Can we challenge this contract clause as unconscionable under North Dakota law, even outside a sale of goods?
For a sale of goods, N.D.C.C. § 41-02-19 (UCC 2-302) states the test directly: "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." Whether that same section reaches a contract outside the sale of goods is genuinely unsettled: Cook v. Hansen involved a lease exchanging the use of land for the care of cattle, and the North Dakota Supreme Court questioned the section's reach on those facts: "[I]f the trial court were thinking of unconscionability in terms of the Uniform Commercial Code (U.C.C.) and Section 41-02-19, N.D.C.C., we question whether the U.C.C. provision addressing unconscionable contracts is applicable to this situation." The Court went no further, holding only that on that record the reference to unconscionability "was improper" and that "we decline to indulge in further discussion on this point, as it is one more properly addressed by the parties and decided by the court on remand." Outside the Code North Dakota does have a general doctrine, and Strand v. U.S. Bank National Ass'n ND states it for a contract that is not a sale of goods at all: "Unconscionability is a doctrine which allows courts to deny enforcement of a contract because of procedural abuses arising out of the contract's formation and substantive abuses relating to the terms of the contract."
The trap
Section 41-02-19 sits inside Title 41, North Dakota's UCC (it is not a freestanding general unconscionability statute), and Cook v. Hansen shows the state's own Supreme Court has doubted, without definitively resolving, whether the section applies to a contract that is not a sale of goods (there, a land-use-for-cattle-care exchange). A drafter defending or attacking a services, real-property, or other non-goods contract clause should not assume § 41-02-19 supplies the test, but North Dakota is not without one. Strand, answering certified questions about a "no class action" clause in a credit-card arbitration agreement, holds that "[t]he determination whether a particular contractual provision is unconscionable is a question of law for the court" while "the determination of unconscionability is dependent upon the factual circumstances of the case," so courts "consider such claims on a case-by-case basis" and "assess the totality of the circumstances." That fact-specificity is the practical point, and it cuts both ways: because of it the Court was "unable to say that all 'no class action' clauses are unconscionable, or that all such clauses are not unconscionable." Within the UCC itself, § 41-02-19(2) adds a procedural requirement often overlooked: before ruling on unconscionability, "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": a court that rules on unconscionability without that opportunity has skipped a step the statute requires.
9 authorities
- statuteN.D.C.C. § 41-02-19enactment 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.
- statuteN.D.C.C. § 41-02-19enactment 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.
The words that state the rule
In the memorandum decision, the court referred to the possibility of an unconscionable contract as being the impetus for reaching its decision. Under the circumstances, this reference and consideration was improper. First of all, if the trial court were thinking of unconscionability in terms of the Uniform Commercial Code (U.C.C.) and Section 41-02-19, N.D.C.C., we question whether the U.C.C. provision addressing unconscionable contracts is applicable to this situation.
The words that state the rule
The contract in question is a lease provision, exchanging the use of land for the care of cattle. There is an absence of "goods" being sold or exchanged by merchants. From the record, it appears to be more of a "services" contract, one not covered under the U.C.C.
The words that state the rule
Although we agree with the Cooks that a determination of unconscionability, if applicable, is a question of law for the court, Constr. Ass'n, Inc. v. Fargo Water Equip. Co., 446 N.W.2d 237 (N.D.1989), it is our view that the issue should have been considered, if appropriate, only after reasonable opportunity was afforded to present evidence, preferably at a separate hearing, with adequate notice. "Section 41-02-19(2) requires that the parties be afforded a reasonable opportunity to present evidence as to the contract's commercial setting, purpose, and effect to aid the court in making the determination of unconscionability." Farmers Elevator & Mercantile Co. v. Farm Builders, Inc., 432 N.W.2d 864, 869 (N.D.1988).
The words that state the rule
we decline to indulge in further discussion on this point, as it is one more properly addressed by the parties and decided by the court on remand.
The words that state the rule
Unconscionability is a doctrine which allows courts to deny enforcement of a contract because of procedural abuses arising out of the contract’s formation and substantive abuses relating to the terms of the contract. Weber v. Weber, 1999 ND 11, ¶ 11 , 589 N.W.2d 358 .
The words that state the rule
The determination whether a particular contractual provision is unconscionable is a question of law for the court. Knutson v. Knutson, 2002 ND 29, ¶ 16 , 639 N.W.2d 495 ; Terry v. Terry, 2002 ND 2, ¶ 14 , 638 N.W.2d 11 ; Cook v. Hansen, 499 N.W.2d 94, 99 (N.D.1993); Construction Assocs., 446 N.W.2d at 241 . This Court has recognized, however, that the determination of unconscionability is dependent upon the factual circumstances of the case. See Knutson, at ¶ 16; Terry , at ¶ 14; Cook , at 99. Because the determination of unconscionability is fact specific, courts must “consider such claims on a case-by-case basis,” Forsythe v. BancBoston Mortgage Corp., 135 F.3d 1069, 1074 (6th Cir.1997), and assess the totality of the circumstances. 17 C.J.S. Contracts ¶ 4 (1999).
The words that state the rule
Because under North Dakota law the determination of *922 unconscionability is fact specific, we are unable to say that all “no class action” clauses are unconscionable, or that all such clauses are not unconscionable.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.