Contractual unconscionability in the Tillman v. Commercial Credit case

Tillman

Unconscionability

What is contractual unconscionability? Do you agree with the Tillman majority or dissent? Do you think the trial, appeals or high court's decision could have been affected by the sub-prime loan crisis? What is your state's or province's view on contractual unconscionability? Has your high court ever found a contract unconscionable? If so, on what basis? Based on what you've read, do you believe that you're a party to a contract that might be unconscionable?

Given the increased costs of litigation to the justice system in these litigious times, North Carolina's embrace of mandatory mediation and its emphasis on alternative dispute-resolution might seem like a good solution. However, there are certain checks and balances that need to be enforced to protect consumers, one of which is the notion of contractual unconscionability. This is a notion that "arises where there is such inequality in a bargain that it shocks the conscious of a reasonable person" (Kapp & Stone 2008). Such a bargain might occur when one of the participants is extremely uniformed about the law, for example, or was taken advantage of because of a discrepancy of power. The concept renders a contract null and void. "In Tillman, a sharply divided N.C. Supreme Court addressed the validity of a standard arbitration clause in a consumer-loan agreement" (Kapp & Stone 2008).

The Tillman decision by the majority represented the first time in history that a North Carolina appellate court found a contract to be unconscionable. In this instance, provisions within the agreement protected the lending institution's ability to sue in court, while erecting barriers to prevent borrowers from doing so. There were also provisions that prohibited "the joinder of claims and class actions; cost-shifting provisions exposing consumers to prohibitively high costs; and provisions excluding certain matters from arbitration" (Kapp & Stone 2008).

Opponents of the Tillman decision emphasized that in accordance with "standard practices, the agreement itself was set off in a separate box in the loan document titled Arbitration Provision in bold, capital and underlined letters. It was prefaced with a warning in bold capitalize letters that the provision limited the borrower's rights and encouraged the borrower to read the terms carefully" (Kapp & Stone 2008). But this allegation seems specious in an era in which signing long and complicated contracts are agreed to every day, such as when agreeing to a user contract after purchasing a new piece of software. Legal language has become so arcane for the layperson almost every contract is too abstruse to penetrate, and 'slipping in' provisions effectively forcing the signer to waive his or her rights to seek redress seems to flout rather than uphold the principles of justice.

Response 1: Robyn Finster

You make a good point about asymmetry of information. There was no third party made available to draw up this contract to make it equitable, or explain its terms. The Commercial Credit Loan drafted the agreement. There was no opportunity for the borrower to allow a lawyer or other individual to examine the terms of the agreement, given the pressure Commercial Credit exerted upon the borrower for an immediate signature.

Response 2: Elizabeth Laage

Your personal story indicates how even when consumers seek out information, frequently the language used is so confusing it sounds contradictory. Part of the notion of contractual unconscionability, I believe, should include consideration of language that is deliberately misleading to one of the parties. Consumers often are confused and agree to lopsided legal contracts, based upon biased information they hear, or because of the way the agreement is phrased.

Response 4: Derek Blackmore

The differences from state-to-state regarding the concept of contractual unconscionability indicate the difficulties for consumers in getting enough information before agreeing to a contract. Not only must they have general information about the law, they must also know about the legal provisions within their state. Particularly when state laws are different, it can be challenging for a non-lawyer to understand his or her rights. On a larger level, rather than complaining that the NC declaration of contractual unconscionability will clog up the court system, the legal morass that resulted after the recent credit crisis indicates the need for more aggressive consumer protection agencies, to prevent such one-sided contracts from occurring in the first place.