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What is “Unconsionability” in the Law?
What is “unconscionability” in the law, and how is it viewed by the high courts in South Carolina? In this blog we’ll look at the definition of unconscionability, its elements, and what unconscionability looks like in real-life cases, including the 2022 SC Court of Appeals case Huskins v Mungo Homes, LLC.
“Unconscionability” in the Law
“Unconscionability” is used by courts most often in the context of contract law. It refers to terms that are so egregiously unjust or one-sided that they are unreasonable and may shock the conscience of the court. Typically, it’s the party with greater bargaining power that creates a contract favoring themselves to the detriment of the other party. When a contract or one of its terms are found unconscionable, it is unenforceable.
“Unconscionable” is also used by courts to describe a party’s grossly unfair conduct. A party that behaves unconscionably may not benefit from their conduct.
Elements of Unconscionability in South Carolina
“Unconscionability has been recognized as the absence of meaningful choice on the part of one party due to one-sided contract provisions, together with terms that are so oppressive that no reasonable person would make them and no fair and honest person would accept them.” – South Carolina Court of Appeals quoting the SC Supreme Court decision Carolina Care Plan, Inc. v United HealthCare Servs., Inc. (2004) in the Huskins decision (emphasis added).
From this understanding of unconscionability, South Carolina courts look for two elements to determine whether something is unconscionable or not:
- Absence of meaningful choice
- Oppressive and one-sided terms
What would constitute a “meaningful choice” in the eyes of the court, and when are contract terms considered “oppressive and one-sided”? Let’s look at unconscionability in some real-life South Carolina cases.
Unconscionability in Real Life: Huskins v Mungo Homes, LLC
We’ve run into the concept of unconscionability in previous blogs:
- To describe bad conduct in the context of minority member oppression (squeeze out/freeze out) in Wilson v Gandis (SC Supreme Court, 2019) (blog here)
- Whether a prenuptial agreement in Hudson v Hudson (SC Court of Appeals, 2014) was unconscionable (blog here)
- Whether an arbitration agreement in Arredondo v SNH SE Ashley River Tenant (SC Supreme Court, 2021) was unconscionable (blog here)
The 2022 SC Court of Appeals case Huskins v Mungo Homes, LLC (read the decision here) also looked at unconscionability in regards to an arbitration clause.
Briefly, a couple (the Huskinses) bought a house from Mungo Homes, LLC (Mungo), entering into a purchase agreement that included an arbitration clause and a limited warranty. Two years later, in July 2017, the Huskinses filed an action against Mungo over issues they had with the purchase agreement. (They did not allege any problem with the home itself.)
Mungo filed a motion to dismiss and to compel arbitration. The Huskinses argued that the arbitration clause was unconscionable and unenforceable. The appeals court looked at the two elements described above to determine unconscionability.
Element 1: Absence of Meaningful Choice
The appeals court found that the Huskinses did have an absence of meaningful choice. It found that the Huskinses:
- Were average purchasers of residential real estate
- Were not represented by independent counsel
- Were not a substantial business concern to Mungo and therefore had no more bargaining power than the average homebuyer
The Huskinses did not have a viable alternative to the arbitration agreement in the purchase agreement; if they wanted Mungo to build their home, they had to sign it and agree to its terms.
Element 2: Oppressive and One-Sided Terms
The Huskinses argued that the arbitration agreement was unconscionable, in part, because of its last two sentences: “Each and every demand for arbitration shall be made within ninety (90) days after the claim, dispute or other matter in question has arisen, except that any claim, dispute or matter in question arising from either party’s termination of this Agreement shall be made within thirty (30) days of the written notice of termination. Any claim, dispute or other matter in question not asserted within said time periods shall be deemed waived and forever barred.”
South Carolina law provides a statutory period of three years for such claims, which is drastically different from 30 or 90 days.
Still, the circuit court found these limited terms were not one-sided and oppressive. The appeals court disagreed, citing SC Code Section 15-3-530(1), which provides a three-year statute of limitations for such claims, and Section 15-3-140, which explicitly states that no contract provision attempting to shorten the statutory period shall bar any such actions from being brought.
Furthermore, the appeals court states that while in theory the clause applies equally to both the Huskinses and Mungo, in reality it would disproportionately affect the Huskinses. The appeals court also found that it was not “geared towards achieving an unbiased decision by a neutral decision-maker,” as the Fourth Circuit Court of Appeals directs courts to consider when it comes to arbitration agreements.
The SC Court of Appeals therefore found that due to an absence of meaningful choice and the presence of oppressive and one-sided terms, this section of the arbitration agreement was unconscionable and unenforceable. (The court also found this section was severable, meaning the rest of the arbitration agreement and purchase agreement stood, and the circuit court’s order compelling arbitration was affirmed.)
Contract Law in South Carolina
Would your contracts hold up to such scrutiny in court? You need to know what’s in every contract you write and sign as a business representative and as an individual and to avoid terms that could be construed as unconscionable.
For help creating and understanding contracts, contact attorney Gem McDowell. He and his team at the Gem McDowell Law Group can help ensure your contracts are clear, fair, honest, enforceable, and don’t violate SC code or public policy. Call Gem at his Mt. Pleasant office at 843-284-1021 today to schedule a free consultation.