NC Supreme Court Holds Arbitration Clause in Loan Agreement Unconscionable
The North Carolina Supreme Court in Tillman, et al v. Commercial Credit Loans, Inc., et al , (No. 360A06)(filed January 25, 2008) held that “the trial court did not err in concluding as a matter of law” that a loan agreement arbitration clause was unconsionable. The loan agreements included an arbitration clause that defendants drafted, and which defendants sought to enforce, following a lawsuit filed by plaintiffs alleging Unfair and Deceptive Trade Practices Act, N.C. G. S. Section 75.1.1, unjust enrichment and breach of the duties of good faither and fair dealing. The trial court denied defendants’ motion to comel arbitration, a dvided panel of the Court of Appeals reversed. The North Carolina Supreme Court, for the first time finding a contract to be unconscionable, concluded that “the oppressive and one-sided substantive provisions of the arbitration clause at issue …and the inequality of bargaining power between the parties render the arbitration clause in plaintiffs’ loan agreements unconscionable.”
Because no appellate court in North Carolina, before Tillman, has held a contract unenforceable due to unconscionability, the Tillman reasoning and analysis will be closely scrutinized by drafters of agreements and parties to contracts.
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