Cowin Equipment Co., Inc. v. General Motors Corp., 83-7041

• Decision Date: 29 June 1984
• Docket Number: No. 83-7041,83-7041
• Parties: 38 UCC Rep.Serv. 1565 COWIN EQUIPMENT COMPANY, INC. etc., Plaintiff-Appellee, v. GENERAL MOTORS CORPORATION, etc., Defendant-Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1581

734 F.2d 1581

38 UCC Rep.Serv. 1565

COWIN EQUIPMENT COMPANY, INC. etc., Plaintiff-Appellee, v. GENERAL MOTORS CORPORATION, etc., Defendant-Appellant.

No. 83-7041.

United States Court of Appeals, Eleventh Circuit.

June 29, 1984.

Charles L. Robinson, Johnston, Barton, Proctor, Swedlaw & Naff, Birmingham, Ala., Carol Lesnek Cooper, Detroit, Mich., for defendant-appellant.

Frank Hilton-Green Tomlinson, Madison W. O'Kelley, Jr., Birmingham, Ala., for plaintiff-appellee.

Appeal from the United States District Court for the Northern District of Alabama.

Before GODBOLD, Chief Judge, RONEY and KRAVITCH, Circuit Judges.

RONEY, Circuit Judge:

Plaintiff Cowin Equipment Co., Inc. sued General Motors Corporation (GMC) for damages on the ground that the terms of its dealer sales and service agreement were unconscionable under Sec. 2-302 of the Uniform Commercial Code. The district court held the provision was unconscionable as a matter of law and denied defendant's motion for summary judgment. We granted leave to appeal on the district court's 1292(b) certificate. 28 U.S.C.A. Sec. 1292(b). We reverse on the ground that U.C.C. Sec. 2-302, which concerns unconscionable contracts, does not create a cause of action for damages.

This is a diversity case. The agreement indicated that Ohio law would apply. The district court applied Alabama law. The parties do not contend there is any difference between Ohio law and Alabama law. Alabama and Ohio have adopted substantially identical versions of the Uniform Commercial Code (U.C.C.) provisions which are cited in this opinion. See Ala.Code Sec. 7-2-302; Ohio Rev.Code Ann. Sec. 1302.15. Consequently, we will refer to the applicable U.C.C. provisions without additional reference to their Alabama or Ohio statutory counterparts.

Briefly, the facts are as follows: In early 1978, GMC and its dealers anticipated an increase in demand for Terex heavy equipment, which GMC manufactured and Cowin sold. GMC responded by instituting a "Planned Distribution Program" (PDP), which modified the former agreement between the parties by requiring Cowin and other dealers handling Terex equipment to place non-cancellable orders in advance for equipment to be shipped between September 1, 1978 and August 1, 1979. Formerly GMC had permitted liberal cancellation, although the terms of its agreement with its dealers provided for cancellation only upon written notice received ninety days prior to the date of scheduled assembly "unless otherwise agreed at the time an order is submitted by dealer and accepted by Terex."

Cowin ordered forty-four machines in the months following. Due to a downturn in the economy, however, Cowin later attempted to cancel some of the orders. GMC refused to permit cancellation and delivered all of the machines as ordered, leaving Cowin with excess inventory. Cowin sued in December, 1980 seeking damages on grounds that the PDP terms were unconscionable. Specifically, plaintiff sought compensation for (1) interest incurred on loans necessary in order to buy equipment which defendant would not allow cancellation on; (2) insurance on the equipment; (3) storage and maintenance fees on the equipment; (4) loss incurred from sale of certain equipment sold for less than its purchase price.

The district court viewed the case as a "Uniform Commercial Code unconscionability action for damages" based on what it found to be unconscionable terms in the sales and service agreement between the parties. Our review of the Code provisions and the relevant cases persuades us that U.C.C. Sec. 2-302 was not intended to create a cause of action, and cannot be used as a basis for damages in the instant case.

The language of Sec. 2-302 and the Official Comment which follows it make no mention of damages as an available remedy for an unconscionable contract. This is consistent with traditional common law unconscionability theory. When the equity courts found contracts to be unconscionable, they refused specific enforcement. See J. White and R. Summers, Uniform Commercial Code, Sec. 4-2 at 113, and Sec. 4-8 at 130 (1972) (citing Earl of Chesterfield v. Janssen, 28 Eng.Rep. 82 (Ch. 1750)). The remedies available to modern courts under Sec. 2-302 are of similar equitable nature:

(1) 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.

U.C.C. Sec. 2-302 (1983).

No case has been cited in which a damage award was based on an unconscionable contract. Although apparently not decided in either Alabama or Ohio courts, the cases which have addressed the issue have consistently rejected the theory that damages may be collected for an unconscionable contract provision, citing the language of Sec. 2-302 and its common law precursor to demonstrate that Sec. 2-302 was not intended to provide a basis for damage recovery. See, e.g., Bennett v. Behring Corp., 466 F.Supp. 689, 700 (S.D.Fla.1979).

(the equitable theory of unconscionability has never been utilized to allow for the affirmative recovery of money damages. The Court finds that neither the common law of Florida, nor that of any other state, empowers a court addressing allegations of unconscionability to do more than refuse enforcement of the unconscionable section or sections of the contract so as to avoid an unconscionable result.)

(citations omitted); Whitman v. Connecticut Bank and Trust Co., 400 F.Supp. 1341, 1346 (D.Conn.1975) ("The 'unconscionability' provision of the Uniform Commercial Code ... carries no provision for damages; the remedy it provides is express."); Pearson v. National Budgeting Systems, Inc., 297 N.Y.S.2d 59, 31 A.D.2d 792 (N.Y.App.Div.1969) ("Section 2-302 of the Uniform Commercial Code does not provide any damages to a party who enters into an unconscionable contract."); Vom Lehn v. Astor Art Galleries, Ltd., 86 Misc.2d 1, 380 N.Y.S.2d 532, 541 (N.Y.Sup.Ct.1976) ("U.C.C. Sec. 2-302 ... makes no provision for damages, and none may be recovered thereunder."). See also 2 R. Anderson, Uniform Commercial Code Sec. 2-302:102 (3d ed. 1982) ("...