Can the other side get out of this clause as unconscionable in Iowa?
Under UCC article 2, if the court as a matter of law finds the contract or any clause of it to have been unconscionable at the time it was made, it may refuse to enforce the contract, enforce the remainder without the unconscionable clause, or so limit the application of the clause as to avoid any unconscionable result; and when unconscionability is claimed or appears, the parties must be afforded a reasonable opportunity to present evidence as to the clause's commercial setting, purpose and effect (Iowa Code § 554.2302). On the factors, the Supreme Court in Home Federal Savings & Loan Ass'n of Algona v. Campney said that "a court considering a claim of unconscionability should examine the factors of assent, unfair surprise, notice, disparity of bargaining power, and substantive unfairness." Campney states a second formulation beside the factors: a bargain is unconscionable "if it is such as no person in ... his or her senses and not under delusion would make on the one hand, and as no honest and fair person would accept on the other." Read how it came out before relying on it. Campney was a mortgage foreclosure on a due-on-sale clause, and the borrowers' unconscionability attack FAILED: "Consideration of these factors leads us to conclude that paragraph 17 is not unconscionable in this case", and the clause was "well outside the reach" of the second formulation. For a consumer credit transaction there is a second and different statute. Iowa Code § 537.5108(1) applies "in an action other than a class action" and lets the court refuse to enforce an agreement it finds unconscionable at the time it was made, "or to have been induced by unconscionable conduct", with a factor list of its own in § 537.5108(4); and § 537.5108(8) adds that "a charge or practice expressly permitted by this chapter is not in itself unconscionable."
The trap
Adhesion is a threshold, not the answer. Campney treated the question whether a contract is one of adhesion as "in the nature of a threshold issue relevant to the question of applicability of the unconscionability doctrine", and held plainly that "Clearly a finding that a contract is adhesive does not require a determination of unconscionability. It merely alerts the court that the situation is one in which such a finding may be justified." Campney is the illustration as well as the rule: the Court accepted that the borrowers "were in no position to bargain" and that the mortgage "can be characterized as a contract of adhesion with respect to paragraph 17", and still held that "this does not mean paragraph 17 is automatically unconscionable" because "More is required to complete the case for unconscionability, and we are not satisfied that the case has been made here." The statutory branch is measured at the time the contract was made, not by how the clause turned out in the event, and § 554.2302(2) gives BOTH sides a right to put in evidence about commercial setting, purpose and effect, which makes unconscionability a poor issue to try to resolve on the papers. Two parts of Campney's own reasoning are the practical answer. On assent: "defendants point out that because they did not read the mortgage before signing it, they cannot be said to have actually assented to paragraph 17. This is true, but does not end our inquiry." On notice, the Court refused to make a lender flag every disadvantageous term, saying it was "unwilling to impose upon plaintiff the quasi-fiduciary duty of giving notice to defendants of every provision in the mortgage that might eventually prove disadvantageous to them", and then named the two things that would have changed the result: "Our conclusion might be different had plaintiff stated or implied that there was no due-on-sale clause in the mortgage, or if defendants had not been afforded a fair opportunity to read it and consult an attorney about it."
14 authorities
- statuteIowa Code § 554.2302enactment date not established
The words that state the rule
If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.
- statuteIowa Code § 554.2302enactment date not established
The words that state the rule
When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose and effect to aid the court in making the determination.
- case357 N.W.2d 613Home Federal Savings & Loan Ass'n of Algona v. CampneyIowadecided 1984read it at the source ↗
The words that state the rule
We have said that a court considering a claim of unconscionability should examine the factors of assent, unfair surprise, notice, disparity of bargaining power, and substantive unfairness.
- case357 N.W.2d 613Home Federal Savings & Loan Ass'n of Algona v. CampneyIowadecided 1984read it at the source ↗
The words that state the rule
We believe that the issue of whether a given contract is one of adhesion is in the nature of a threshold issue relevant to the question of applicability of the unconscionability doctrine.
