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Zapatha v. Dairy Mart, Inc. | 408 N.E.2d 1370 (1980)
Generally, courts don’t interfere with contracts. However, a court may invalidate a contractual provision if it’s unconscionable. A provision is unconscionable if there isn’t a meaningful choice to enter into it and the terms of the provision are unreasonably favorable to one of the parties. In the 1980 case Zapatha versus Dairy Mart, the Massachusetts Supreme Judicial Court considered whether a termination provision in a franchise agreement was unconscionable.
In May of 1973, Bernard Zapatha applied to become the owner of a franchise convenience store chain known as Dairy Mart. At the time, Zapatha was a former foreman and operations manager of an electroplating company and had attended college for a year and taken business courses.
In November of 1973, Zapatha’s application was approved. A Dairy Mart representative then presented Zapatha with a franchise agreement, asked him to read it, and told him that his wife would need to sign it too. Pursuant to the agreement, Dairy Mart would allow the Zapathas to use their trademark and would pay for rent. In return, the Zapathas would pay Dairy Mart a franchise fee based on a percentage of their gross sales and pay for starting inventory, wages, and taxes.
In addition, the agreement contained a termination provision which allowed either party to terminate the agreement after one year without cause following ninety days’ written notice. In the event of termination without cause, Dairy Mart agreed to repurchase remaining merchandise at 80 percent of market value. Dairy Mart read and explained the provision to Zapatha and advised him to consult a lawyer. Zapatha didn’t do so and signed the agreement anyway.
In November of 1977, Dairy Mart presented Zapatha with a new franchise agreement that included some terms that were less favorable for Zapatha. In response, Zapatha informed Dairy Mart that he wouldn’t sign the new agreement. Consequently, in January of 1978, Dairy Mart gave Zapatha written notice that it was terminating the franchise agreement within ninety days.
Subsequently, Zapatha sued Dairy Mart in state superior court, arguing that the termination provision in the franchise agreement was unconscionable and that Dairy Mart engaged in unfair and deceptive conduct. Following trial, the court concluded that the termination provision was unconscionable and that Dairy Mart’s conduct was unfair and deceptive under Massachusetts law. Dairy Mart appealed the decision to the Massachusetts Supreme Judicial Court.
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