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 pre-sents 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 “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. With consumer fi-nance contracts, borrowers enjoy scant common law protection. And yet both consumer goods and consumer contracts may be danger-ously defective “products.”

This Article reconsiders the traditional, all-or-nothing choice be-tween 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, one accom-plished by turning to the tort-like doctrines in the common law of contract: the doctrines of unconscionability; good faith; and war-ranty. The terms of an adhesive financial contract should be inter-preted 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 fundamen-tally 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 con-tents of the contract. The substantive prong should be informed by implied obligations of good faith and the implication that this con-tract-as-product is fit for ordinary and particular purposes – that it is faithful to the underlying transaction. Attempts by lenders to dis-claim 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 or-dinary purposes as loans.

Keywords: Contracts, consumer finance, consumer contracts, consumer protection, commercial law, uniform commercial code, warranty, unconscionability, consumer law, product liability, consumer financial products.