pre-default installments paid). See generally RJ Mooney, note 8 supra at 1171-7.
[32] Note 8 supra.
[33] For a fine summary of traditional, pre-1987 Australian restitution law, see K Mason and JW Carter, Restitution Law in Australia, Butterworths (1995) pp 4-34; for a shorter version, see K Mason, note 4 supra, pp 20-6.
[34] [1987] HCA 5; (1987) 162 CLR 221.
[35] Other commentators concur generally in these views. Gareth Jones has praised the “massive learning” displayed in the Pavey judgments and described how the High Court “exorcised the ghosts of the past”. G Jones, “Restitution: Unjust Enrichment as a Unifying Concept in Australia?” (1988) 1 Journal of Contract Law 8. Keith Mason and John Carter agree, suggesting that Pavey actually marked the “birth of the law of restitution” in Australia. K Mason and J Carter, note 34 supra, p 5. See generally Special Issue: Contract and Restitution (1997) 11 Journal of Contract Law 93-175.
I myself would add only that Justice Deane’s Pavey judgment, in my view, is a particularly fine example of what the legendary Karl Llewellyn described as “Grand Style” judging. In The Common Law Tradition, Little Brown and Co (1960), Llewellyn described two paradigm judicial styles: Formal Style and Grand Style. A Formal Style judge, emphasising precedent and the “true rule”, writes strongly deductive opinions with an air of “single-line inevitability” about them. For her or him, public policy is solely a legislative concern, as is change in the common law itself. By contrast, a Grand Style judge consults principle as well as precedent, recognises that no single rule satisfactorily governs widely varying circumstances, and acknowledges the existence of judicial choice. She or he derives wisdom from her or his legal heritage, but also accepts responsibility, with the legislature, for constantly rethinking and contributing to that heritage. See pp 35-45, 64-75 and 179-91.
[36] Builders Licensing Act 1971 (NSW), s 45.
[37] The Court of Appeal justified its ruling, in part, by invoking a “legislative intention to prevent a builder from recovering any remuneration” for such work without a written, signed contract. See note 35 supra at 226.
[38] Note 35 supra at 256-7.
[39] Ibid at 263-4. Faithful to the common law tradition of principled decision making, Deane J also cautioned Pavey readers against interpreting the majority judgments as endorsing a “judicial discretion” to do whatever “idiosyncratic notions of what is fair and just” might suggest: ibid at 256. In response, however, some commentators have questioned whether the High Court in Pavey provided adequate guidelines for interpreting the crucial terms ‘enrichment’ and ‘unjust’. See, for example, J Carter and A Stewart, note 7 supra at 69-73; K Mason and J Carter, note 34 supra, pp 33-4.
[41] Ibid at 60.
[42] For the somewhat curious view that Justice McHugh’s failure in Hurst to identify any “recognised unjust factor” is a “problem” because it suggests that restitution may result simply from an “unmerited benefit”, see K Mason and JW Carter, note 34 supra, p 881.
[44] See generally K Mason and J Carter, note 34 supra, pp 111-47; PA Butler, “Mistaken Payments, Change of Position and Restitution” in PD Finn (ed), Essays on Restitution (1990) 87.
[45] Perhaps, however, the correct result was far less clear prospectively. Indeed, the trial court granted ANZ restitution of the entire $100 000 (less a small payment already made by Westpac’s customer); and the Court of Appeal initially granted it $65 467.81 before concluding, on rehearing, that that sum should be subtracted from $100 000!
[46] K Mason, note 4 supra at 27-8.
[47] [1992] HCA 48; (1992) 175 CLR 353.
[48] David Securities Pty Ltd v Commonwealth Bank (1990) 93 ALR 271. On the traditional rule, see South Australian Cold Stores Ltd v Electricity Trust of South Australia [1957] HCA 69; (1957) 98 CLR 65; Bilbie v Lumley [1802] EngR 245; (1802) 102 ER 448.
[49] See, for example, J & S Holdings v NRMA Ins [1982] FCA 78; (1982) 41 ALR 539; York Air Conditioning & Refrigeration Pty Ltd v The Commonwealth [1949] HCA 23; (1949) 80 CLR 11. See generally PH Winfield, “Mistake of Law” (1943) 59 LQ Rev 327.
[50] For useful commentary on David Securities, see K Mason and JW Carter, note 34 supra, pp 120-5; P Birks, “Modernising the Law of Restitution” (1993) 109 LQ Rev 164; M Bryan, “Mistaken Payments and the Law of Unjust Enrichment: David Securities Pty Ltd v Commonwealth Bank of Australia” [1993] SydLawRw 39; (1993) 15 Syd LR 461.
[51] [1993] HCA 4; (1993) 176 CLR 344.
[52] Baltic Shipping Co v Dillon (1991) 22 NSWLR 1.
[53] John Carter and Gregory Tolhurst make this point, among others, in JW Carter and G Tolhurst, “Restitution: Payments Made Prior to Discharge of Contract” (1994) 7 Journal of Contract Law 273.
A second restitution related issue in Baltic Shipping was whether the plaintiff could recover in the same action both restitution of money paid and damages for breach. The Court ruled that allowing both would constitute double recovery, at least on the Baltic Shipping facts, but of course in other circumstances the answer might vary. For a full discussion, see AL Corbin, Corbin on Contracts, West Publishing Co (1964) pp 482-91.
[55] The contractor prevailed on this issue. The arbitrator found that the Minister’s termination decision had reflected a “fundamental misunderstanding of relevant matters”, primarily the length of the contractor’s default. Thus, concluded Meagher JA, that decision was “so distorted by prejudice and misinformation” that it “lacked contractual justification” and “amounted to a repudiation”. Ibid at 276.
