Court Opinion

ID: 5834580
Source: CourtListenerOpinion
Date Created: 2022-01-12 22:34:46.812855+00
Date Added: 2024-06-11T08:43:33.765574
License: Public Domain

— Order and judgment *860(one paper), Supreme Court, New York County, entered February 6, 1979, which granted an application of the Attorney-General for an injunction prohibiting use of a certain security clause in respondent’s loan agreement, affirmed, without costs or disbursements. Following a consumer complaint, the Attorney-General conducted an investigation into the alleged use by appellant (Avco) of a security clause in its loan agreement. As a result, he instituted this proceeding under subdivision 12 of section 63 of the Executive Law, to enjoin as fraudulent and illegal, the persistent use of the clause. Avco is a licensed lender under article 9 of the Banking Law. The clause in question granted Avco a security interest in collateral consisting of "all household goods, furniture, appliances and consumer goods of every kind and description owned at the time of the loan secured thereby”. It is undisputed that some or all of the articles in question are household goods which would be exempt from application to the satisfaction of a money judgment except under conditions not here germane (CPLR 5205). Section 9-501 et seq. of the Uniform Commercial Code deals with the rights of a secured creditor against a defaulting debtor. Section 9-503 of the Uniform Commercial Code provides for the right of "repossession” upon the debtor’s default without resort to judicial process. Thus, we are faced with the anomalous situation where a secured creditor enjoys a right to "repossess” his debtor’s household goods, a right not given to a judgment creditor armed with execution. Consumer credit transactions occupy a unique position in our scale of social values. Rare, indeed, is the debtor involved in such a transaction who possesses any real bargaining power in regard to the terms of the loan. He is usually a marginal credit risk, often totally dependent upon finance companies for his credit needs and without power to make any meaningful choice in the terms of the security agreement he is required to sign in order to obtain the loan. In these circumstances, it becomes the function of the court to scrutinize carefully the terms of the agreement presented to him for signature to determine whether or not it is unconscionable. The concept that the court may invalidate a contract by reason of unconscionability is not new to our law. It is specifically provided by statute in connection with sales contracts (Uniform Commercial Code, § 2-302). In at least one situation, it has been applied, by analogy, to the landlord-tenant relationship (Seabrook v Commuter Housing Co., 72 Misc 2d 6). It is equally applicable here. "Whether a contract or any clause of the contract is unconscionable is a matter for the court to decide against the background of the contract’s commercial setting, purpose and effect” (Wilson Trading Corp. v David Ferguson, Ltd., 23 NY2d 398, 403). It is applicable in situations which manifest "unequal bargaining powers and the absence of a meaningful choice on the part of one of the parties, together with contract terms which unreasonably favor the other party” (Seabrook v Commuter Housing Co., supra, p 11; see, also, Williams v Walker-Thomas Furniture Co., 350 F2d 445). Here, the inequality of bargaining position and the granting to the creditor of enforcement rights greater than those which the law confers upon a judgment creditor armed with execution, lead inevitably to the conclusion that the absence of choice on the part of the debtor left him with no recourse but to grant to his creditor rights which, in good conscience, the law should not enforce. Concur—Kupferman, J. P., Sandler, Bloom and Ross, JJ.