Gianni Sport Ltd. v. Gantos, Inc.
151 Mich.App. 598, 391 N.W.2d 760 (Mich.App. 1986)
- Gantos submitted a purchase order to Gianni for holiday clothing.
- The order contained a clause saying, “the buyer reserves the right to terminate by notice to seller all of any part of this purchase order with respect to goods that have not been shipped for any reason whatsoever.”
- The contract represented over 20% of Gianni’s business that year, but less than 1% of Gantos’.
- Gantos cancelled the order three months later. Gianni then agreed to a 50% reduction in price if Gantos would accept the goods anyway. Gantos agreed to take the goods at 50% off, but then Gianni had a change of heart and sued on the basis that the second agreement was unconscionable.
- The Trial Court held that the second agreement was invalid because the cancellation clause was unconscionable.
- The Trial Court found that the parties did not have equal bargaining power.
- The Appellate Court affirmed.
- The Appellate Court looked at UCC §2-302 which gives a basic test for unconscionability.
- A contract that allows one party to cancel at any time is clearly unfair, and the Court was unsure if it was even a legal contract.
- The Court found that the last minute cancellation placed the Gianni in the untenable position of absorbing the loss or negotiating a reduced price. This is unconscionable.
- In order for a contract to be held unconscionable, it must both be procedurally unconscionable and substantively unconscionable.
- The case of Cardinal Stone Co. Inc., v. Rival Mfg. Co. had a similar clause, but the Court in that case found that since the two companies had approximately equal bargaining power, the clause was not unconscionable. In this case, Gianni did not have the ability to negotiate with the much larger Gantos.
- See also Martin v. Joseph Harris Co., which also argued that unequal bargaining power can result in unconscionable contracts.