Contracts I, Pages 526–535

Sitogum Holdings, Inc. v. Ropes

Superior Court of New Jersey, 2002

Facts:

Defendant was wanting to sell her home, when her husband suddenly died. Grief-stricken, she immediately executed two separate powers of attorney—one for Van Noord and one for Dowhan. Two weeks later, she executed a third that was prepared by plaintiff for Van Noord. The next day Van Noord executed an option to purchase the property in favor of plaintiff for $800,000, with a $1000 monthly payment to keep the option open. The property was then appraised to be worth twice the amount paid, so plaintiff prepaid for six months. Defendant's other attorney-in-fact was marketing the property, and defendant executed a contract for the sale of the property to another party for $1,500,000. Upon learning of this, plaintiff exercised its option to purchase, but defendant would not transfer it to them. Sitogum filed this suit to compel her to, and defendant moves for summary judgment.

Issue:

Was the parties' option contract unconscionable?

Defendant's Argument:

The option contract is unconscionable.

Rules:

  • Page 530, Paragraph 3

    For the most part, the unconscionability cases follow Williams v. Walker-Thomas and look for two factors:

    1. unfairness in the formation of the contract[ (Procedural unconscionability)], and
    2. excessively disproportionate terms.[ (Substantive unconscionability)]
  • Page 531, Paragraph 2

    Most courts have looked for a sufficient showing of both factors in finding a contract unconscionable.

  • Page 531, Paragraph 2

    Still other courts have determined that the two elements need not have equal effect but work together, creating a "sliding scale" of unconscionability.

    Note:

    This has since become the majority.

Reasoning:

  • Defendant did not sign the option contract—only the power of attorney, allowing Van Noord to sign the option contract, after defendant already looked at it and did not sign it herself. Van Noord did not even have an attorney and Van Noord did not seem to have defendant's best interests in mind. This is a sufficient degree of procedural unconscionability.

  • The house was sold for half its actual value, losing defendant $700,000. This is a sufficient degree of substantive unconscionability.

  • Defendant wanted to get rid of the property quickly, while the option contract has an eight-month option period.

Holding:

Yes, the option contract was unconscionable. Summary judgment granted. Option contract void ab initio.