Howard Weaver v. American Oil Co. and Homer Hoffer

Case brief: template

Case name:	Howard Weaver v. American Oil Co. and Homer Hoffer
Court:	SUPREME COURT OF INDIANA
Citation; Date:	257 Ind. 458; 276 N.E.2d 144; 1971

PROCEDURAL HISTORY
Trial court:		Appeal court (for appeal cases only):
Plaintiff:	American Oil Co. and Homer Hoffer	Appellant:	Howard Weaver
Defendant:	Howard Weaver	Respondent:	American Oil Co. and Homer Hoffer

Facts of the case:
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.

Remedy sought:

Court opinion (including key issues and arguments):
It will be noted that this lease clause not only exculpated the lessor 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, but the indemnifying clause valid. 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 the 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. 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. 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-side 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 of the inequality of it.' 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". The parole evidence rule states that an agreement or contract, signed by the parties, is conclusively presumed to represent an integration or meeting of the minds of the parties. This is an archaic rule from the old common law. The objectivity of the rule has as its only merit its simplicity of application which is far outweighed by its failure in many cases to represent the actual agreement, particularly where a printed form prepared by one party contains hidden clauses unknown to the other party is submitted and signed. The law should seek the truth or the subjective understanding of the parties in this more enlightened age. The burden should be on the party submitting such "a package" in printed form to show that the other party had knowledge of any unusual or unconscionable terms contained therein. When a party can show that the contract, which is sought to be enforced, was in fact an unconscionable one, due to a prodigious amount of bargaining power on behalf of the stronger party, which is used to the stronger party's advantage and is unknown to the lesser party, causing a great hardship and risk on the lesser party, the contract provision, or the contract as a whole, if the provision is not separable, should not be enforceable on the grounds that the provision is contrary to public policy. DISSENT: The facts as found, are that although the defendant never read the lease, he had ample opportunity to do so and to obtain counsel. A general rule in effect not only in Indiana but elsewhere, is that a person who signs a contract, without bothering to read the same, will be bound by its terms. Without regard to whether or not he was aware of its contents, a person will be relieved of his obligations under a contract under circumstances falling into two main categories: (1) where the contract is not enforceable because of occurrences or omissions (fraud, concealment, etc.) surrounding its execution and where (2) the contract is not enforceable because of the nature or subject of the contract (illegality of subject matter). The Appellate Court would have us recognize a third category and excuse performance, at least as to harsh provisions, without a showing that he was aware of and understood the contract provisions and their implications, with the burden of proof upon such issues to vary depending upon the relative bargaining positions of the parties. The objective of such a rule is laudable, but I think it, nevertheless, totally unworkable. Whether or not the contract was "understandingly entered into" by Defendant, we, of course, cannot say; but we see nothing to indicate that he was deprived of the opportunity to understand it by any acts or omissions of American.... Under such a rule, the less one knew of the provisions of the written contract which he executed, the better would be his position in the event of later dissatisfaction. I hold no special interest in preserving the policy of enforcing indemnity and exculpatory contracts. It may well be that they should be greatly curtailed. But the majority opinion does not hold. Defendant's dilemma does not spring from an unconscionable advantage taken of him either by deceit of American or by virtue of a superior bargaining position. It clearly stems from either an unwillingness or indifference upon his part to utilize the resources available to him or from a willingness to assume the risks in exchange for the rewards that he hoped to gain. Presumably he has had the benefits contracted for, and the majority decision is a grant of retrospective unilateral contractual immunity to the careless and speculative and places a premium upon ignorance.

Disposition of case:
The appeal is transferred to this court and the judgment of the trial court is reversed with direction to enter judgment for the appellant.

ECONOMIC ANALYSIS OF THE CASE

Efficiency/incentive issues discussed in the court opinion:

Other efficiency/incentive issues relevant to the case:

Assessment of the economic consequences of the court decision:

Poses an interesting trade-off: Benefit of deterring unconscionable contracts and terms against benefits of providing an incentive to actually read contracts over.