Weaver v. American Oil Co.

• Decision Date: 03 December 1971
• Docket Number: No. 1271S350,1271S350
• Citation: 49 A.L.R.3d 306,257 Ind. 458,276 N.E.2d 144
• Parties: , 49 A.L.R.3d 306 Howard WEAVER, Appellant, v. AMERICAN OIL COMPANY and Homer Hoffer, Appellees.
• Court: Indiana Supreme Court

Page 144

276 N.E.2d 144

257 Ind. 458, 49 A.L.R.3d 306

Howard WEAVER, Appellant, v. AMERICAN OIL COMPANY and Homer Hoffer, Appellees.

No. 1271S350.

Supreme Court of Indiana.

Dec. 3, 1971.

Rehearing Denied Jan. 21, 1972.

Byron C. Kennedy, Herbert H. Bent, Warsaw, for appellant.

Arthur A. May, Crumpacker, May, Levy & Searer, South Bend, for appellees.

ARTERBURN, Chief Justice.

In this case the appellee oil company presented to the appellant-defendant leasee, a filling station operator, a printed form contract as a lease to be signed, by the defendant, which contained, in addition to the normal leasing provisions, a 'hold harmless' clause which provided in substance that the leasee operator would hold harmless and also indemnify the oil company for any negligence of the oil company occurring on the leased premises. The litigation arises as a result of the oil company's own employee spraying gasoline over Weaver and his assistant and causing them to be burned and injured on the leased premises. This action was initiated by American Oil and Hoffer (Appellees) for a declaratory judgment to determine the liability of appellant Weaver, under the clause in the lease. The trial court entered judgment holding Weaver liable under the lease.

Clause three (3) of the lease reads as follows:

'Lessor, its agents and employees shall not be liable for any loss, damage, injuries, or other casualty of whatsoever kind or by whomsoever caused to the person or property of anyone (including Lessee) on or off the premises, arising out of or resulting from Lessee's use, possession or operation thereof, or from defects in the premises whether apparent or hidden, or from the installation existence, use, maintenance, condition, repair, alteration, removal or replacement of any equipment thereon, whether due in whole or in part to negligent acts or omissions of Lessor, its agents or employees; and Lessee for himself, his heirs, executors, administrators, successors and assigns, hereby agrees to indemnify and hold Lessor, its agents and employees, harmless from and against all claims, demands, liabilities, suits or actions (including all reasonable expenses and attorneys' fees incurred by or imposed on the Lessor in connection therewith) for such loss, damage, injury or other casualty. Lessee also agrees to pay all reasonable expenses and attorneys' fees incurred by Lessor in the event that Lessee shall default under the provisions of this paragraph.'

It will be noted that this lease clause not only exculpated the leasor oil company from its liability for its negligence, but also compelled Weaver to indemnify them for any damages or loss incurred as a result of its negligence. The appellate court held the exculpatory clause invalid, 261 N.E.2d 99, but the indemnifying clause valid, 262 N.E.2d 663. In our opinion, both these provisions must be read together since one may be used to effectuate the result obtained through the other. We find no ground for any distinction and we therefore grant the petition to transfer the appeal to this court.

This is a contract, which was submitted (already in printed form) to a party with lesser bargaining power. As in this case, it may contain unconscionable or unknown provisions which are in fine print. Such is the case now before this court.

The facts reveal that Weaver had left high school after one and a half years and spent his time, prior to leasing the service station, working at various skilled and unskilled labor oriented jobs. He was not one who should be expected to know the law or understand the meaning of technical terms. The ceremonious activity of signing the lease consisted of nothing more than the agent of American Oil placing the lease in front of Mr. Weaver and saying 'sign', which Mr. Weaver did. There is nothing in the record to indicate that Weaver read the lease; that the agent asked Weaver to read it; or that the agent, in any manner, attempted to call Weaver's attention to the 'hold harmless' clause in the lease. Each year following, the procedure was the same. A salesman, from American Oil, would bring the lease to Weaver, at the station, and Weaver would sign it. The evidence showed that Weaver had never read the lease prior to signing and that the clauses in the lease were never explained to him in a manner from which he could grasp their legal significance. The leases were prepared by the attorneys of American Oil Company, for the American Oil Company, and the agents of the American Oil Company never attempted to explain the conditions of the lease nor did they advise Weaver that he should consult legal counsel, before signing the lease. The superior bargaining power of American Oil is patently obvious and the significance of Weaver's signature upon the legal document amounted to nothing more than a mere formality to Weaver for the substantial protection of American Oil.