[56] United States v Zara Contracting Co 146 F2d 606 (2d Cir 1944); Boomer v Muir 24 P2d 570 (Calif 1933); Rover International Ltd v Cannon Film Sales Ltd (1989) 1 WLR 912; Slowey v Lodder (1901) 20 NZLR 321.
[57] The Court paid little heed to academic criticism of permitting such an “election”. See, for example, R Goff and G Jones, The Law of Restitution, Sweet and Maxwell (2nd ed, 1978) pp 379-80; DW Greig and J Davis, The Law of Contract, Law Book Co (1987) pp 1286-7. For a later version, see JW Carter, “Discharged Contracts: Claims for Restitution” (1997) 11 Journal of Contract Law 130. And for more on measuring restitution generally, see Brenner v First Artists’ Management Pty Ltd [1993] VicRp 71; (1993) 2 VR 221 (artist managers awarded “fair and reasonable remuneration”, based substantially on their costs, despite lack of measurable economic benefit); Dart Industries Inc v Decor Corp Pty Ltd [1993] HCA 54; (1993) 179 CLR 101 (account of profits ordered to avoid unjust enrichment); K Mason and JW Carter, note 34 supra, pp 568-81.
[58] See generally K Mason, note 4 supra at 43-5; C Cato, Restitution in Australia and New Zealand, Cavendish Publishing (1997) pp 193-8; J Beatson, “What Can Restitution Do For You?” (1989) 2 Journal of Contract Law 65 at 76-7; McDonald v Dennys Lascelles Ltd [1933] HCA 25; (1933) 48 CLR 457.
[59] See generally K Mason, note 4 supra at 42-3; K Mason and J Carter, note 34 supra, pp 840-50; D O’Brien, “Change of Position: The Past, the Present and the Future” (1995) 25 Queensland Law Society Journal 511; ANZ Banking Group v Westpac (1988) 164 CLR 662.
[60] SM Waddams, “Profits Derived from Breach of Contract: Damages or Restitution” (1997) 11 Journal of Contract Law 115; S Stoljar, “Restitutionary Relief for Breach of Contract” (1989) 2 Journal of Contract Law 1.
[61] See generally K Mason, note 4 supra at 37-42; C Cato, note 59 supra, pp 258-66; J Getzler, “Unconscionable Conduct and Unjust Enrichment as Grounds for Judicial Intervention” [1990] MonashULawRw 15; (1990) 16 Monash ULR 283; Stern v McArthur [1988] HCA 51; (1988) 165 CLR 489.
[62] See generally K Mason, note 4 supra at 32-6; K Mason and J Carter, note 34 supra, pp 721-4; Trident General Ins Co v McNiece Bros Pty Ltd [1988] HCA 44; (1988) 165 CLR 107.
[63] See American Law Institute, Restatement of Contracts (1932), s 75; G Gilmore, note 9 supra, pp 18-34; EA Farnsworth, Contracts, Foundation Press (3rd ed, 1999) pp 14-19, 45-8, and 91-101; LL Fuller, “Consideration and Form” (1941) 41 Columbia Law Review 799.
[64] The first Contracts Restatement ultimately did include a section protecting nonbargained reliance despite initial objections by its Reporter Samuel Williston and others. See American Law Institute, Restatement of Contracts (1932), s 90; G Gilmore, note 9 supra, pp 59-66. The Reporter for Restatement (Second) has described s 90 as setting forth the first Restatement’s “most notable and influential rule”, EA Farnsworth, note 64 supra, p 94, and other commentators generally concur. See CL Knapp, “Reliance in the Revised Restatement: The Proliferation of Promissory Estoppel” (1981) 81 Columbia Law Review 52 (promissory estoppel “perhaps the most radical and expansive development” of contract law this century); EM Holmes, “Restatement of Promissory Estoppel” (1996) 32 Willamette L.aw Review 263 (describing the gradual acceptance of promissory estoppel in all 50 states).
Today, American Law Institute, Restatement (Second) of Contracts (1981) at [90(1)] provides as follows:
A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires.
[65] G Gilmore, note 9 supra, p 72.
[66] See RJ Mooney, note 8 supra; G Gilmore, note 9 supra; CL Knapp, “Rescuing Reliance: The Perils of Promissory Estoppel” (1998) 49 Hastings Law Journal 1191; JM Feinman, “Promissory Estoppel and Judicial Method” (1984) 97 Harv L Rev 678.
[67] 77 NW 365 (Neb 1898).
[68] Ricketts was among the early American decisions establishing a so-called general theory of promissory estoppel. Before then, American courts had tried to preserve the tidiness of consideration doctrine by confining promissory estoppel to a few discrete fact patterns, such as promises within families, promises by bailees, certain promises to convey land, and certain charitable bequests. See generally EA Farnsworth, note 64 supra, pp 91-101; CL Knapp, note 65 supra; SD Henderson, “Promissory Estoppel and Traditional Contract Doctrine” (1969) 78 Yale LJ 343.
[69] 333 P2d 757 (Calif 1958).
[70] The potential for injustice in unilateral contract formation perplexed American scholars and judges for many years. That potential arose, of course, from two formation rules that did not combine well: (1) an offer is revocable until accepted, and (2) acceptance of a unilateral contract offer does not occur until the offeree has completed its performance. So in Professor Maurice Wormser’s famous Brooklyn Bridge hypothetical (“I’ll pay you $100 to walk across the Brooklyn Bridge”), the offeror could revoke her or his offer even after the offeree had begun walking; indeed, until he had taken the very last step. See IM Wormser, “The True Conception of Unilateral Contracts” (1916) 26 Yale LJ 136.
