“Unconscionable” Agreements

An arbitration agreement can be a powerful tool for a business seeking to minimize the expense and disruption generated by litigation. To maximize the potential benefits, your business may want to incorporate an arbitration agreement into the documents you present to a customer prior to closing a deal, perhaps conditioning the closing of deals on a customer’s agreement to arbitrate. You may, however, question whether presenting an agreement to arbitrate, with terms already set, in a take-it or leave-it manner creates a risk that the agreement will be determined to be unconscionable.

As it turns out, presenting an arbitration agreement in this manner is procedurally unconscionable, but so long as the terms of the agreement are not substantively unconscionable, the agreement will be enforced by courts.  

Procedural and Substantive Unconscionability

A contract offered on a take-it or leave-it basis with terms that are not negotiable is known as an “adhesion contract.” Adhesion contracts are, by their very nature, procedurally unconscionable. However, adhesion contracts are not per se unconscionable. Simpson v. MSA of Myrtle Beach, 373 S.C. 14, 27, 644 S.E.2d 663, 669 (2007). Rather, as the Supreme Court of South Carolina took pains to explain in Damico v. Lennar Carolinas, LLC, 437 S.C. 596, 614, 879 S.E.2d 746, 756 (2022),

[A]dhesive contracts are not unconscionable in and of themselves so long as the terms are even-handed. Nevertheless, and regrettably, it is common practice for the sophisticated drafter of contracts to routinely argue that a particular contract is not one of adhesion when that is plainly untrue. Such a specious argument does not advance the party’s position and instead detracts from other legitimate arguments the party may have. After all, unconscionability requires a finding of a lack of meaningful choice coupled with unreasonably oppressive terms.

As with all other procedurally unconscionable contracts, then, a Court’s willingness to enforce an arbitration agreement offered on a take-it or leave-it basis will hinge on the terms of the agreement. A court will deem an agreement substantively unconscionable if the terms are determined to be “so oppressive that no reasonable person would make them and no fair and honest person would accept them.” Id. at 612, 879 S.E.2d at 755.

To discuss the implementation of a new arbitration agreement, or to determine whether the terms of your present agreement present any issues under South Carolina law, contact us.

This website is for information purposes only. The information should not be construed to constitute formal legal advice or the formation of an attorney/client relationship. A result achieved on behalf of one client does not necessarily indicate similar results can be obtained for other clients. For information, contact Greg Studemeyer at (803) 393-4399.