Maxwell v. Fidelity Financial Services
Supreme Court of Arizona
907 P.2d 51 (1995)
The Maxwells (plaintiffs) financed a $6,500 water heater with a loan from Fidelity Financial Services (defendant) at 19.5 percent interest, secured by a lien on both the water heater and their $40,000 home. Elizabeth Maxwell earned about $400 a month as a part-time hotel maid, and her husband earned about $1,800 a month; the water heater never worked properly. After paying for three and a half years, the Maxwells took out a second, similar loan in 1988 that again put their home at risk, bringing the total owed to $17,000. Maxwell sought a declaratory judgment that the 1984 contract was unenforceable as unconscionable; the trial court granted summary judgment to Fidelity, ruling the 1988 contract was a novation barring any claim on the 1984 contract.
Whether a security agreement for a water heater that allows foreclosure on the debtor's home upon default may be unconscionable, even if consistent with the parties' reasonable expectations.