- case357 N.W.2d 613Home Federal Savings & Loan Ass'n of Algona v. CampneyIowadecided 1984read it at the source ↗
The words that state the rule
Clearly a finding that a contract is adhesive does not require a determination of unconscionability. It merely alerts the court that the situation is one in which such a finding may be justified.
- case357 N.W.2d 613Home Federal Savings & Loan Ass'n of Algona v. CampneyIowadecided 1984read it at the source ↗
The words that state the rule
Consideration of these factors leads us to conclude that paragraph 17 is not unconscionable in this case.
- case357 N.W.2d 613Home Federal Savings & Loan Ass'n of Algona v. CampneyIowadecided 1984read it at the source ↗
The words that state the rule
In regard to disparity of bargaining power, there is no dispute that defendants were in no position to bargain with plaintiff regarding the due-on-sale clause. Moreover, because the due-on-sale clause is a standard mortgage provision, it is almost certain that defendants could not have fared any better on that score with another lender. However, even though the mortgage can be characterized as a contract of adhesion with respect to paragraph 17, this does not mean paragraph 17 is automatically unconscionable.
- case357 N.W.2d 613Home Federal Savings & Loan Ass'n of Algona v. CampneyIowadecided 1984read it at the source ↗
The words that state the rule
In view of the widespread use of due-on-sale clauses and the fact that their use by federal saving and loan associations is specifically authorized by the federal government, see 12 CFR § 545.8-3 (f) (1982), we conclude paragraph 17 is well outside the reach of this statement of the unconscionability doctrine.
- case357 N.W.2d 613Home Federal Savings & Loan Ass'n of Algona v. CampneyIowadecided 1984read it at the source ↗
The words that state the rule
More is required to complete the case for unconscionability, and we are not satisfied that the case has been made here.
- case357 N.W.2d 613Home Federal Savings & Loan Ass'n of Algona v. CampneyIowadecided 1984read it at the source ↗
The words that state the rule
We have also stated that a bargain is unconscionable if it is such as no person in *620 his or her senses and not under delusion would make on the one hand, and as no honest and fair person would accept on the other.
- case357 N.W.2d 613Home Federal Savings & Loan Ass'n of Algona v. CampneyIowadecided 1984read it at the source ↗
The words that state the rule
With regard to assent, defendants point out that because they did not read the mortgage before signing it, they cannot be said to have actually assented to paragraph 17. This is true, but does not end our inquiry.
- case357 N.W.2d 613Home Federal Savings & Loan Ass'n of Algona v. CampneyIowadecided 1984read it at the source ↗
The words that state the rule
It is true that plaintiff did not give defendants specific notice that the mortgage contained a due-on-sale clause. But on this record we are unwilling to impose upon plaintiff the quasi-fiduciary duty of giving notice to defendants of every provision in the mortgage that might eventually prove disadvantageous to them. Our conclusion might be different had plaintiff stated or implied that there was no due-on-sale clause in the mortgage, or if defendants had not been afforded a fair opportunity to read it and consult an attorney about it.
- statuteIowa Code § 537.5108enactment date not established
The words that state the rule
With respect to a transaction that is, gives rise to, or leads the debtor to believe it will give rise to a consumer credit transaction, in an action other than a class action, if the court as a matter of law finds the agreement or transaction to have been unconscionable at the time it was made, or to have been induced by unconscionable conduct, the court may refuse to enforce the agreement, or if the court finds any term or part of the agreement or transaction to have been unconscionable at the time it was made, the court may refuse to enforce the agreement, or may enforce the remainder of the agreement without the unconscionable term or part, or may so limit the application of any unconscionable term or part as to avoid any unconscionable result.
- statuteIowa Code § 537.5108enactment date not established
The words that state the rule
For the purpose of this section, a charge or practice expressly permitted by this chapter is not in itself unconscionable.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.