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Sitogum Holdings, Inc. v. Ropes

March 21, 2002

SITOGUM HOLDINGS, INC., A DELAWARE CORPORATION, PLAINTIFF,
v.
PHYLLIS E. ROPES, A/K/A PHYLLIS ELINE ROPES, A/K/A PHYLLIS ROPES, DEFENDANT,
v.
MARLENE VAN NOORD; TIMOTHY P. SULLIVAN, INDIVIDUALLY; NEIL COLES, INDIVIDUALLY; AND JOHN DOE AND JANE DOE (THE YET UNNAMED OFFICERS AND DIRECTORS OF THE PLAINTIFF CORPORATION), THIRD-PARTY DEFENDANTS



The opinion of the court was delivered by: Fisher, P.J.Ch.

The common law doctrine of unconscionability has proved difficult to define and has been rarely invoked undoubtedly because, other than in exceptional cases, it has been largely viewed as grossly interfering with the freedom to contract. Notwithstanding this philosophical discomfort, the surrounding circumstances regarding defendant's desire to sell her property provided fertile ground for, and did in fact result in, a one-sided agreement which this court finds unconscionable.*fn1

I.

Defendant Phyllis E. Ropes ("Mrs.Ropes") and her husband, John M. Ropes, Jr., were the owners of waterfront property in Brielle, New Jersey. This was their principal residence although they also owned a winter home in the Cayman Islands. It was in the Cayman Islands that John M. Ropes, Jr. died suddenly on January 3, 2000.

Grief-stricken, Mrs. Ropes, then 81 years old, took a number of rapid and inconsistent steps regarding the Brielle property. Apparently, not long before his death, it had been her and Mr. Rope's desire to sell the property. With his death, Mrs. Ropes almost immediately executed two separate powers of attorney on the same day-January 13, 2000; one in favor of third-party defendant Marlene Van Noord and the other in favor of Linda Dowhan. On January 26, 2000 another power of attorney, prepared by plaintiff Sitogum Holdings, Inc. ("Sitogum"), was also executed by Mrs. Ropes in favor of Ms. Van Noord. The next day, Ms. Van Noord executed an option to purchase the Brielle property in favor of Sitogum.*fn2 This option contract, which Mrs. Ropes now claims is unconscionable, provided Sitogum-an entity which would not even be incorporated for another six days-with the right to purchase the Brielle property, within eight months, for $800,000. Sitogum agreed to pay $1000 per month for this option.

A February, 2000 appraisal suggested the Brielle property was worth between $1,500,000 and $1,750,000. Apparently recognizing the windfall about to come its way, Sitogum claims to have prepaid six of its monthly $1000 payments on or about February 28, 2000.*fn3

Apparently, at the same time, efforts were being made to market the property through Mrs. Ropes' other attorney-in-fact. Sitogum may have become aware of this since it recorded a "Memorandum of Option to Purchase Real Property" on or about April 11, 2000. On April 13, 2000, Mrs. Ropes executed a contract for the sale of the Brielle property to another party for $1,500,000. Upon learning of this, Sitogum, on April 28, 2000, exercised its option to purchase. Notwithstanding, Mrs. Ropes advised that she would not transfer the property to Sitogum. As a result, on May 19, 2000, Sitogum filed this suit to compel specific performance of the January 27, 2000 option agreement.*fn4 Mrs. Ropes now moves for summary judgment.

II.

Mrs. Ropes recognizes that the claim of her alleged capacity to contract or the voluntariness of the power of attorney elude resolution by way of summary judgment.*fn5 Other contentions also cannot be resolved on this motion.*fn6 The only issue which is ripe for summary judgment is Mrs. Ropes' claim that the option contract is unconscionable.

A.

The power of a court to relieve parties from unconscionable contracts has ancient roots.*fn7 In Earl of Chesterfield v. Janssen, plaintiff borrowed 5000 pounds in exchange for his agreement to pay 20,000 pounds upon the death of his then 70-year old grandmother. In referring to the agreement as "unconscientious," the Chancellor described the power to set it aside, which still has traces in the doctrine currently applied by modern courts:

It may be apparent from the intrinsic nature and subject of the bargain itself; such as no man in his sense and not under a delusion would make on the one hand, and as no honest man would accept on the other; which are unequitable and unconscientious bargains, and of such even the common law take notice.

[2 Ves. Sr. 125, 155, 28 Eng. Rep. 82, 100 (1750).]

The Supreme Court of the United States recognized this common law authority in the nineteenth century*fn8 and courts of equity have traditionally refused their assistance to parties who obtain such one-sided bargains.*fn9

Notwithstanding its venerable history, the application of the doctrine has always been viewed as controversial and it would appear, judging from the paucity of reported decisions, that its use has been infrequent. The reason for this is undoubtedly over a heightened concern that its uncertain parameters "increase[ ] the potential for unreasoned or arbitrary decisions based on personal value judgments." Hillman, "Debunking Some Myths about Unconscionability: A New Framework for U.C.C. Section 2-302," 67 Cornell L.Rev. 1, 15 (1981). Courts normally examine challenges to the validity of contracts by first recognizing the parties' freedom to contract and by applying the principle that the execution of a contract manifests an intent to be bound by all its terms. See, e.g., Restatement of Contracts, § 70 (1932). As a result, the principle that courts "should not rewrite contracts," is often intoned in such disputes. See, e.g., Kampf v. Franklin Life Ins. Co., 33 N.J. 36, 43, 161 A.2d 717 (1960); Carroll v. United Airlines, Inc., 325 N.J.Super. 353, 358-59, 739 A.2d 442 (App.Div.1999); Chemical Bank v. Bailey, 296 N.J.Super. 515, 527, 687 A.2d 316 (App.Div.), certif. denied, 150 N.J. 28, 695 A.2d 671 (1997). Regardless, however, of the unease which its potential use produces, the doctrine of unconscionability has a place in our jurisprudence so that grossly unfair or one-sided contracts may be properly "policed." White & Summers, Uniform Commercial Code (4th ed., 1995) 206; Wille v. Southwestern Bell Tel. Co., 219 Kan. 755, 549 P.2d 903 (1976).

Considering the rapid evolution of the implied covenant of good faith and fair dealing in New Jersey*fn10 -allowing for the watchful examination of the bona fides of the performance of valid contracts-it is plain to see that the application of the doctrine of unconscionability to the bona fides of the creation of contracts should not be viewed as a relic, as labelled by one commentator. Brown, "The Uncertainty of U.C.C. Section 2-302: Why Unconscionability Has Become A Relic," 105 Com. L.J. 287 (2000). In appropriate cases, the doctrine of unconscionability provides a more ...


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