Opinion ID: 1153673
Heading Depth: 2
Heading Rank: 2

Heading: Plaintiff's second cause of action: whether the bank's NSF charges are oppressive, unreasonable, or unconscionable.

Text: (6a) Plaintiff's second cause of action alleges that the signature card is drafted by defendant bank which enjoys a superior bargaining position by reason of its greater economic power, knowledge, experience and resources. Depositors have no alternative but to acquiesce in the relationship as offered by defendant or to accept a similar arrangement with another bank. [7] The complaint alleges that the card is vague and uncertain, that it is unclear whether it is intended as an identification card or a contract, that it imposes no obligation upon the bank, and permits the bank to alter or terminate the relationship at any time. [8] It then asserts that The disparity between the actual cost to defendants and the amount charged by defendants for processing an NSF check unreasonably and oppressively imposes excessive and unfair liability upon plaintiffs. Plaintiff seeks a declaratory judgment to determine the rights and duties of the parties. Plaintiff's allegations point to the conclusion that the signature card, if it is a contract, is one of adhesion. (7) The term contract of adhesion signifies a standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it. ( Neal v. State Farm Ins. Co. (1961) 188 Cal. App.2d 690, 694 [10 Cal. Rptr. 781]; Graham v. Scissor-Tail, Inc. (1981) 28 Cal.3d 807, 817 [171 Cal. Rptr. 604, 623 P.2d 165].) The signature card, drafted by the bank and offered to the customer without negotiation, is a classic example of a contract of adhesion; the bank concedes as much. In Graham v. Scissor-Tail, Inc., supra, 28 Cal.3d 807, we observed that To describe a contract as adhesive in character is not to indicate its legal effect.... (8) [A] contract of adhesion is fully enforceable according to its terms [citations] unless certain other factors are present which, under established legal rules  legislative or judicial  operate to render it otherwise. (Pp. 819-820, fn. omitted.) Generally speaking, we explained, there are two judicially imposed limitations on the enforcement of adhesion contracts or provisions thereof. The first is that such a contract or provision which does not fall within the reasonable expectations of the weaker or `adhering' party will not be enforced against him. [Citations.] The second  a principle of equity applicable to all contracts generally  is that a contract or provision, even if consistent with the reasonable expectations of the parties, will be denied enforcement if, considered in its context, it is unduly oppressive or `unconscionable.' (P. 820, fns. omitted.) [9] In 1979, the Legislature enacted Civil Code section 1670.5, which codified the established doctrine that a court can refuse to enforce an unconscionable provision in a contract. [10] Section 1670.5 reads as follows: (a) 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. [¶] (b) 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. In construing this section, we cannot go so far as plaintiff, who contends that even a conclusory allegation of unconscionability requires an evidentiary hearing. We do view the section, however, as legislative recognition that a claim of unconscionability often cannot be determined merely by examining the face of the contract, but will require inquiry into its setting, purpose, and effect. (1b) (See fn. 11.), (6b) Plaintiff bases his claim of unconscionability on the alleged 2,000 percent differential between the NSF charge of $6 and the alleged cost to the bank of $0.30. [11] The parties have cited numerous cases on whether the price of an item can be so excessive as to be unconscionable. The cited cases are from other jurisdictions, often from trial courts or intermediate appellate courts, and none is truly authoritative on the issue. Taken together, however, they provide a useful guide to analysis of the claim that a price is so excessive as to be unconscionable. (9) To begin with, it is clear that the price term, like any other term in a contract, may be unconscionable. ( Patterson v. Walker-Thomas Furniture Co. (D.C.Ct.App. 1971) 277 A.2d 111, 113 and cases there cited (fn. 6); see Central Budget Corp. v. Sanchez (1967) 53 Misc.2d 620 [279 N.Y.S.2d 391, 392]; Merrel v. Research & Data, Inc., (1979) 3 Kan. App.2d 48 [589 P.2d 120, 123] (dictum); Vom Lehn v. Astor Art Galleries, Ltd. (1976) 86 Misc.2d 1 [380 N.Y.S.2d 532, 541].) Allegations that the price exceeds cost or fair value, standing alone, do not state a cause of action. ( Morris v. Capitol Furniture Co. (App.D.C. 1971) 280 A.2d 775 [100 percent markup over cost]; Patterson v. Walker-Thomas Furniture