Can the other side get out of this clause by calling it unconscionable in North Carolina?
Rarely, and only by proving both halves. In Brenner the Supreme Court of North Carolina stated that 'a court will generally refuse to enforce a contract on the ground of unconscionability only when the inequality of the bargain is so manifest as to shock the judgment of a person of common sense, and where the terms are so oppressive that no reasonable person would make them on the one hand, and no honest and fair person would accept them on the other', and that 'in determining whether a contract is unconscionable, a court must consider all the facts and circumstances of a particular case. If the provisions are then viewed as so one-sided that the contracting party is denied any opportunity for a meaningful choice, the contract should be found unconscionable.' Brenner then refused the defence on its own facts: 'after considering all the facts before the trial court, we hold that the contract at issue cannot be declared unenforceable on the grounds of unconscionability. There was no inequality of bargaining power between the parties.' The two-part structure comes from Tillman, and the vote there matters. The opinion that states it was the opinion of three justices of a seven-member Court: the Court of Appeals in Torrence records that in Tillman 'a plurality of three justices concurred in the decision of the Court, two justices concurred in the result only, and two justices dissented', and that opinion itself says 'while this Court has never explicitly adopted this framework, we conclude that it is supported by the Court's case law and adopt it here', grounding the framework in Brenner. What it states is that 'a party asserting that a contract is unconscionable must prove both procedural and substantive unconscionability', where procedural unconscionability 'involves "bargaining naughtiness" in the form of unfair surprise, lack of meaningful choice, and an inequality of bargaining power' and 'substantive unconscionability, on the other hand, refers to harsh, one-sided, and oppressive contract terms'. The two trade off: 'while the presence of both procedural and substantive problems is necessary for an ultimate finding of unconscionability, such a finding may be appropriate when a contract presents pronounced substantive unfairness and a minimal degree of procedural unfairness, or vice versa'. The two justices who concurred in the result only did not take that route (they would have applied 'the totality of the circumstances test set out in Brenner'), so cite the plurality as a plurality. It is nonetheless the test North Carolina courts go on applying: Torrence, applying Tillman, states that 'to establish unconscionability, a party must demonstrate both procedural unconscionability and substantive unconscionability.' For a sale of goods the remedy is statutory: § 25-2-302(a) lets a court that finds a contract or clause unconscionable as a matter of law at the time it was made refuse to enforce the contract, enforce the remainder of the contract without the unconscionable clause, or limit the clause's application to avoid an unconscionable result.
The trap
North Carolina has one clause that is unconscionable by statute rather than by proof: under § 22B-10 'any provision in a contract requiring a party to the contract to waive his right to a jury trial is unconscionable as a matter of law and the provision shall be unenforceable', and the same section says it does not prohibit agreements to arbitrate or other alternative dispute resolution. So the jury-waiver paragraph in a standard commercial form is dead on arrival in a North Carolina court while an arbitration clause is not: no bargaining-power evidence required either way. Outside that statute the doctrine is demanding, and the words of the test are the reason: 'shock the judgment of a person of common sense' and terms 'no honest and fair person would accept'. Section 25-2-302(b) also gives both sides a procedural right the drafter should expect to use: when it is claimed or appears that a contract or clause may be unconscionable, the parties must be afforded a reasonable opportunity to present evidence of its commercial setting, purpose and effect. Do not carry Tillman's arbitration-specific findings into a clause the Federal Arbitration Act governs: the Court of Appeals in Torrence v. Nationwide Budget Finance held that "the legal theories upon which Tillman's substantive unconscionability analysis is based have been undermined by subsequent decisions of the United States Supreme Court in the context of cases under the FAA" (prohibitive arbitration costs, one-sidedness, a class-action bar) and that "the one-sided quality of an arbitration agreement is not sufficient to find it substantively unconscionable." Tillman's two-part test itself is what Torrence applied; it is the arbitration holdings that fell.
15 authorities
The words that state the rule
A court will generally refuse to enforce a contract on the ground of unconscionability only when the inequality of the bargain is so manifest as to shock the judgment of a person of common sense, and where the terms are so oppressive that no reasonable person would make them on the one hand, and no honest and fair person would accept them on the other.
