PROBLEMS WITH STANDARD FORM CONTRACTS

Question 1

C&J Fertilizer

Answer 1

Insurance policy against burglary at chemical plant. Provision that requires outside markings on the door for successful claim. Fertilizer plant was robbed, no outside markings (there were inside markings). Insurance Co. denied claim.

a) Insurance contracts are to be interpreted against insurance companies (cost-spreading, big guy vs. little guy, etc.)—contra proferentum
b) Insurance company loses under RS 211 because the company indicated surprise at the language in the policy, if the company doesn’t know the language, it had to have known the policy-holder didn’t know.
c) This case turns on “reasonable expectations”—he expected to be covered in a situation like this.
d) If a party issues a standardized contract with a term that he reasonably knows or should know would often preclude the other party from agreeing to the contract, that term will be disregarded

e) PROF: This is really about unconscionability.

f) In common law, there is generally a duty to read imposed because an outward manifestation of accepting contractual provisions (i.e. signing a written contract), creates a binding contract
g) Under standard form contracts, the duty to read is lessened because we are aware of the reality that most people will not read the contracts mass produced by corporations

Question 2

Restatement Section 211

Answer 2

(C&J Fertilizer)

Standardized Agreements

Question 3

Procedural Unconscionability

Answer 3

Burying something in the fine print.

Question 4

Substantive Unconscionability

Answer 4

Unfairness in a contract that is the result of excessively oppressive or harsh terms in the contract.