The freedom to enter into a contract is undoubtedly one of the major principle and belief in the law of contracts (Ben, 2011). However the law allows government intervention in the contracting process whereby the court can apply the Universal Commercial Code to determine if the agreements are fair or unfair and rule on the contract on the on the basis of unconscionability of the case (Ben, 2011). The doctrine explains terms of contracts that are unfair or unjust or extremely one sided and seem to favor one party deemed to have superior bargaining power to the other party. Thus, the concept of unconscionability is a means to prevent against formation of contracts that are oppressive and contract terms that may seek to take advantage of the adverse situation of one party (Edwards, 2008). Virginia courts have shown the consistency of applying a two-step test of unconscionability as set out in Jones v. Star Credit Corp., 298 N.Y.S.2d 264 (Sup. Ct.1969). This paper will review various cases to support the view that the Virginia Courts follows the same unconscionability doctrine as applied in Jones v. Star Credit Corp.
Jones v. Star Credit Corp., 298 N.Y.S.2d 264 (Sup. Ct.1969)
The plaintiffs agreed with the defendant on purchasing a home freezer unit for a total cost of $1234.80. At the time of the court proceedings, the plaintiff had a balance due on the account of $ 819.81, having paid $619.88 toward the agreement (Edwards, 2008). Additionally, it was determined by the court that the maximum price for the same item was $ 300. The court ruled that the purchase agreement between the two parties was unconscionable. Therefore, it held that 1
payment due for the plaintiff should be limited to the already paid amount and that the contract be revised such that the amount due equals the amount already paid.
The court determined that there are three criteria which must be met in coming to its conclusion: (1) there should be “gross disparity” in values exchanged, (2) bargaining power must be lacking, (3) exploitation of one party in the contract leading to an unfair agreement. In Jones v. Star Credit Corps, there was gross disparity on the terms of the agreement because the difference between original value of the freezer and the selling price in the agreement was significantly high (Helveston, & Jacobs, 2014). The plaintiffs had low education and were low income earners thus presenting a lack of bargaining power on the agreement. It is also evident that the defendant was exploited this lack of bargaining power to inflate the credit charges and cause the disparities in the contract.
Virginia Courts Treatment of Unconscionability
Derby v. Derby, 378 S.E.2d 74 (Va. Ct. App. 1989)
The plaintiff filed for divorce from the defendant but later made amendments to make it a separation suit. This led to the defendant having hope for reconciliation of the marriage. Consequently, the plaintiff used the misguided expectations to influence him into signing papers that gave her majority of the properties owned by the defendant. The defendant was left with almost nothing even though the divorce was ultimately granted on the charge of adultery. However the separation agreement was found to be under duress and was not included in the divorce decree.
Validity of the separation agreement between the two parties was considered on the grounds of duress, fraud, and Unconscionability. The court utilized a three-pronged test to 2
determine unconscionability: (1) presence of gross disparity, (2) presence of concealment and misinterpretation in the agreements, (3) exploitation of the opposing party (Helveston, & Jacobs, 2014) (Horton, 2009). The court found that in deed, the defendant was experiencing emotional distress and the plaintiff exploited the weakness of the defendant and his hope of reconciliation to manipulate him to sign the agreement on settlement.
Galloway v. Galloway, 622 S.E.2d 267 (Va. Ct. App. 2005)
The two parties were married for 17 years with Mr. Galloway working for civil service while Mrs. Galloway was a nurse. Mr. Galloway later started his own heating company and was soon joined by Mrs. Galloway 5 years later. They later executed an agreement involving division of their assets following their separation. The agreement had allocated 94% of the marital property to Mr. Galloway. Mrs. Galloway had declined to hire a lawyer to help in discussing the settlement agreement despite being advised to do so.
The court held that although the agreement was not fair, it was valid because Mrs. Galloway was of sound mind when she signed the agreement without consulting a lawyer. The judges did not find fraud or duress like in the Derby vs. Derby case. They determined that the only indication of unconscionability was the inequality in the agreement. There was no evidence of undue influence or duress. Rather, the agreement was reached upon due to unwise decision by Mrs. Galloway. The case was not extreme to an extent of justifying relief. As such, Mrs. Galloway made a bad bargain whereas Mr. Galloway did not affect her decision.
Jesse v. Smith, 278 S.E. 2d 793 (Va. 1981)
The plaintiff originally agreed to have some work done in the defendant’s retail businesses at the cost of materials plus 10% for the labor. Later he changed the offer to make it the cost of
materials plus 25% for labor. Mrs. Smith agreed and the plaintiff commenced on the work. However, when the work was near completion, Jesse presented a bill that was the cost of materials plus 125% which Mrs. Smith refused to pay. The judge decided that the price for labor was unreasonably high and the case was eventually dismissed due to failure by the parties to submit the contract document to the courts.
The material facts regarding the oral agreement between the two could not be established clearly. The court ruled that the contract was not enforceable under public policy. The judge also noted that the labor price was exorbitant. Adequacy of consideration was used to determine the unconscionability of the agreement. Although there was evidence of gross disparity between the charged price and the reasonable price for the work done, there was no evidence that any of the parties entered into the agreement as a result of duress or was forced by another party. The parties were capable of determining the enforceability of the contract they were entering to.
Chaplain v. Chaplain, 682 S.E. 2d 108 (Va. Ct. App. 2009)
The two parties were married for seven years after a whirlwind romance and a short engagement. They signed a premarital agreement where both parties were to retain all property owned individually before the marriage. Mrs. Chaplain did not know English well at that time having been born and raised in Morocco and relied on a translator most of the time. She argued that she was under the impression what she was signing was a marriage certificate when she signed the agreement.
The Court ruled that the premarital agreement was valid. The judges noted that Mrs. Chaplain 4
had the opportunity to review the agreement and that she did not take time to review the
agreement. The evidence failed to show that there was gross disparity in the agreement as the property
belonged to everyone and thus there were no collectively owned belongings to compare. There was also no evidence of undue influence as the plaintiff can know what was contained in the agreement and deliberately ignored to confirm.
The test of gross disparity is applied differently but its definition remains essentially the same. In all cases the judges are looking for evidence of a discrepancy of value in the conscience of individuals. The test of lack of bargaining power and exploitation of a perceived weakness in on party is taken into consideration to determine the unconscionability of a case (Knapp, 2009). It is clear that the unconscionability doctrines applied in Virginia courts are similar, even though they might not be identical. In applying Jones v. Star Credit Corp., 298 N.Y.S.2d 264 (Sup. Ct.1969) to determine unconscionability, the courts have made the standard of application nearly uniform across a wide range of cases in the state off Virginia. Each time the doctrine, is applied, there has to be the evidence of gross disparity and undue influence or duress which leads to exploitation by one party.
Ben-Shahar, O. (2011). Fixing Unfair Contracts. Stanford Law Review, 869-906.
Edwards, C. (2008). Freedom of Contract and Fundamental Fairness for Individual Parties: The Tug of War Continues. UMKC L. Rev., 77, 647. 5
Helveston, M. N., & Jacobs, M. S. (2014). The Incoherent Role of Bargaining Power in Contract Law.
Horton, D. (2009). Flipping the Script: Contra Proferentem and Standard Form Contracts. U. Colo. L. Rev., 80, 431.
Knapp, C. L. (2009). Blowing the Whistle on Mandatory Arbitration: Unconscionability as a Signaling Device. San Diego L. Rev., 46, 609.