Guthmann v. LaVida Llena

• Decision Date: 21 November 1985
• Docket Number: No. 15809,15809
• Citation: 1985 NMSC 106,709 P.2d 675,103 N.M. 506
• Parties: H.J. GUTHMANN, Personal Representative of the Estate of Kathleen MacKay, Deceased, Plaintiff-Appellant, v. LA VIDA LLENA, A New Mexico non-profit corporation, Defendant-Appellee.
• Court: New Mexico Supreme Court

Page 675

709 P.2d 675

103 N.M. 506

H.J. GUTHMANN, Personal Representative of the Estate of Kathleen MacKay, Deceased, Plaintiff-Appellant, v. LA VIDA LLENA, A New Mexico non-profit corporation,

Defendant-Appellee.

No. 15809.

Supreme Court of New Mexico.

Nov. 21, 1985.

[103 N.M. 507] Elvin Kanter, P.A., Albuquerque, for plaintiff-appellant.

[103 N.M. 508] Allen C. Dewey, Jr., Modrall, Sperling, Roehl, Harris & Sisk, P.A., Albuquerque, for defendant-appellee.

OPINION

WALTERS, Justice.

Plaintiff H.J. Guthmann, personal representative of Kathleen MacKay, deceased, sought a refund of the entrance fee paid by Mrs. MacKay to defendant LaVida Llena (LVL), a non-profit, life-care retirement center. Guthmann's complaint alleged that the Residence Agreement requiring the entrance fee is unconscionable and an unenforceable adhesion contract. The trial court found for the defendant and Guthmann appeals. We affirm.

Kathleen MacKay was 79 years old, with a life expectancy of 7-9 years, when she began looking for a retirement/life-care facility. She visited and considered a number of facilities in the Sante Fe and Albuquerque area. After seeing LVL, she took several weeks to study the Residence Agreement, discussing it with a close friend, but not with her attorney. Mrs. MacKay signed the agreement on March 2, 1983, and made a deposit toward the entry fee on that date. On June 16, 1983, upon payment of the remainder of the fee, she moved in.

Mrs. MacKay became sick on December 29th of that year, and she was moved to the LVL Nursing Care Center. Two days later, after being transferred to a local hospital, she died.

I. The Terms of the Agreement

Under the Residence Agreement, the entry fee of $36,950 entitled Mrs. MacKay to occupy a one-bedroom unit with a fully-equipped kitchen for the rest of her life, and guaranteed her admittance to the LVL Nursing Care Center whenever required. She was also required to pay a Monthly Service Fee (MSF) of $537.00 to cover such things as a daily meal, tray service when needed, building and grounds maintenance, laundry service, transportation services, utilities, basic or skilled nursing, special medical diets, planned activities, bi-weekly cleaning of the unit, parking, use of common areas, etc.

Because of certain medical services provided by LVL, Mrs. MacKay was required to have Medicare A or B coverage and at least one tie-in health insurance policy. The Nursing Center would provide care for any condition other than psychiatric problems, legal insanity or dangerously contagious diseases. There was no time limit on use of the Nursing Center; however, if Mrs. McKay were confined there permanently or for an extended period, LVL had the right to reassign her unit. She was guaranteed a similar unit should she recover sufficiently to resume independent living.

Mrs. MacKay had the right to terminate the agreement on ninety days' notice, if she were able to live alone, and if the MSF was current and fully paid. LVL would then refund the entrance fee less "10% plus 1% for each month of residency."

LVL also had the right to terminate the agreement if the resident created a significant disturbance within the center or contracted an illness which rendered her presence detrimental to the health, safety or peaceful lodging of others; or if she refused to pay the MSF and remained in default for ninety days. In each of those instances Mrs. MacKay would receive the same refund as if she had terminated the agreement. In addition, the contract specifically provided that:

It is the declared policy of the Center that a Resident's residency shall not be terminated solely by reason of financial inability of the Resident to pay the Monthly Service Fee, provided the Resident has applied for and established the facts which justify special financial consideration. Such consideration shall be granted at the sole discretion of the Board of Directors of the Center.

To cover a resident's potential inability to pay, and the possibility that some residents would require more care and expense than anticipated by the fees, Paragraph I(J) of the contract provided for no refund of the entry fee upon a resident's death:

If a resident passes away after taking residency in the Center, the obligation of the Center * * * shall be fulfilled, and there shall be no repayment of any portion of the Entrance Fee.

Mrs. MacKay fully understood and accepted that provision when she signed the agreement.

II. Adhesion Contract

On appeal, Guthmann renews his argument that LVL should be required to refund Mrs. MacKay's entry fee because the Residence Agreement is an unenforceable adhesion contract.