To preclude such a result, Restatement (Second), s 45 provides that an offeree’s tendering or beginning performance renders the offer irrevocable, by creating an “option contract” permitting the offeree to accept by completing its performance. Happily, perhaps, 34 years after first posing his Brooklyn Bridge hypothetical, Professor Wormser agreed that his original, classical ‘solution’ was wrong: “Since that time I have repented, so that now, clad in sackcloth, I state frankly, that my point of view has changed. I agree… with the rule set forth in the Restatement.” IM Wormser, “Book Review” (1950) 3 Journal of Legal Education 145.
[71] See note 65 supra.
[72] The Drennan principle – protecting an offeree’s reasonable, detrimental reliance to the extent necessary to avoid injustice – appears now in Restatement (Second), s 87(2). For a recent thorough discussion of Drennan, and certain of the broader philosophical issues it raises, see A Konefsky, “Freedom and Interdependence in Twentieth-Century Contract Law: Traynor and Hand and Promissory Estoppel” (1997) 65 University of Cincinnati Law Review 1169.
Another landmark California decision shortly before Drennan applied promissory estoppel to avoid an unjust result under the Statute of Frauds. See Monarco v LoGreco 220 P2d 737 (Cal 1950) (stepfather’s promise to bequeath family farm in exchange for stepson’s continuing to live and work on it held enforceable, despite apparent Statute of Frauds bar, following stepson’s 20 years of reliance); see generally S Macaulay “Justice Traynor and the Law of Contracts” (1961) 13 Stanford Law Review 812.
[73] 133 NW2d 267 (Wis 1965).
[74] For early commentary on Red Owl, see “Expanded Application of Promissory Estoppel in Restatement of Contracts Section 90” (1966) 65 Michigan Law Review 351; “Reliance Losses: Promissory Estoppel as a Basis of Recovery for Breach of Agreement to Agree” (1966) 51 Cornell Law Review 351.
[75] Indeed, as the 1980s began, some courts and commentators were beginning to think of promissory estoppel not simply as a useful contract doctrine, but as an entirely “independent theory of recovery”. See MB Metzger and MJ Phillips, “The Emergence of Promissory Estoppel as an Independent Theory of Recovery” (1983) 35 Rutgers Law Review 472. Other optimists even were predicting the triumph of promissory estoppel over the parol evidence rule. See CL Knapp, note 65 supra at 78; MB Metzger, “The Parol Evidence Rule: Promissory Estoppel’s Next Conquest?” (1983) 36 Vanderbilt Law Review 1383.
[76] In some cases the two remedies will be substantially identical. See, for example, Percy J Matherne Contractor Inc v Grinnell Fire Protection Systems Co 915 F Supp 818 (MD La 1995) (contractor’s recovery identical whether based on contract breach or mere detrimental reliance); Royal Fixture Co v Phoenix Leasing Inc 886 SW2d 157 (Mo Ct App 1994) (vendor’s recovery similar under theories of implied agency and promissory estoppel); see generally LL Fuller and WR Perdue, note 30 supra at 73-5; RA Hillman, “Questioning the ‘New Consensus’ on Promissory Estoppel: An Empirical and Theoretical Study” (1998) 98 Columbia Law Review 580 at 601 and 610.
[77] 77 NW at 367. See E Yorio and S Thel, “The Promissory Basis of Section 90” (1991) 101 Yale LJ 111 at 134. This early ‘all or nothing’ attitude toward promissory estoppel remedies appears most famously in Professor Williston’s comment during the 1926 American Law Institute debates on the original s 90: “Either the promise is binding or it is not. If the promise is binding, it has to be enforced as it is made.” See generally LL Fuller and WR Perdue, note 30 supra at 64 and 401-6.
[78] E Yorio and S Thel, note 78 supra at 112. Other authors have reached essentially the same conclusion. For example, D Slawson, “The Role of Reliance in Contract Damages” (1990) 76 Cornell Law Review 17; DA Farber and JH Matheson, “Beyond Promissory Estoppel: Contract Law and the ‘Invisible Handshake’” (1985) 52 University of Chicago Law Review 903.
[79] RA Hillman, note 77 supra. Professor Hillman’s study led him to conclude also that (1) the theory of promissory estoppel “seldom leads to victory in reported decisions”; and that (2) courts typically consider actual, detrimental reliance an element of “immense importance” in a promissory estoppel case.
[80] For another example, consider the unusual case of Sullivan v O’Connor 296 NE2d 183 (Mass 1973). A cosmetic surgeon had promised to reduce the size of a patient’s prominent nose, but, in three painful operations, actually worsened its appearance. The court considered whether, for the surgeon’s ‘clear promise’ of a specific result, the patient should recover full expectation damages or merely reliance damages: the value of her promised nose less that of her post-surgery nose, or the value of her original nose less that of her post-surgery nose. Declining to follow a famous New Hampshire precedent to the contrary, the Massachusetts Supreme Judicial Court selected the latter, more limited remedy. Cf Hawkins v McGee 146 A 641 (NH 1929) (the famous “hairy hand” case, immortalised in the film The Paper Chase).
[81] In Acme Process Equip Co v United States 347 F2d 509 (Ct Cl 1965), a contractor sued the Federal Government for wrongful cancellation of a contract to manufacture rifles. It succeeded on the liability issue, then faced the remedy question. Because the contractor ultimately would have lost money on the contract, the Court of Claims awarded it “restitution” as an alternative to expectation. Then, however, because the contractor had delivered very few rifles before the wrongful cancellation, at a very high initial unit cost, the Court based its “restitution” award on the contractor’s reasonable costs incurred rather than the more usual benefit conferred. In other words, it granted a reliance recovery.
In addition, several courts have awarded reliance damages in cases where at the time of breach the innocent party had not yet begun, or barely had begun, its performance. In those cases, expectation damages seemed too uncertain, so the courts simply required the breaching parties to reimburse the others’ expenses. For example, C C Hauff Hardware Inc v Long Manufacturing Co 148 NW2d 425 (Iowa 1967); Goodman v Dicker 169 F2d 684 (DC Cir 1948).
