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and located them, it contacted the former homeowners and agreed to make recovery of the surpluses
while promising the former owners compensation sometimes stated to be $50 and sometimes stated to be
50% of the recovery. In the case before the court, the agreement “would have the defendant pay
approximately $7,000 to Unclaimed for a service she could have obtained for free,” the court noted.

Affirming the trial court’s refusal to enforce the contract, the First District noted that an
unconscionability defense may raise either procedural or substantive issues or both. “Procedural
unconscionability refers to a situation where a term is so difficult to find, read, or understand that
the (party) cannot fairly be said to have been aware (she) was agreeing to it, and also takes into
account a lack of bargaining power,” the court said. “Substantive unconscionability refers to
those terms which are inordinately one-sided in one party’s favor.”

Supporting an argument for procedural unconscionability in the Crown Mortgage case were the
“obvious inequality in the parties’ abilities to understand the transaction,” a “vast discrepancy in bargaining
power between the defendant, a widowed woman with limited education and apparently limited means,
and Unclaimed, a company with sufficient resources to send a notary to the . . . residence to obtain her
signature on a contract it devised,” and the fact that she was offered no opportunity to change the contract
which Unclaimed proposed.

However, the court said those facts “might be insufficient to invalidate” the
contract if it had not been substantively unconscionable also. Focusing on the
$7,000 fee for a service that could have been accomplished for free, the court said
there was a “gaping cost-price disparity in this agreement” which Unclaimed on appeal
failed to address. Citing Supreme Court precedent, it said these terms “epitomize the
‘overall imbalance in the obligations and rights imposed by (a) bargain, and significant
cost-price disparity’ . . . that defines [sic] substantive unconscionability.”

Non-Reliance Clauses Prove Effective Defense to Fraud Claims

Non-reliance clauses are proving to be effective defenses to claims of fraud in the formation of
contracts.

Such clauses are similar to but importantly distinguishable from the “merger” or “integration” clauses
that long have been used in contracts. Where the traditional clause says the parties have not agreed on
any terms not stated in the document, the non-reliance clause goes further: it says each party has not
relied upon any representation, not contained in the contract, in entering into same.

The distinction is important, because if a contract is allegedly procured by fraud, the
traditional merger clause goes out the window with it. But justifiable reliance is a
requirement for a fraud claim, so an up-front statement that the party has not relied on
any representations not contained in the document effectively cuts off a fraud claim that
may be raised later. See Schrager v. Bailey, 2012 IL App (1st) 111943; Greer v.
Advanced Equities, Inc., 2012 IL App (1st) 112458. Compare In re Pilgrim’s Pride Corp.,
706 F.3d 636 (5th Cir. 2013).

But don’t expect a non-reliance clause to function as a cure for poor draftsmanship. Holding that a
non-reliance clause is ineffective to bar parol evidence as to the intent or meaning of an ambiguous
contract term, see In re Peregrine Fin. Group, Inc., 487 B.R. 498 (Bankr. N.D. Ill. 2013).

John\SharpThinking\#92.doc.
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