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Zapatha v. Dairy Mart, Inc. - 381 Mass. 284, 408 N.E.2d 1370 (1980)

Rule:

Because there is no clear, all-purpose definition of "unconscionable," nor could there be, unconscionability must be determined on a case by case basis giving particular attention to whether, at the time of the execution of the agreement, the contract provision could result in unfair surprise and is oppressive to the allegedly disadvantaged party.

Facts:

Defendant Dairy Mart, Inc. entered into a franchise agreement with plaintiffs Elaine and Bernard Zapatha. The termination clause of the agreement allowed either party, after 12 months, to terminate the agreement without cause on 90-days written notice. Before entering into the agreement, Dairy Mart read and explained the termination provision to the Zapathas, after which they signed the agreement. After several years, Dairy Mart submitted a new franchise agreement to the Zapathas for execution; they refused to sign. Thereafter, Dairy Mart sent them written notice that the franchise agreement was being terminated effective in 90 days. Alleging that the contract provision purporting to authorize the termination of the franchise agreement without cause was unconscionable and that Dairy Mart's conduct was an unfair and deceptive act or practice in violation of G. L. c. 93A, the Zapathas filed an action in Massachusetts superior court seeking to enjoin the termination of the agreement. The trial court found that the termination was due to the Zapathas' refusal to sign the new agreement, that the termination was without cause and unconscionable, that it violated Dairy Mart's duty of good faith, and was an unfair and deceptive act. Dairy Mart appealed.

Issue:

Did Dairy Mart lawfully undertake to terminate the franchise agreement with the Zapathas?

Answer:

Yes.

Conclusion:

The Supreme Judicial Court of Massachusetts reversed the trial court's decision and held that Dairy Mart lawfully terminated its franchise agreement with the Zapathas because there was no showing that, in terminating the agreement, Dairy Mart engaged in any unfair, deceptive, or bad faith conduct. According to the court, the 90-day notice provision in the termination clause was reasonable, and there was no unfair surprise concerning the termination clause. The court held that the termination clause was not obscurely worded or buried in fine print. Moreover, there was no oppression in the inclusion of the termination clause, and Dairy Mart acted in good faith when it exercised the termination provision.

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