[82] RJ Mooney, note 8 supra.
[83] See, for example, EA Farnsworth, note 5 supra (one of the ten most notable contract law developments of the 1980s was the “trend favouring formality over reliance”.)
[84] Phuong Pham’s recent survey of New York and California decisions reveals that between 1981 and 1994 (1) New York courts rejected 29 promissory estoppel claims while sustaining only two, and (2) California courts rejected ten such claims while sustaining but two. PN Pham, “The Waning of Promissory Estoppel” (1994) 79 Cornell Law Review 1263. The stated reasons for rejection included (1) lack of a “clear and definite” promise, (for example, Messina v Biderman 571 NYS 499 (App Div 1991)); (2) lack of “definite and substantial” reliance, (for example, Smith v City of San Francisco 275 Cal Rptr (Ct App 1990)); and (3) insufficiently “egregious” conduct by the promisor, (for example, Cunnison v Richardson Greenshields Securities Inc 485 NYS2d 272 (App Div 1985)). See also CL Knapp, note 65 supra; RA Hillman, note 77 supra.
[85] Several so called “promise theorists” recently have questioned either the theoretical soundness or the practical utility of promissory estoppel. See, for example, RE Barnett, “The Death of Reliance” (1996) 41 Journal of Legal Education 518; JP Kostritsky, “A New Theory of Assent-Based Liability Emerging Under the Guise of Promissory Estoppel: An Explanation and Defense” (1987) 33 Wayne Law Review 895; RE Barnett and ME Becker, “Beyond Reliance: Promissory Estoppel, Contract Formalities, and Misrepresentations” (1987) 15 Hofstra Law Review 443. See generally C Fried, Contract as Promise: A Theory of Contractual Obligation, Harvard University Press (1981); JM Feinman, note 67 supra; JM Feinman, “The Last Promissory Estoppel Article” (1992) 61 Fordham Law Review 303; M Gibson, “Promissory Estoppel, Article 2 of the UCC., and the Restatement (Third) of Contracts” (1988) 73 Iowa Law Review 659.
[86] CL Knapp, note 67 supra. Gentle reader, if you peruse only one Contracts article this year, let it be Knapp’s. Unless, of course, Denis Harley writes one.
[87] Ibid at 1333-4.
[88] RE Barnett, note 86 supra.
[89] G Gilmore, note 9 supra, p 103.
[90] Concededly this characterisation of pre-Waltons Australian estoppel is a trifle impolite, but surely not inaccurate. One author recently identified twelve Australian estoppel varieties, a list to which Michael Spence later added three more! See A Leopold, “Estoppel: A Practical Appraisal of Recent Development” (1991) 7 Aust Bar Rev 47; M Spence, “Australian Estoppel and the Protection of Reliance” (1997) 11 Journal of Contract Law 203. Moreover, the High Court judges themselves expressed widely divergent understandings of estoppel in cases like Waltons and Verwayen. See text at notes 92-7 and 100-5 infra.
[92] Here I summarise primarily the lead Waltons judgment, by Mason and Wilson JJ. The other three justices also voted to affirm, though each articulated the governing estoppel principle somewhat differently. Deane J preferred to proceed on a “more cautious basis”, categorising the relevant estoppel as simply an extension of “estoppel by conduct”: ibid at 452, per Deane J. Gaudron J preferred the lower courts’ rationale of estoppel to deny that a lease in fact had been concluded. And Brennan J provided his usual exhaustive review of principles and authorities, concluding, it seems, that either promissory estoppel or estoppel by conduct would support the judgment.
[93] Ibid at 399, per Mason and Wilson JJ.
[94] For example, Central London Property Trust Ltd v High Trees House Ltd [1946] EWHC KB 1; [1947] KB 130, per Denning LJ; Legione v Hateley (1983) 152 CLR 400.
[95] Mason and Wilson JJ cited American Law Institute, Restatement (Second) of Contracts (1981), s 90; G Gilmore, note 9 supra; EA Farnsworth, note 64 supra at [2.19]; and Allegheny College v National Chautauqua County Bank 159 NE 173 (NY 1927), per Cardozo J. Their Honours noted that “direct enforcement of promises” by means of promissory estoppel had “proceeded apace in the United States”. They then cautioned, at 402, against analogising too closely to the American experience because promissory estoppel developed there “partly in response to the limiting effects of the… bargain theory of consideration”. In the end, however, they concluded that the two nations’ approaches to the doctrine are in fact fundamentally similar: “[I]n the United States, as in Australia, there is an obvious interrelationship between the doctrines of consideration and promissory estoppel”, the latter “tending to occupy ground left vacant” by the former.
[96] Deane J put the matter rather more succinctly: “In so far as substantive merits are concerned, the [Mahers] have them all: Waltons deliberately failed to speak or to warn in circumstances where… simple standards of honesty and fair dealing required [it to do so]” at 434 For early commentary on Waltons, see K Sutton, “Contract by Estoppel” (1989) 1 Journal of Contract Law 205; K Lindgren, “Estoppel in Contract” [1989] UNSWLawJl 8; (1989) 12 UNSWLJ 153; L Kirk, “Confronting the Forms of Action: The Emergence of Substantive Estoppel” [1991] AdelLawRw 11; (1991) 13 Adelaide Law Review 225.
[97] [1989] HCA 51; (1989) 168 CLR 385.
[98] One interesting dictum in the case was Justice Deane’s acceptance of a complete merger between legal and equitable “estoppel by conduct”, thus discarding the troublesome distinction between representations of existing fact and promises of future action or inaction: ibid at 435. See generally P Parkinson, “Equitable Estoppel: Developments after Waltons Stores (Interstate) v Maher” (1990) 3 Journal of Contract Law 50; JW Carter, “Foran v Wight” (1990) 3 Journal of Contract Law 70.
