When will a Connecticut court refuse to enforce a contract or clause as unconscionable?
When, in the light of the general commercial background and the commercial needs of the particular trade or case, the clauses involved are so one-sided as to be unconscionable under the circumstances existing at the time of the making of the contract; the determination is made case by case, taking into account all the relevant facts and circumstances (Cheshire Mortgage Service v. Montes). In a footnote the court, quoting Calamari & Perillo, distinguishes substantive unconscionability, which focuses on the content of the contract, from procedural unconscionability, which focuses on the process by which the allegedly offensive terms found their way into the agreement.
The trap
The test is measured at the time of the making of the contract, and it is fact-bound: in Cheshire Mortgage the borrowers argued illiteracy in English and lack of business acumen, bolstering the claim 'by the fact that they were unrepresented by counsel in both loan transactions', and the court said that 'Were the defendants’ arguments *90 based upon favorable factual findings, they might well have prevailed on appeal. Their assertions, however, are contrary to the facts found by the trial court.' The trial court had found them intelligent persons who understood the legal and financial systems and who defaulted because their marriage broke down, not because they misunderstood the loan or lacked income. The substantive claim was that $1098 in monthly payments against the $1195 monthly income on the loan application left them '$97 per month for living expenses'; the court rejected it on the facts found (a footnote records that after the November, 1987 loan alone the payments were $806, '67 percent of their $1195 monthly income listed on the loan application'), though the court noted a mortgagor might prevail where a court has found an intentional reaping of equity.
11 authorities
The words that state the rule
“As Official Comment 1 to § 2-302 of the Uniform Commercial Code suggests, [t]he basic test is whether, in the light of the general commercial background and the commercial needs of the particular trade or case, the clauses involved are so one-sided as to be unconscionable under the circumstances existing at the time of the making of the contract. Hamm v. Taylor, supra, 495-96 .” (Internal quotation marks omitted.) Texaco, Inc. v. Golart, supra, 462 .
The words that state the rule
The determination of unconscionability is to be made on a case-by-case basis, taking into account all of the relevant facts and circumstances. Id. Applying this test to the underlying facts found by the trial court, we conclude that the defendants have not established that the mortgage transactions in question were either procedurally or substantively unconscionable.
The words that state the rule
Substantive unconscionability focuses on the “content of the contract,” as distinguished from procedural unconscionability, which focuses on the “process by which the allegedly offensive terms found their way into the agreement.” J. Calamari & J. Perillo, Contracts (3d Ed.) § 9-37.
The words that state the rule
Were the defendants’ arguments *90 based upon favorable factual findings, they might well have prevailed on appeal. Their assertions, however, are contrary to the facts found by the trial court.
The words that state the rule
The defendants argue that because of their illiteracy in English and their lack of business acumen, the terms of the mortgages unfairly surprised them and that, therefore, there was a “lack of voluntariness” in the transactions. The defendants bolster this claim by the fact that they were unrepresented by counsel in both loan transactions. They contend, moreover, that they did not know that they would have to pay off the prior liens on their home in order to obtain the November, 1987 mortgage loan.
The words that state the rule
The court further found that the defendants were “intelligent and energetic” persons, and that, having lived in the mainland United States for more than twenty years, they understood its judicial, “legal and financial systems.” Finally, the court found that the defendants defaulted on the mortgage, not because they did not understand their obligations thereunder or because their income while living together was insufficient to support the mortgage payments, but because the breakdown of their marriage subsequent to the mortgage closing impaired their financial situation.
The words that state the rule
After the November, 1987 loan, the defendants were burdened with $806 in monthly mortgage payments, consisting of $407 to People’s Bank and $399 to the plaintiff. That sum represented 67 percent of their $1195 monthly income listed on the loan application.
The words that state the rule
Thus, although in a case where the court has found an intentional reaping of equity a mortgagor might prevail on a claim of unconscionability, this record does not compel such an inference.
The words that state the rule
On the basis of those findings and the record, we cannot conclude that this transaction was procedurally unconscionable as a matter of law.
The words that state the rule
This claim is based on the defendants’ contention that they had only the $1195 in monthly income listed on the loan application form with which to pay the $1098 monthly mortgage payments due for the first and second mortgages. Thus, the defendants argue, they were left with only $97 per month for living expenses after *92 the mortgage payments.
The words that state the rule
With respect to the judgment on the defendants’ counterclaims based upon TILA, CUTPA and § 36-224l, the judgment of the trial court is reversed, and the remedies are to be determined upon the remand. The judgment is reversed and the case is remanded for further proceedings in accordance with this opinion.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.