Had this case involved the sale of goods it would have been termed an 'unconscionable contract' under sec. 2--302 of the Uniform Commercial Code as found in Burns' Ind.Stat. sec. 19--2--302, IC 1971, 26--1--2--302. The statute reads as follows:

'19--2--302. Unconscionable contract or clause.--If the court as a matter of law find 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.

(2) 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. (Acts 1963, ch. 317, sec. 2--302 p. 539)'

According to the Comment to Official Text, the basic test of unconscionability is whether, in light of the general commercial background and the commercial needs of the particular trade or case, the clauses involved are so one-sided as to be unconscionable under the circumstances existing at the time of the making of the contract. Subsection two makes it clear that it is proper for the court to hear evidence upon these questions.

'An 'unconscionable contract' has been defined to be such as no sensible man not under delusion, duress or in distress would make, and such as no honest and fair man would accept. There exists here an 'inequality so strong, gross and manifest that it is impossible to state it to a man of common sense without producing an exclamation at the inequality of it.' 'Where the inadequacy of the price is so great that the mind revolts at it the court will lay hold on the slightest circumstances of oppression or advantage to rescind the contract."

'It is not the policy of the law to restrict business dealings or to relieve a party of his own mistakes of judgment, but where one party has taken advantage of another's necessities and distress to obtain an unfair advantage over him, and the latter, owing to his condition, has encumbered himself with a heavy liability or an onerous obligation for the sake of a small or inadequate present gain, there will be relief granted.' Stiefler v. McCullough (1933), 97 Ind.App. 123, 174 N.E. 823.

The facts of this case reveal that in exchange for a contract which, if the clause in question is enforceable, may cost Mr. Weaver potentially thousands of dollars in damages for negligence of which he was not the cause, Weaver must operate the service station seven days a week for long hours, at a total yearly income of $5,000--$6,000. The evidence also reveals that the clause was in fine print and contained no title heading which would have identified it as an indemnity clause. It seems a deplorable abuse of justice to hold a man of poor education, to a contract prepared by the attorneys of American Oil, for the benefit of American Oil which was presented to Weaver on a 'take it or leave it basis'.

Justice Frankfurther of the United States Supreme Court spoke on the question of imequality of bargaining power in his dissenting opinion in United States v. Bethlehem Steel Corp. (1942), 315 U.S. 289, 326, 62 S.Ct. 581, 599, 86 L.Ed. 855, 876.

'(I)t is said that familiar principles would be outraged if Bethlehem were denied recovery on these contracts. But is there any principle which is more familiar or more firmly embedded in the history of Anglo-American law than the basic doctrine that the courts will not permit themselves to be used as instruments of inequity and injustice? Does any principle in our law have more universal application than the doctrine that courts will not enforce transactions in which the relative positions of the parties are such that one has unconscionably taken advantage of the necessities of the other?'

'These principles are not foreign to the law of contracts. Fraud and physical duress are not the only grounds upon which courts refuse to enforce contracts. The law is not so primitive that it sanctions every injustice except brute force and downright fraud. More specifically, the courts generally refuse to lend themselves to the enforcement of a 'bargain' in which one party has unjustly taken advantage of the economic necessities of the other. * * *'

The traditional contract is the result of free bargaining of parties who are brought together by the play of the market, and who meet each other on a footing of approximate economic equality. In such a society there is no danger that freedom of contract will be a threat to the social order as a whole. But in present-day commercial life the standardized mass contract has appeared. It is used primarily by enterprises with strong bargaining power and position. The weaker party, in need of the good or services, is frequently not in a position to shop around for better terms, either because the author of the standard...