[99] (1990) 170 CLR 394.
[100] See generally Parker v Commonwealth [1965] HCA 12; (1965) 112 CLR 295.
[101] See Groves v Commonwealth (1982) 150 CLR 113.
[102] Australian readers likely will realise that this single brief sentence in the text attempts to summarise a great deal of interesting judicial and academic discussion about remedies in promissory estoppel cases, especially Verwayen. Scarman LJ coined the useful term “minimum equity to do justice to the plaintiff” in Crabb v Arum District Council [1976] 1 Ch 179. A decade later in Waltons, Brennan J urged that same reliance based approach on his Australian audience: note 92 supra at 416. Then in Verwayen at least five High Court justices endorsed the approach, though apparently without notable success in influencing the remedies actually granted in future cases. See notes 110-13 infra and accompanying text. For more on Verwayen, see M Spence, “Estoppel and Limitation” (1991) 107 LQ Rev 221; A Robertson, “Satisfying the Minimum Equity: Equitable Estoppel Remedies After Verwayen” [1996] MelbULawRw 5; (1996) 20 Melb UL Rev 805. For a thorough judicial discussion, in a case with facts essentially similar to those in Verwayen, see Commonwealth v Clark [1994] VicRp 66; [1994] 2 VR 333.
[103] [1991] VicRp 14; [1991] 1 VR 181.
[104] The Court also concluded that the MTA had violated the principle of ‘natural justice’, which requires at least a hearing whenever a “statutory authority” like the MTA purports to exercise a “power or authority to affect the rights of individual citizens” : ibid at 204.
[105] [1991] HCA 54; (1992) 174 CLR 64.
[106] In other words, even the nondiscounted $820 000 would have moved the contractor nowhere near “the same situation… as if the contract has been performed”. Robinson v Harman [1848] EngR 135; (1848) 154 ER 363 at 365.
[107] Quoting Baron Parke in Robinson, ibid, that an aggrieved party is “so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed”. Mason CJ and Dawson J explained (to the trial judge, among others) that a correct expectation measure includes both costs incurred and anticipated profit or loss.
[108] In L Albert & Son v Armstrong Rubber Co 178 F2d 182 (2d Cir 1949). Many have considered Hand J, who served 37 years on the 2d Circuit Court of Appeals (1924-61) the most able American judge never appointed to the Supreme Court. For a magisterial new biography, see G Gunther, Learned Hand: The Man and the Judge, Knopf (1994).
[109] See Acme Process Equipment Co, note 82 supra; Anglia Television Ltd v Reed [1972] 1 QB 60, per Denning MR.
[111] For more on Austotel, see P Parkinson, note 99 supra.
[112] [1993] HCA 15; (1993) 177 CLR 485.
[113] See M Spence, note 91 supra.
[114] 164 CLR 387 at 402-4.
[115] See, for example, ibid at 419, per Brennan J; note 100 supra at 440-1, per Deane J.
[116] See A Robertson, note 103 supra.
[117] Ibid. See also A Robertson, “Towards a Unifying Purpose for Estoppel” [1996] MonashULawRw 1; (1996) 22 Monash ULR 1 (“protecting against detrimental reliance can, and should, be seen as [the] unifying purpose” for estoppel); A Robertson, “Reliance and Expectation in Estoppel Remedies” (1998) 18 Legal Studies 360 (1998) (same). But see E Cooke, “Estoppel and the Protection of Expectations” (1997) 17 Legal Studies 258.
[118] See, for example, M Spence, note 91 supra.
[119] See RA Hillman, note 77 supra. Arguably, a piece of such an article already has appeared. See A Robertson, “Estoppel and the Minimum Equity Principle: The Public Trustee, as Administrator of the Estate of Percy Henry Williams (dec’d) v Wadley” (1998) 13 Journal of Contract Law 178 (suggesting that Wadley “may well be the start of a stricter approach to the minimum equity principle”).
[120] Grant Gilmore has described how Oliver Wendell Holmes, the leading classical era contract theorist, transformed such defences into objective, definition laden “questions of law”, with the intended result that a contractual obligation be “never discharged, though the heavens fall”. G Gilmore, note 9 supra, p 48; see generally OW Holmes Jr, The Common Law, Little Brown and Co (1881), pp 241-64 (“Void and Voidable Contracts”).
[121] See generally EA Farnsworth, note 64 supra, pp 223-320; TD Rakoff, “Contracts of Adhesion: An Essay in Reconstruction” (1983) 96 Harv L Rev 1173; E Patterson, “An Apology for Consideration” (1958) 58 Columbia Law Review 929; F Kessler, “Contracts of Adhesion – Some Thoughts on Freedom of Contract” (1943) 43 Columbia Law Review 629.
[122] Llewellyn’s famous paragraph seems worth quoting in full:
The difficulty with these techniques of ours is threefold. First, since they all rest on the admission that the clauses in question are permissible in purpose and content, they invite the draftsman to recur to the attack. Give him time, and he will make the grade. Second, since they do not face the issue, they fail to accumulate either experience or authority in the needed direction: that of marking out for any given type of transaction what the minimum decencies are which a court will insist upon as essential to an enforceable bargain of a given type, or as being inherent in a bargain of that type. Third, since they purport to construe, and do not really construe, nor are intended to, but are instead a tool of intentional and creative misconstruction, they seriously embarrass later efforts at true construction, later efforts to get at the true meaning of those wholly legitimate contracts and clauses which call for their meaning to be got at instead of avoided. The net effect is unnecessary confusion and unpredictability, together with inadequate remedy, and evil persisting that calls for remedy. Covert tools are never reliable tools.
