Under Ohio law, a contract clause is unconscionable where there is the absence of meaningful choice on the part of one of the parties to a contract, combined with contract terms that are unreasonably favorable to the other party.
Appellant Western Reserve Academy operated a boarding school located in Hudson, Ohio. For the 2006-2007 school year, the total cost for tuition, room and board and all meals for a boarding student was $34,000.00 not including a $2,000.00 non-refundable deposit. On or about April 6, 2006, appellee parents signed an Enrollment Contract with appellant enrolling their son Nicholas and paid the $2,000.00 non-refundable deposit. The Enrollment Contract stated, in relevant part, as follows: ""The undersigned agrees that enrollment under this Enrollment Contract may be cancelled by the undersigned without payment of damages other than forfeiture of the Non-Refundable Deposit only by delivering or mailing to the School prior to July 1, 2006 a written notice of withdrawal. In the event written notice of withdrawal is delivered or mailed on or after July 1, 2006 but before September 1, 2006, the undersigned agree to remain obligated to pay the First Payment. The undersigned shall remain obligated to pay the entire tuition fee in full in the event of absence, dismissal or withdrawal on or after September 1, 2006." The first payment was for $17,000.00. The parents withdrew Nicholas from school due to the major custody dispute between his parents. They submitted a Tuition Refund Plan claim on or about November 15, 2006, and paid the school $13,868.42. However, on February 21, 2012, appellant filed a complaint against appellees, alleging that appellees were indebted to appellant in the amount of $9,322.98 for tuition. The trial court also found the contract to be both unreasonable and unconscionable and that the amount due should be "viewed as more of a penalty” and although the appellant had proved that appellees breached its contract, appellant was not entitled to damages.
Was the contract unconscionable?
Judgment was reversed. The Court held that the trial court erred in holding that a boarding school was not entitled to damages from a student's parents upon the student's withdrawal from the school, as the enrollment contract was not unconscionable because there was no evidence that the parents lacked a meaningful choice, were in an unequal bargaining position, or were pressured to sign the contract. It noted that the remaining balance due was not a penalty because the amount sought was not disproportionate to the school's actual damages. The Court also held that it was an error to find that the parents' performance of the contract was impossible because they did not show that there was an impossibility of performance or prevention of performance, and there were no unforeseeable events that prevented them from complying with the terms of the contract.