Co., supra, 277 A.2d 111, 114 [price alleged to be in excess of fair value]; Bennett v. Behring Corp. (S.D.Fla. 1979) 466 F. Supp. 689, 696-698 [price in excess of value].) Instead, plaintiff's case will turn upon further allegations and proof setting forth the circumstances of the transaction. The courts look to the basis and justification for the price (cf. A & M Produce Co. v. FMC Corp., supra, 135 Cal. App.3d 473, 487), including the price actually being paid by ... other similarly situated consumers in a similar transaction. ( Bennett v. Behring Corp., supra, 466 F. Supp. 689, 697, italics omitted.) The cases, however, do not support defendant's contention that a price equal to the market price cannot be held unconscionable. While it is unlikely that a court would find a price set by a freely competitive market to be unconscionable (see Bradford v. Plains Cotton Cooperative Assn. (10th Cir.1976) 539 F.2d 1249, 1255 [cotton futures]), the market price set by an oligopoly should not be immune from scrutiny. Thus courts consider not only the market price, but also the cost of the goods or services to the seller ( Frostifresh Corporation v. Reynoso (1966) 52 Misc.2d 26 [274 N.Y.S.2d 757]; Toker v. Westerman (1970) 113 N.J. Super. 452 [274 A.2d 78]), the inconvenience imposed on the seller (see Merrel v. Research & Data, Inc., supra, 589 P.2d 120, 123), and the true value of the product or service ( American Home Improvements, Inc. v. MacIver (1964) 105 N.H. 435 [201 A.2d 886, 889]). (10) In addition to the price justification, decisions examine what Justice Weiner in A & M Produce called the procedural aspects of unconscionability. (See A & M Produce Co., supra, 135 Cal. App.3d at p. 489.) Cases may turn on the absence of meaningful choice ( Patterson v. Walker-Thomas Furniture Co., supra, 277 A.2d 111, 113 and cases there cited), the lack of sophistication of the buyer (compare Geldermann & Co., Inc. v. Lane Processing, Inc. (8th Cir.1975) 527 F.2d 571, 576 [relief denied to sophisticated investor]) with Frostifresh Corporation v. Reynoso, supra, 274 N.Y.S.2d 757 [relief granted to unsophisticated buyers]) and the presence of deceptive practices by the seller ( ibid.; Vom Lehn v. Astor Art Galleries, Ltd., supra, 380 N.Y.S.2d 532). (6c) Applying this analysis to our review of the complaint at hand, we cannot endorse defendant's argument that the $6 charge is so obviously reasonable that no inquiry into its basis or justification is necessary. [12] In 1978 $6 for processing NSF checks may not seem exorbitant, [13] but price alone is not a reliable guide. Small charges applied to a large volume of transactions may yield a sizable sum. The complaint asserts that the cost of processing NSF checks is only $0.30 per check, which means that a $6 charge would produce a 2,000 percent profit; even at the higher cost estimate of $1 a check mentioned in plaintiff's petition for hearing, the profit is 600 percent. [14] Such profit percentages may not be automatically unconscionable, but they indicate the need for further inquiry. [15] Other aspects of the transaction confirm plaintiff's right to a factual hearing. Defendant presents the depositor with a document which serves at least in part as a handwriting exemplar, and whose contractual character is not obvious. The contractual language appears in print so small that many could not read it. State law may impose obligations on the bank (e.g., the duty to honor a check when the account has sufficient funds ( Allen v. Bank of America, supra, 58 Cal. App.2d 124, 127)), but so far as the signature card drafted by the bank is concerned, the bank has all the rights and the depositor all the duties. The signature card provides that the depositor will be bound by the bank's rules, regulations, practices and charges, but the bank does not furnish the depositor with a copy of the relevant documents. The bank reserves the power to change its practices and fees at any time, subject only to the notice requirements of state law. In short, the bank structured a totally one-sided transaction. The absence of equality of bargaining power, open negotiation, full disclosure, and a contract which fairly sets out the rights and duties of each party demonstrates that the transaction lacks those checks and balances which would inhibit the charging of unconscionable fees. In such a setting, plaintiff's charge that the bank's NSF fee is exorbitant, yielding a profit far in excess of cost, cannot be dismissed on demurrer. Under Civil Code section 1670.5, the parties should be afforded a reasonable opportunity to present evidence as to the commercial setting, purpose, and effect of the signature card and the NSF charge in order to determine whether that charge is unconscionable.