K Llewellyn, “Book Review” (1939) 52 Harv L Rev 700 at 702. On Llewellyn generally, see W Twining, Karl Llewellyn and the Realist Movement, University of Oklahoma Press (1973); NEH Hull, Roscoe Pound and Karl Llewellyn: Searching for an American Jurisprudence, University of Chicago Press (1997); G Gilmore, “In Memoriam: Karl Llewellyn” (1962) 71 Yale LJ 813.
[123] Llewellyn, of course, did not invent the doctrine; for pre-Code application, see, for example, Scott v United States [1870] USSC 120; 79 US 443 (1870); Campbell Soup v Wentz 172 F2d 80 (3d Cir 1948); Henningsen v Bloomfield Motors Inc 161 A2d 69 (NJ 1960). For a useful brief introduction, see JJ White and RS Summers, Uniform Commercial Code, West Publishing Co (4th ed, 1995) pp 132-59.
[124] The Uniform Commercial Code (“UCC”) is a joint product of the National Conference of Commissioners on Uniform State Laws (“NCCUSL”) and the American Law Institute. A century ago, the need for greater certainty and uniformity in American state law, especially commercial law, was becoming apparent. Thus, in 1892 a group of lawyers, judges, and legal academics founded the NCCUSL to codify portions of that law. The Commissioners’ first model statute was the Uniform Negotiable Instruments Law, promulgated in 1896 and adopted ultimately by all states. Other such statutes, notably the Uniform Sales Act and the Uniform Trust Receipts Act, followed soon after.
Beginning in 1940, the Commissioners joined with the American Law Institute, see note 11 supra, to produce a single uniform statute governing all aspects of a typical commercial transaction. The UCC’s first official text appeared in 1952, but few states adopted it until after further significant revisions in 1962.
Then within a decade, 49 states enacted the Code largely without revision, and today a Permanent Editorial Board revises and updates portions of it from time to time. See generally A Dunham, “A History of the National Conference of Commissioners on Uniform State Laws” (1965) 30 Law & Contemporary Problems 233; K Llewellyn, “Why We Need the UCC” (1957) 10 University of Florida Law Review 367; WA Schnader, “A Short History of the Preparation and Enactment of the Uniform Commercial Code” (1967) 22 University of Miami Law Review 1.
[125] Restatement (Second) of Contracts, s 208. Other jurisdictions are expanding unconscionability as well. See generally “Symposium on Unconscionability Around the World: Seven Perspectives on the Contractual Doctrine” (1992) 14 Loyola LA International & Comparative Law Journal 435.
[126] 161 A2d 69 (NJ 1960).
[127] The UCC provisions governing implied warranties and disclaimers appear in ss 2-314 and 2-316. The latter provides, in part: “[T]o exclude or modify the implied warranty of merchantability… the language must mention merchantability and in case of a writing must be conspicuous.”
[128] 161 A2d 69 at 87. The Court’s further description of the automobile industry, and its consumer contracts, remains essentially accurate today:
Manufacturers are few in number and strong in bargaining position. In the matter of warranties… the Automobile Manufacturers Association has enabled them to present a united front. From the standpoint of the purchaser, there can be no arms length negotiating on the subject. Because his capacity for bargaining is so grossly unequal, the inexorable conclusion which follows is that he is not permitted to bargain at all. He must take or leave the automobile on the warranty terms dictated by the maker.
Ibid at 94. See generally WD Slawson, “Standard Form Contracts and the Democratic Control of Lawmaking Power” (1971) 84 Harv L Rev 529 (urging greater judicial intervention in contract disputes to insure “democratic” private lawmaking); TD Rakoff, “Contracts of Adhesion: An Essay in Reconstruction” (1983) 96 Harv L Rev 1174 (standard form contracts should be “presumptively unenforceable”).
[129] [1965] USCADC 396; 350 F2d 445 (DC Cir 1965).
[130] The consumer was a single parent raising seven children on $218 per month in government welfare benefits.
[131] For accounts of Wright’s life, career, and judicial philosophy, see AS Miller, A “Capacity for Outrage”: The Judicial Odyssey of J Skelly Wright, Greenwood Press (1984); WJ Brennan Jr, “Tribute to J Skelly Wright” (1988) 98 Yale LJ 207; TC Grey, “J Skelly Wright” (1980) 7 Hastings Constitutional Law Quarterly 873.
[132] In full, the renowned descriptive sentence reads as follows: “Unconscionability has generally been recognized to include an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party.” See note 130 supra at 449. See also Hume v United States [1889] USSC 235; 132 US 406 at 411 (1889) (quoting Earl of Chesterfield v Janssen (Ch [1750] EngR 119; 1750) 28 Eng Rep 82 at 100: an unconscionable contract is one “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”).
[133] Professor Arthur Leff seems to have coined this distinction, in his important early article on the UCC, s 2-302. AA Leff, “Unconscionability and the Code – The Emperor’s New Clause” (1967) 115 University of Pennsylvania Law Review 485 at 487 (“Hereafter, to distinguish the two interests, I shall often refer to bargaining naughtiness as ‘procedural unconscionability’, and to evils in the resulting contract as ‘substantive unconscionability’.”)
Many believe that bargaining power inequality alone is or should be inadequate to establish procedural unconscionability. Official Comment 1 to UCC, s 2-302 states that the unconscionability principle is one of “prevention of oppression and unfair surprise and not of disturbance of allocation of risks because of superior bargaining power”. But see Sosa v Paulus 924 P2d 353 (Utah 1997) (surgeon’s far superior bargaining power over patient resulted in procedurally unconscionable arbitration agreement); Hanson v Funk Seeds International 373 NW2d 30 (SD 1985) (warranty disclaimer and remedy limitation unconscionable due to unequal bargaining power between seed manufacturer and farmer).
