Fit for Its Ordinary Purpose: Implied Warranties and Common Law Duties for Consumer Finance Contracts
Abstract
The history of consumer goods and consumer credit markets presents an anomaly: market transactions for consumer goods and credit transactions evolved in tandem, from face-to-face and bespoke to standardized and widely distributed; the law governing these twin "product" markets has not. With consumer goods, the Uniform Commercial Code codifies implied warranties of merchantability and fitness for a particular purpose and the common law of tort provides strict liability for defective products. By contrast, with consumer finance contracts, borrowers enjoy scant common law protection, even though both consumer goods and consumer contracts maybe be dangerously defective "products."
This Article reconsiders the traditional, all-or-nothing choice between tort and contract law to govern injury from different sorts of consumer products. It argues for a symmetric treatment of defective consumer goods and consumer financial products, by enlisting the tort-like doctrines in the common law of contract: the doctrines of unconscionability; good faith; and warranty. The terms of an adhesive financial contract can and should be interpreted in light of an implied warranty that the contract-as-product is as described. The defense of unconscionability should be strengthened to enable enhanced scrutiny of terms that fundamentally undermine contractual products. Its procedural prong should be satisfied by the adhesive nature of the terms, without additional proof of the circumstances of a consumer's surprise about the contents of the contract. The substantive prong should be informed by implied obligations of good faith and the implication that this contract-as-product is fit for ordinary and particular purposes- that it is faithful to the underlying transaction. Attempts by lenders to disclaim implied warranties or obligations of good faith should be viewed as prima facie unconscionable.
In this way, the law governing consumer-contracts-as-products would serve the same function as the product liability and warranty laws that govern consumer-goods-as-products. Reconciliation of these laws would ensure that financial contracts are fit for their ordinary purposes as loans.
