Sure I Signed The Contract, But…

It is not unusual for a party to regret signing a contract.  The terms “buyer’s remorse” and “seller’s remorse” would not be part of the lexicon if it was.  However, with good reason, the law does not allow a party that regrets having signed a contract to escape from the contract easily, as a recent decision of the Supreme Court of Appeals of West Virginia demonstrates.

In Horizon Ventures of West Virginia v. American Bituminous Power Partners, L.P., Horizon signed a contract with American Bituminous Power Partners (“AMBIT”) in June of 1987.  Under that contract, Horizon agreed to provided consulting services to AMBIT and AMBIT agreed to pay $50,000 per year for such services “as long as [the AMBIT Grant Town Power Plant] continues to produce power.”

After the parties had operated under the contract and complied with its terms for over thirty years, AMBIT declined to pay Horizon’s annual invoice on the grounds that it had determined that “the Consulting Agreement has no value to [AMBIT] and that it is time to disband the Agreement and simplify our relationship to just landlord-tenant.”

Horizon filed a breach of contract case against AMBIT, seeking a judgment for its unpaid fee.  AMBIT responded with a motion to dismiss or for summary judgment, contending that the contract was “not enforceable because it was unconscionable, violated public policy, and was impossible to perform given that its purpose had been frustrated and the circumstances between the parties had changed.”  AMBIT asserted that the circuit court should “refuse to enforce the Agreement based solely on the substantive unfairness of the agreement between the parties.”

The circuit court sided with AMBIT and granted its motion for summary judgment, declaring the contract unenforceable prospectively, but awarding Horizon the fees it had earned before asserting that the contract was unconscionable.  The circuit court noted that:

Neither party assert[ed] that the relative positions of the parties or the adequacy of the bargaining positions by either party in 1987 was unconscionable. There is no allegation that sufficient experience, education, training, ability, or knowledge was lacking by either party at the initiation of the contract.

Nevertheless, because, “[a]s written, the contract will run in perpetuity with no end in sight absent one of two very specific occurrences,” the circuit court concluded that the contract was:

so one-sided and favorable to [Horizon] that the lack of a unilateral escape clause, including notice and/or consequential provisions stemming from unilateral withdrawal, and a requirement of payment into what amounts to eternity but for cessation of business, regardless [of] the bargaining position of the parties, is so outrageous and oppressive that public policy mandates that the contract be disbanded rather than enforced.

Horizon appealed to the West Virginia Supreme Court of Appeals, which reversed the decision of the circuit court.  Noting “that the freedom to contract is a substantial public policy that should not be lightly dismissed,” the Supreme Court said that West Virginia law requires “both substantive and procedural unconscionability before [a contract] can be deemed unenforceable.  Citing prior opinions, the Court said:

However, both need not be present to the same degree. Courts should apply a ‘sliding scale’ in making this determination: the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the clause is unenforceable, and vice versa.

Procedural unconscionability is concerned with inequities, improprieties, or unfairness in the bargaining process and formation of the contract.”  On the other hand:

In assessing whether a contract provision is substantively unconscionable, a court may consider whether the provision lacks mutuality of obligation. If a provision creates a disparity in the rights of the contracting parties such that it is one-sided and unreasonably favorable to one party, then a court may find the provision is substantively unconscionable.

Because the circuit court recognized that there was “no allegation that sufficient experience, education, training, ability, or knowledge was lacking by either party at the initiation of the contract,” the Supreme Court said that it could not properly conclude that even a “sliver” of procedural unconscionability was present.

It is noteworthy that the West Virginia Supreme Court contrasted West Virginia law on the issue of unconscionability of contracts with New York law on the issue.  As described by the West Virginia Supreme Court, New York law may render a contract unenforceable when only substantive unconscionability is present.

As described by the Court in Horizon, West Virginia law strongly favors freedom of contract.  No matter how onerous the contract terms may be, if there was nothing unfair about the bargaining process, enforcement cannot be stopped on the grounds of unconscionability because procedural unconscionability is lacking.  Conversely, a contract that is not one-sided or unreasonably favorable to one party will be enforced no matter how unfair the bargaining process might have been because there is no substantive unconscionability.   Parties desiring certainty that they will receive the benefit of their bargain would be well advised to provide for their contracts to be governed by, and interpreted under, West Virginia law whenever such a choice of law provision is a viable option due to the location of the parties or the relation of the transaction to the Mountain State.