[134] See, for example, Kohl v Bay Colony Club Condo Inc 398 So2d 865 (Fla Ct App 1981) (virtual unanimity among authorities that both procedural and substantive elements necessary to establish unconscionability); Communications Maintenance Inc v Motorola Inc [1985] USCA7 373; 761 F2d 1202 (7th Cir 1985) (Indiana courts require both substantive and procedural unfairness); Northwest Acceptance Corp v Almont Gravel Inc 412 NW2d 719 at 723 (Mich Ct App 1987) (procedural or substantive element alone is not enough). But see Gillman v Chase Manhattan Bank NA 534 NE2d 824 (NY 1988) (an ‘outrageous’ substantive term alone may suffice to establish unconscionability); Resource Management Co v Weston Ranch & Livestock Co 706 P2d 1028 at 1043 (Utah 1985) (gross disparity in terms alone can support finding of unconscionability, as can, in a rare case, mere unfair surprise).
[135] 298 NYS 2d 264 (Sup Ct 1969).
[136] Among several memorable lines in the Jones opinion are these at 266:
The law is beginning to fight back against those who once took advantage of the poor and illiterate without risk of either exposure or interference…Section 2-302 …enacts the moral sense of the community into the law of commercial transactions…It permits a court to accomplish directly what heretofore was often accomplished by construction of language, manipulations of fluid rules of contract law and determinations based upon a presumed public policy.
Notice also the unusual remedy granted in Jones, an application of the authority UCC, s 2-302 grants courts the power to “limit the application of any unconscionable clause…”.
[137] 201 A2d 886 (NH 1964) ($800 commission and $809 finance charge added to $959 sale price of windows and siding unconscionable).
[138] 274 NYS2d 757 (1966) ($1 145 installment contract for freezer costing $348 wholesale “shocking to the conscience”).
[139] 380 NYS2d 532 (1976) ($67 000 price for jade carvings worth $14 750 unconscionable). On price unconscionability generally, see JL Harrison, “Class, Personality, Contract, and Unconscionability” (1994) 35 William & Mary Law Review 445; MA Eisenberg, “The Bargain Principle and Its Limits” (1982) 95 Harv L Rev 741.
[140] 139 So2d 911 (Fla App 1962).
[141] 307 A2d 598 (NJ 1973).
[142] 276 NE2d 144 (Ind 1971).
[143] The Weaver Court noted that had the case involved a sale of goods, the Court would have applied UCC, s 2-302 to declare the term unconscionable. However, in any contract dispute, the Court continued, “the law should seek the truth… in this more enlightened age”. Only in this way “can justice be served and the true meaning of freedom of contract preserved”. Ibid at 147-8.
[144] See, for example, In re Metal-Built Products Inc 3 Bankr Rep 176 (ED Pa 1980) (given the need for “commercial certainty”, annual interest rate of 100 per cent is not unconscionable).
[145] For example, Maxwell v Fidelity Financial Services 907 P2d 51 (Ariz 1995) (residential hot water heater sold for $6 500 plus 19.5 per cent interest, for a total time price of $14 860); Carboni v Arrospide 2 Cal Rptr 845 (Cal App 1991) (reducing 200 per cent annual interest rate to 24 per cent); Art’s Flower Shop v Chesapeake & Potomac Telephone Company 413 SE2d 670 (W Va 1991) (telephone company’s yellow pages monopoly rendered its liability limitation unconscionable).
[146] See generally RJ Mooney, note 8 supra at 1187-204; EA Farnsworth, note 5 supra at 222-5.
[147] See L Wittgenstein, Philosophical Investigations, Oxford: Basil Blackwell (3rd ed, 1967) at [115] (“A picture held us captive”), quoted in K Johnson, “Commercial Law” (1983) 13 New Mexico Law Review 293. See generally B Mensch, “Freedom of Contract as Ideology” (1981) 33 Stanford Law Review 753 (book review); P Atiyah, note 9 supra; MJ Trebilcock, The Limits of Freedom of Contract, Harvard University Press (1993).
[148] 702 P2d 503 (Calif 1985).
[149] Ibid at 514. See also Truta v Avis Rent A Car System Inc 238 Cal Rptr 806 (Cal App 1987) ($6 daily charge for “collision damage waiver” protection raised legitimate unconscionability issue); Beasley v Wells Fargo Bank 1 Cal Rptr 2d 446 (Cal App 1991) (bank fees assessed against credit card customers ruled excessive as liquidated damages and therefore invalid).
[150] 27 Cal Rptr 2d 396 (Cal App 1994).
[151] Ibid at 403. The court also concluded that the $3 fee did not violate the implied covenant of good faith and fair dealing, which “should not be read to vary an express term”. In sum, the Court concluded, the case centered around a “question of economic policy”, and it is primarily a “legislative and not a judicial function to determine such policy”: ibid at 404. Another way of thinking about the case, of course, is that in fact it centered around a far less grandiose issue, one of ordinary contract law for which courts are perfectly well suited: was the bank’s $3 NSF fee so procedurally and substantively unfair to its customers that a court should decline to enforce it?
[152] 739 P2d 554 (Or 1987).
[153] 823 P2d 965 (Or 1991).
[154] Ibid at 969. See also United States National Bank v Boge 814 P2d (Or 1991) (bank’s good faith obligation consists of mere “honesty in fact” and cannot provide a remedy even for an “unpleasantly motivated act”).
A second, similar example of recent retreat from earlier unconscionability rulings may be found in arbitration clause cases. Compare, for example, Graham v Scissor-Tail Inc 623 P2d 165 (Calif 1981) (unbargained arbitration clause unconscionable) with Keating v Superior Court 645 P2d 1192 (Calif 1982) (standarised arbitration clause in franchise agreements not unconscionable). See generally KR Davis, “The Arbitration Claws: Unconscionability in the Securities Industry” (1998) 78 Boston University Law Review (urging legislative intervention to redress the “harm inflicted” by recent decisions sustaining “unconscionable arbitration agreements in the securities industry”).
