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Maxwell v. Fid. Fin. Servs. - 184 Ariz. 82, 907 P.2d 51 (1995)

Rule:

Substantive unconscionability concerns the actual terms of the contract and examines the relative fairness of the obligations assumed. Indicative of substantive unconscionability are contract terms so one-sided as to oppress or unfairly surprise an innocent party, an overall imbalance in the obligations and rights imposed by the bargain, and significant cost-price disparity.

Facts:

Elizabeth Maxwell bought a solar water heater that subsequently was declared a hazard and condemned. Fidelity Financial Services, Inc. (Fidelity) provided financing under two contracts for loans totaling $17,000 or nearly half the value of her home. Maxwell sought to declare the first contract unconscionable and unenforceable. The court of appeals affirmed the trial court's grant of summary judgment for Fidelity and holding that the doctrine of novation barred Maxwell’s claim that her contract was unconscionable and, therefore, enforceable. Maxwell appealed to the Supreme Court of Arizona.

Issue:

Did the court of appeals err in affirming the trial court's grant of summary judgment for Fidelity and holding that the doctrine of novation barred Maxwell’s claim that her contract was unconscionable and, therefore, enforceable?

Answer:

Yes

Conclusion:

The Supreme Court of Arizona vacated the state appellate court's opinion and reversed the summary judgment because it did not address the fundamental question of unconscionability as required by statute. The court refused to hold the contracts unconscionable as a matter of law because Fidelity did not have a meaningful opportunity to present evidence on the commercial setting, purpose, and effect of the earlier contract, as required by Ariz. Rev. Stat. § 47-2302. The court had to first determine whether the underlying contract was unconscionable before it could determine if the second contract was a valid novation. The court held that if found unconscionable, the contracts were invalid for purposes of novation.

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