Guthmann cites Albuquerque Tire Co. v. Mountain States Telephone and Telegraph Co., 102 N.M. 445, 697 P.2d 128 (1985), for the proposition that an adhesion contract is per se unenforceable. That case did not go so far. A court will refuse to enforce an adhesion contract or a provision thereof only when the contract or provision is unfair. See Steven v. Fidelity Casualty Co. of New York, 58 Cal.2d 862, 879, 882-83, 27 Cal.Rptr. 172, 183, 184-85, 377 P.2d 284, 295, 296-97 (1962); C. Kaufman, Corbin on Contracts Sec. 559A (Supp.1984). The determination that a contract is one of adhesion is simply the first step in deciding whether it should be enforced.

Three elements must be satisfied before an adhesion contract may be found. First, the agreement must occur in the form of a standardized contract prepared or adopted by one party for the acceptance of the other. Albuquerque Tire. Second, the party proffering the standardized contract must enjoy a superior bargaining position because the weaker party virtually cannot avoid doing business under the particular contract terms. Id. Finally, the contract must be offered to the weaker party on a take-it-or-leave-it basis, without opportunity for bargaining. Id. LVL's contract with MacKay does not satisfy either the second or third elements.

The LVL Residence Agreement is a standard form contract. The trial court found that Mrs. MacKay was aware of and had considered other retirement communities and chose LVL. It concluded that "[t]he MacKay Agreement is not * * * an actionable contract of adhesion."

A party may be deemed unable to avoid doing business under the terms of a standardized form contract "when the dominant contracting party has monopolized the relevant geographic * * * market or when all the competitors of the dominant party use essentially the same contract terms." (Our emphasis.) Albuquerque Tire, 102 N.M. at 448, 697 P.2d at 131. There was testimony that at the time MacKay investigated the various retirement centers, the only other life-care facility in the limited Santa Fe/Albuquerque area offering similar amenities had a waiting list of one year and, according to Guthmann, "she wanted to settle someplace else." Other local facilities provided varying quarters and services under varying terms. The evidence was, however, that Mrs. MacKay selectively chose LVL's offering as the most desirable for her needs and wishes. The trial court made no specific finding that the contract was or was not offered to MacKay on a take-it-or-leave-it basis with no opportunity for bargaining. It did, however, refuse plaintiff's requested finding that "MacKay had the choice only of accepting and signing the 'Residence Agreement' or rejecting it."

Lack of opportunity to bargain may be proven by showing that the dominant party has been granted a monopoly, or that it afforded no opportunity to negotiate, or that the weaker party attempted to negotiate and failed. See Albuquerque Tire, 102 N.M. at 449, 697 P.2d at 132. Mrs. MacKay's close friend was present when LVL's representative discussed the contract terms, and she testified that Mrs. MacKay did not express any wish to alter or negotiate the contract terms, but knew that if she didn't like the contract she didn't have to sign it. She heard the LVL representative explain the no-refund provision to Mrs. MacKay, and heard her reply, "That's fine with me. I have no one to leave my money to anyway."

An absence of opportunity to bargain is relevant only where the weaker party to a standard form contract objects or has reason to object to one or more of the contract terms. There is no evidence in this case either that Mrs. MacKay objected to the no-refund provision, or was not satisfied with the contract terms. Based on the record and the trial court's findings and conclusions, we are persuaded that the Residence Agreement is not a contract of adhesion.

III. Unconscionability

If there has been "an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party," a contract may be held to be unconscionable. Bowlin's, Inc. v. Ramsey Oil Co., 99 N.M. 660, 668, 662 P.2d 661, 669 (Ct.App.), cert. denied, 99 N.M. 644, 662 P.2d 645 (1983) (quoting Williams v. Walker-Thomas Furniture Co., 350 F.2d 445, 449 (D.C.Cir.1965)). Lack of meaningful choice relates to a procedural analysis of unconscionability and is determined by examining the circumstances surrounding the contract formation, including the particular party's ability to understand the terms of the contract and the relative bargaining power of the parties. Bowlin's, Inc. v. Ramsey Oil Co., Inc.; In re Friedman, 64 A.D.2d 70, 407 N.Y.S.2d 999, 1008 (1978); Williams v. Walker-Thomas; Bennett v. Behring Corp., 466 F.Supp. 689, 696 (S.D.Fla.1979), appeal dismissed, 629 F.2d 393 (5th Cir.1980). Substantive unconscionability is concerned with contract terms that are illegal, contrary to public policy, or grossly unfair. Bowlin's, Inc. v. Ramsey Oil Co.; cf. Smith v. Price's Creameries, 98 N.M. 541, 545, 650 P.2d 825, 829 (1982); Hernandez v. S.I.C. Finance Co., 79 N.M. 673, 675, 448 P.2d 474, 476 (1968). The weight given to procedural and substantive considerations varies with the circumstances of each case. In re...