[155] [1991] USSC 56; 499 US 585 (1991).
[156] Shute v Carnival Cruise Lines [1990] USCA9 186; 897 F2d 377 at 389 (9th Cir 1990), citing, inter alia, The Bremen v Zapata Off-Shore Co [1972] USSC 129; 407 US 1 (1972).
[157] See note 156 at 593. Stevens and Marshall JJ dissented, citing, inter alia, unconscionability principles from Henningsen v Bloomfield Motors and Williams v Walker-Thomas Furniture Co. See text at notes 127-35 supra.
The US Congress overruled Shute a year later, invalidating by statute any agreement purporting to dictate a forum, or limit liability, for a cruise line passenger’s personal injury claim: 46 USCA App section 183c.
[158] NC Seddon and MP Ellinghaus, Cheshire & Fifoot’s Law of Contracts, Butterworths (7th Australian ed, 1997) p 554. For useful overviews of the doctrine, see ibid, pp 554-73; JW Carter and DJ Harland, Contract Law in Australia, Butterworths (2nd ed, 1991) pp 457-74.
[159] [1983] HCA 14; (1983) 151 CLR 447. Amadio was, of course, the principal judicial breakthrough. Unconscionability also has been the subject of very significant Australian legislative activity, especially in the field of consumer transactions. See generally treatises cited note 159 supra; West v AGC (Advances) Ltd (1986) 5 NSWLR 610; Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) 41 ATPR 269.
[160] Amadio ibid at 454.
[161] Ibid at 462. For academic commentary on Amadio, see M Sneddon, “Unconscionability in Australian Law: Development and Policy Issues” (1992) 14 Loyola LA International & Comparative Law Journal 545. See also Australia National Bank v Nobile [1988] FCA 72; (1988) 100 ALR 227 (bank’s misrepresentations together with other abuses of customer trust render guarantee and mortgage void).
[162] Note 160 supra at 474. One interesting sidelight of Justice Deane’s judgment, with which Wilson J concurred, was his endorsement of remedy flexibility. A plausible result in Amadio, he suggested, might have been to require the parents to pay the $50 000 they thought they were guaranteeing. In the end, however, Deane and Wilson JJ concluded that had the bank revealed the full truth to the parents they might well have signed no guarantee at all.
[163] [1992] HCA 61; (1992) 67 ALJR 95.
[164] Tina Cockburn, “Solicitors in Love: A New Category of Unconscionability?” (1995) 25 Queensland Law Society Journal 291.
[165] Diprose v Louth (No 1) (1990) 54 SASR 438 at 439.
[166] Note 164 supra at 101, per Deane J.
[167] Ibid at 104. Toohey J disagreed that the solicitor’s “emotional attachment” sufficed to create the required “special disability” or “special situation of disadvantage”. Unlike, perhaps, the parents Amadio, solicitor Diprose was at all times “well aware of all the circumstances and of his actions and their consequences”: ibid at 113. For another decision invalidating bank security documents, featuring the bank’s “gross failure to monitor” the transaction, bank counsel’s inattention to various “irregularities”, and “untrue” testimony by the principal bank witness, see Begbie v State Bank of NSW Ltd (1994) 41 ATPR 288.
[168] See generally N Howell, “Sexually Transmitted Debt: A Feminist Analysis of Laws Regulating Guarantors and Co-borrowers” (1994) 4 Australian Feminist Law Journal 93.
[169] [1998] HCA 48; (1998) 194 CLR 395.
[170] Yerkey v Jones [1939] HCA 3; (1939) 63 CLR 649. See also Blomley v Ryan [1956] HCA 81; (1956) 99 CLR 362 at 405 (traditionally, characteristics of disadvantaged parties have included “poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy, or lack of education”). One also is reminded here of Professor Arthur Leff’s deliberately naughty description of cases in which equity courts have denied specific performance of one-sided bargains: “Certain whole classes of presumptive sillies like sailors and heirs and farmers and women continually wander on and off stage.” A Leff, note 134 supra at 532 (footnotes omitted).
[171] National Australia Bank v Garcia (1996) 39 NSWLR 577.
[172] McHugh, Gummow, and Hayne JJ joined Justice Gaudron’s judgment. Kirby J concurred in the result, on the ground that (1) the husband had misrepresented the transaction to the wife and (2) the bank had had ‘constructive notice’ of the misrepresentation. Callinan J concurred as well, preferring simply to reaffirm Yerkey.
[173] [1998] HCA 66; (1998) 194 CLR 457.
[174] [1956] HCA 81; (1956) 99 CLR 362.
[175] On Amadio and Louth, see text at notes 162-70 supra.
[176] G Gilmore, note 9 supra.
[177] On the contrasting jurisprudences of ‘rules’ and ‘standards’, see KM Sullivan, “Foreword: The Justices of Rules and Standards” (1992) 106 Harv L Rev 22; JR Grodin, “Are Rules Really Better Than Standards?” (1994) 45 Hastings Law Journal 569. See generally D Kennedy, “Form and Substance in Private Law Adjudication” (1976) 89 Harv L Rev 1685.
[178] See Trident General Insurance Co Ltd v McNiece Brothers Pty Ltd [1988] HCA 44; (1988) 165 CLR 107; Taylor v Johnson [1983] HCA 5; (1983) 151 CLR 422; Legione v Hateley [1983] HCA 11; (1983) 152 CLR 406. See generally authorities cited note 7 supra.
[179] G Gilmore, note 9 supra, p 103.