TO: Professor
FROM: Student
RE: Memorandum of Law Final Paper
DATE: 5/8/15
Question Presented
"Do the Virginia courts follow the same unconscionability doctrine as set out and applied in Jones v. Star Credit Corp.?"
Short Answer
In Jones, Section 2-302 of the UCC authorizes the court to find, as a matter of law, that a contract or a clause of a contract was "unconscionable at the time it was made", and upon so finding the court may refuse to enforce the contract, excise the objectionable clause or limit the application of the clause to avoid an unconscionable result. In Derby the Virginia court sets forth a two-step test. Appellant must prove both: 1) A gross disparity existed in the division of assets, and 2) Overreaching or oppressive influences. Another test used by Virginia trial courts is found in O'Bryan, which the court relied on as providing that a gross disparity in the division of marital assets, standing alone, “if great [enough],” is sufficient to support a ruling that an agreement is unconscionable”. The tests in both states are similar in that the test has to prove gross disparity in the division of assets when establishing an opinion of unconscionability in contract cases.
Analysis
1. Jones v. Star Credit Corp. Standard of Unconscionability
Plaintiffs, husband and wife welfare recipients, agreed to purchase a home freezer unit from defendant for $ 900. Jones v. Star Credit Corp., 298 N.Y.S.2d 264 (Sup. Ct. 1969).
With the addition of time credit charges, various insurances, and sales tax the purchase price totaled $ 1234. Id. at 264. Plaintiffs paid $ 619 toward their purchase. Id. at 264. Defendant claimed there was a balance due of $ 819. Id. at 264. The freezer unit, when purchased by plaintiffs, had a maximum retail value of approximately $ 300. Id. at 264.
Section 2-302 of the UCC enacts the moral sense of the community into the law of commercial transactions. It authorizes the court to find, as a matter of law, that a contract or a clause of a contract was "unconscionable at the time it was made", and upon so finding the court may refuse to enforce the contract, excise the objectionable clause or limit the application of the clause to avoid an unconscionable result. Id. at 264. In accordance with the statute, the application of the payment provision should be limited to amounts already paid by the plaintiffs and the contract be reformed and amended by changing the payments owed, to equal the amount of payment actually paid by the plaintiff. Id. at 264.
2. Virginia Courts’ Treatment of Unconscionability
a. Derby v. Derby, 378 S.E.2d 74 (Va. Ct. App. 1989)
The husband and wife were married for 22 years before the wife filed for divorce, alleging cruelty. Derby v. Derby, 378 S.E.2d 74 (Va. Ct. App. 1989). The husband filed a cross-bill alleging adultery by the wife. Id. at 74. The wife persuaded the husband to amend their property settlement agreement to strike the equal property division and substitute language so that the wife would receive the entire value of essentially all of the valuable real estate that the parties owned. Id. at 74. The discussion and signing took place in a parking lot and without consultation with counsel. Id. at 74. The husband claimed that he signed the agreement because he believed that the wife would return to the family home if he did so. Id. at 74.
“Gross disparity in the value exchanged is a significant factor in determining whether oppressive influences affected the agreement to the extent that the process was unfair and the terms of the resultant agreement unconscionable”. Id. at 74. The court's conclusion of unconscionability was supported by findings of additional factors. Id. at 174. There is evidence of concealment, misrepresentation, and undue advantage on the part of Mrs. Derby as well as emotional weakness on the part of Mr. Derby. Id. at 74. In Jones, Section 2-302 of the UCC authorizes the court to find, as a matter of law, that a contract or a clause of a contract was "unconscionable at the time it was made", and upon so finding the court may refuse to enforce the contract, excise the objectionable clause or limit the application of the clause to avoid an unconscionable result. Jones, 298 N.Y.S.2d 264 (Sup. Ct. 1969).
In Derby, “Gross disparity in the value exchanged is a significant factor in determining whether oppressive influences affected the agreement to the extent that the process was unfair and the terms of the resultant agreement unconscionable”. Derby, 378 S.E.2d 74 (Va. Ct. App. 1989). The tests in both cases are similar in that the test has to prove gross disparity when establishing an opinion of unconscionability.
b. Galloway v. Galloway, 622 S.E.2d 267 (Va. Ct. App. 2005)
The parties' property settlement agreement provided that the wife would receive a pickup truck value at $ 11,000. Galloway v. Galloway, 622 S.E.2d 267 (Va. Ct. App. 2005). Each party waived spousal support. Id. at 267. Under the agreement, the husband was given all of the interest in the marital residence and in the business that the two parties had developed during the course of their marriage. Id. at 267. The value of the business and home parcel was around
$ 200,000. Id. at 267. While the commissioner found that the property settlement agreement was unconscionable, in that a gross disparity existed between the value of the property each party would receive, the trial court sustained the husband's objections and found that the agreement was not unconscionable. Id. at 267. On appeal, the court found that, while the agreement gave the husband about 94 percent of the marital assets, there was no evidence of overreaching or oppressive behavior by the husband. Id. at 267.
Both parties agree that Derby sets forth the basis for analyzing this issue. Id. at 267. Derby sets forth a two-step test; Appellant must prove both: 1) A gross disparity existed in the division of assets, and 2) Overreaching or oppressive influences. Derby, 378 S.E.2d 74 (Va. Ct. App. 1989). To determine whether an agreement is unconscionable, a court must examine the “adequacy of price” or “quality of value.” Id. at 74. “If a “gross disparity in the value exchanged” exists then the court should consider “whether oppressive influences affected the agreement to the extent that the process was unfair and the terms of the resulting agreement unconscionable.” Id. at 74.
