Maxwell v. Fidelity Financial Services, Inc.

Facts: Elizabeth Maxwell purchased a solar water heater from a door-to-door salesman for $6,512. They financed it through Fidelity at 19.5% interest. The heater was never installed, therefore never worked, and was eventually condemned and was removed by order of the city of Phoenix. Still, Maxwell made payments for three and one half years. In 1988 Maxwell borrowed an additional $800 from Fidelity, who combined the old amount with the new one to bring the balance to $6,976. In total, Maxwell would pay about $17,000 (including interest) for a non-functioning water heater and an $800 loan. Maxwell brought a declaratory judgment action seeking judgment that the contract was unenforceable due to unconscionability.

Procedural History: Trial Court ruled that doctrine of novation barred Maxwell's claim of unconscionability. Appellate Court affirmed.

Issue: Does the second contract (1988 loan) bar Maxwell's claim of unconscionability regarding the first loan?

Holding: No. If the old contract is found unconscionable and therefore unenforceable, then the new and basically identical contract would also be unenforceable.

Reasons: Valid novation requires a previously enforceable debt.

Judgment: Reversed and remanded to trial court to determine if the original contract was invalid.