The words that state the rule
In determining whether a contract is unconscionable, a court must consider all the facts and circumstances of a particular case. If the provisions are then viewed as so one-sided that the contracting party is denied any opportunity for a meaningful choice, the contract should be found unconscionable.
The words that state the rule
After considering all the facts before the trial court, we hold that the contract at issue cannot be declared unenforceable on the grounds of unconscionability. There was no inequality of bargaining power between the parties.
The words that state the rule
A party asserting that a contract is unconscionable must prove both procedural and substantive unconscionability.
The words that state the rule
While this Court has never explicitly adopted this framework, we conclude that it is supported by the Court's case law and adopt it here. In Brenner , for example, this Court determined that a contract between a parent and a private school was not unconscionable. 302 N.C. at 214 , 274 S.E.2d at 211 . The Court so held after considering whether there was inequality of bargaining power between the parties, whether plaintiff was "forced to accept defendant's terms," and whether the contract itself "was one that a reasonable person of sound judgment might accept." Id. at 213-14 , 274 S.E.2d at 211 . Thus, the Court considered both the procedural and substantive aspects of the contract at issue.
The words that state the rule
According to Rite Color Chemical Co., procedural unconscionability involves "bargaining naughtiness" in the form of unfair surprise, lack of meaningful choice, and an inequality of bargaining power. 105 N.C.App. at 20 , 411 S.E.2d at 648 . Substantive unconscionability, on the other hand, refers to harsh, one-sided, and oppressive contract terms.
The words that state the rule
Therefore, we note that while the presence of both procedural and substantive problems is necessary for an ultimate finding of unconscionability, such a finding may be appropriate when a contract presents pronounced substantive unfairness and a minimal degree of procedural unfairness, or vice versa.
The words that state the rule
Ultimately, based on the facts and circumstances of this case, we hold that the arbitration clause in plaintiffs' loan agreements is unconscionable and therefore unenforceable. The inequality of bargaining power between the parties and the oppressive and one-sided nature of the clause itself lead us to this conclusion.
The words that state the rule
Justice EDMUNDS concurring in the result only. I concur in the result only and agree that the trial court properly denied defendants' motion to compel arbitration. I write separately because I believe that this Court should apply the totality of the circumstances test set out in Brenner v. Little Red School House, Ltd., 302 N.C. 207 , 274 S.E.2d 206 (1981).
- statuteN.C.G.S. § 25-2-302enactment date not established
The words that state the rule
(a) If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.
- statuteN.C.G.S. § 22B-10enactment date not established
The words that state the rule
Any provision in a contract requiring a party to the contract to waive his right to a jury trial is unconscionable as a matter of law and the provision shall be unenforceable. This section does not prohibit parties from entering into agreements to arbitrate or engage in other forms of alternative dispute resolution.
- case232 N.C. App. 306Torrence v. Nationwide Budget FinanceN.C. App.decided 2014read it at the source ↗
The words that state the rule
Thus, the legal theories upon which Tillman’s substantive unconscionability analysis is based have been undermined by subsequent decisions of the United States Supreme Court in the context of cases under the FAA.
- case232 N.C. App. 306Torrence v. Nationwide Budget FinanceN.C. App.decided 2014read it at the source ↗
The words that state the rule
We must therefore hold that the one-sided quality of an arbitration agreement is not sufficient to find it substantively unconscionable.
- case232 N.C. App. 306Torrence v. Nationwide Budget FinanceN.C. App.decided 2014read it at the source ↗
The words that state the rule
On appeal, the North Carolina Supreme Court reversed the Court of Appeals, holding the arbitration agreement to be unconscionable. In that case, a plurality of three justices concurred in the decision of the Court, two justices concurred in the result only, and two justices dissented. The plurality opinion stated that unconscionability was an affirmative defense, and that the party asserting that defense had the burden of establishing that the agreement was unconscionable. Tillman, 362 N.C. at 102, 655 S.E.2d at 369. To establish unconscionability, a party must demonstrate both procedural unconscionability and substantive unconscionability.
- statuteN.C.G.S. § 25-2-302enactment date not established
The words that state the rule
(b) When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose and effect to aid the court in making the determination.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.