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Unconscionability cases look for two factors: (1) unfairness in the formation of the contract, and (2) excessively disproportionate terms. These two elements have been labeled as "procedural" and "substantive" unconscionability. The first factor - procedural unconscionability - can include a variety of inadequacies, such as age, literacy, lack of sophistication, hidden or unduly complex contract terms, bargaining tactics, and the particular setting existing during the contract formation process. The second factor - substantive unconscionability - simply suggests the exchange of obligations so one-sided as to shock the court's conscience. Most courts have looked for a sufficient showing of both factors in finding a contract unconscionable. Other courts have been satisfied merely by proof of substantive unconscionability, i.e., an excessively disproportionate exchange of material promises. Still other courts have determined that the two elements need not have equal effect but work together, creating a "sliding scale" of unconscionability.
Defendant Phyllis E. Ropes ("Mrs. Ropes") and her husband, John M. Ropes, Jr., were the owners of waterfront property in Brielle, New Jersey. After the death of her husband, Mrs. Ropes executed three separate powers of attorney: (i) one in favor of third-party defendant Marlene Van Noord; (ii) one in favor of Linda Dowhan; and (iii) one in favor of Ms. Van Noord, prepared by plaintiff Sitogum Holdings, Inc. Subsequently, Ms. Van Noord executed an option to purchase the Brielle property in favor of Sitogum. Sitogum exercised its option to purchase the property for $800,000.00. Mrs. Ropes, claiming that the option contract was unconscionable since the Brielle property was valued at $1,500,000 and $1,750,000.00. Mrs. Ropes refused to transfer the property to Sitogum, and, consequently, Sitogum filed the present suit to compel specific performance of the option agreement. Mrs. Ropes moved for summary judgment.
Was the option contract unconscionable, thereby warranting the grant of the owner’s motion for summary judgment?
The court advised that in appropriate cases, the doctrine of unconscionability provided a valid basis for interdicting an inequitable result which would otherwise flow from the cold enforcement of the terms of a contract. The court concluded the transactions in question, leading up to the creation of the option contract, were most unusual and made in the absence of the meaningful representation of counsel. Specifically, the court determined the signatory to the option contract, the property owner's attorney-in-fact, exhibited only some desultory interest in obtaining fair value for the property. Accordingly, the court was satisfied that a sufficient degree of procedural unconscionability was present to permit examination into the substantive fairness of the contract. The court concluded the great disparity between the $ 800,000 at which the corporation had gained the right to purchase the property for and the later appraisal and the ultimate sale of the property to others for $ 1.5 million demonstrated the substantive unconscionability of the option contract.