In Jones, Section 2-302 of the UCC authorizes the court to find, as a matter of law, that a contract or a clause of a contract was "unconscionable at the time it was made", and upon so finding the court may refuse to enforce the contract, excise the objectionable clause or limit the application of the clause to avoid an unconscionable result. Jones, 298 N.Y.S.2d 264 (Sup. Ct. 1969). In Galloway, both parties agree that Derby sets forth the basis for analyzing this issue. Derby sets forth a two-step test; Appellant must prove both: 1) A gross disparity existed in the division of assets, and 2) Overreaching or oppressive influences. Derby, 8 Va.App. 19, 378 S.E.2d 74 (1989).
c. Sims v. Sims, 685 S.E.2d 869 (Va. Ct. App. 2009)
It is undisputed that wife, who had a third grade education and numerous health problems including diabetes, "frequent" mood swings, and rheumatoid arthritis for which she took pain medication, was fifty-six years old at the time of the evidentiary hearing and had qualified to receive food stamps. Sims v. Sims, 685 S.E.2d 869 (Va. Ct. App. 2009). Wife had married husband when she was sixteen and remained married to him for 38 years. Id. at 869. Husband made no claim that wife was capable of supporting herself at the time of the divorce. Id. at 869. Husband received all the marital assets with the exception of an automobile and the small amount of personal property in wife's possession. Id. at 869. The only value wife received was husband's agreement to hold her harmless on the debts secured by the marital residence; in which husband received the remaining estimated $ 200,000 of equity. Id. at 869.
“The trial court found the agreement was unconscionable “[o]n the basis of O'Bryan [v. O'Bryan, No. 1912-91-4, 1992 WL 441907 (Va.Ct.App. July 28, 1992)],” which the court relied on as providing that a gross disparity in the division of marital assets, standing alone, “if great [enough],” is sufficient to support a ruling that an agreement is unconscionable”. “The trial court concluded under Galloway, that the agreement was valid and not unconscionable because wife proved only a gross disparity in the value of the division and failed, based on the testimony of husband's former attorney and the attorney's secretary, to meet her burden of proving husband engaged in overreaching and oppressive behavior”. Sims, 685 S.E.2d 869 (Va. Ct. App. 2009). In Jones, Section 2-302 of the UCC authorizes the court to find, as a matter of law, that a contract or a clause of a contract was "unconscionable at the time it was made", and upon so finding the court may refuse to enforce the contract, excise the objectionable clause or limit the application of the clause to avoid an unconscionable result. Jones, 298 N.Y.S.2d 264 (Sup. Ct. 1969). “In Sims, “The trial court found the agreement was unconscionable “[o]n the basis of O'Bryan which the court relied on as providing that a gross disparity in the division of marital assets, standing alone, “if great [enough],” is sufficient to support a ruling that an agreement is unconscionable”. Sims, 685 S.E.2d 869 (Va. Ct. App. 2009).
d. Shenk v. Shenk, 571 S.E.2d 896 (Va. Ct. App. 2002)
After the parties separated, the husband left a letter for the wife, where he gave to her three family businesses. Shenk v. Shenk, 571 S.E.2d 896 (Va. Ct. App. 2002). The trial court found this to be a valid agreement which converted the marital property to the wife's separate property. Id. at 896. Marital property became separate property through a valid express agreement by the parties. Id. at 896. Since the case involved the spouses' rights and obligations arising from the marital relationship, the letter was a marital contract. Id. at 896. Under the plain language of the agreement, the husband gave the wife all of the rights, title and interest in the businesses. Id. at 896.
Under the rule of law established in Drewry v. Drewry, 8 Va. App. 460, 472-73, 383 S.E.2d 12, 18 (1989), and Pelfrey v. Pelfrey, 25 Va. App. 239, 244-45, 487 S.E.2d 281, 284 (1997), appellant must prove both (1) a gross disparity existed in the division of assets and (2) overreaching or oppressive influences created an unfair process. Husband alleges only the first prong of this test. Shenk, 571 S.E.2d 896 (Va. Ct. App. 2002). Wife, however, does not challenge husband’s unconscionability argument on his failure to allege overreaching. Id at 896.
In Shenk, under the rule of law established in Drewry, and Pelfrey, the appellant must prove both (1) a gross disparity existed in the division of assets and (2) overreaching or oppressive influences created an unfair process. Id. at 896. In Jones, Section 2-302 of the UCC authorizes the court to find, as a matter of law, that a contract or a clause of a contract was "unconscionable at the time it was made", and upon so finding the court may refuse to enforce the contract, excise the objectionable clause or limit the application of the clause to avoid an unconscionable result. Jones, 298 N.Y.S.2d 264 (Sup. Ct. 1969).
Conclusion
The Virginia courts apply the same standard as set out in Jones v. Star Credit Corp.
In the Virginia cases, each plaintiff must prove gross disparity in the division of assets when establishing an opinion of unconscionability in contract cases. This standard is synonymous to the Section 2-302 of the UCC that authorizes the court to find, as a matter of law, that a contract or a clause of a contract was "unconscionable at the time it was made", and upon so finding the court may refuse to enforce the contract, excise the objectionable clause or limit the application of the clause to avoid an unconscionable result.