WAL-MART CANCEL CLAUSE ‘GROSSLY UNFAIR’ SAYS COURT
NEW YORK — A clause in Wal-Mart Stores’ standard purchase contract that gives the discounter the right to cancel an order any time prior to shipment was found “substantively unconscionable” in a recent decision in New York State Supreme Court.
In a decision denying Wal-Mart’s motion to dismiss a suit by Jonathan Cass Ltd., a women’s apparel manufacturer, seeking damages for cancellation of orders for some 150,000 items of merchandise, Justice Beatrice Shainswit said Wal-Mart claimed, among other defenses, that because of the clause, Wal-Mart had “the absolute right to cancel.”
The court stated, “On its face, this provision, which gives Wal-Mart the right to unilaterally and arbitrarily cancel its orders, at any stage of production prior to shipment, regardless of the expense its vendor has incurred, is so grossly unfair as to be substantively unconscionable; that is, unconscionable by its terms.”
The court continued: “Given Wal-Mart’s size and buying potential versus the relative size of its vendors, the contract formation process must be examined as well to determine whether the procedural elements of unconscionability [i.e., unequal bargaining position] are sufficiently present so as to bar enforcement of this clause for unconscionability.”
This issue, the court said, would have to be determined at trial.
Merchandise involved in the action was ordered from June through October 1990 and later refused for various reasons, including late delivery and failure to conform to specifications.
Kenneth A. Schulman, of Kreindler & Relkin, represents Cass, which is at 3 West 35th St. He declined to comment on the case, including the possible ramifications, if a trial should uphold the judge’s interim ruling.
Wal-Mart did not respond to requests for comment.
— Fairchild News Service