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UNCONSCIONABILITY IN TIMESHARE CONTRACTS

In order to be found unconscionable a contract must be found to be found both procedurally and substantively unconscionable, involving a sliding scale in which the two principles are intertwined.  Basulto v. Hialeah Auto., 141 So. 3d 1145, 1157 (Fla. 2014).  Procedural unconscionability relates to the manner in which the contract was entered and it involves consideration of such issues as the relative bargaining power of the parties and their ability to know and understand the disputed contract terms. Bellsouth Mobility, LLC v. Christopher, 819 So. 2d 171, 173, (Fla. 4th DCA 2002).  A court might find that a contract is procedurally unconscionable if important terms were hidden in a maze of fine print and minimized by deceptive sales practices.  Id., see generally, Blanchard v. Blanchard, 2016 ME 140 (2016), Bither v. Packard, 115 Me. 306 (1916). 

Unconscionability in Timeshare Contracts | Timeshare Cancellation LawyerProcedural unconscionability is often exemplified in timeshare sales practices: Typically, the consumer will sit through a keynote address, of sorts, emceed by a public speaker with a number of other visitors listening to her extoll the merits of the “investment.” Afterward, there’s often a breakout session, and the sales staff goes on to tout the benefits of the program in a number of ways.  For instance, they say that investment in this opportunity is like membership in an exclusive club, providing for members-only reservations to all of resorts and other destinations throughout the network. The consumers are shown marketing literature portraying the availability of resorts at sister properties in opulent resort destinations. The sales reps invariably hold that the purchase will appreciate in value similar to an investment in real estate, and that timeshare development involves a re-sale and rental program to enhance the value of the investment.

After sitting through hours of heavy-handed sales pitching, the consumers finally acquiesce under the pressure and sign the closing documents. Throughout the closing phase, they simply do not have the time to properly review the documentation, and sales agents deflect whatever questions they so have. Rather, closing agents peremptorily rifle through the pages, merely pointing out the blanks to sign off on.  The consumers, who are not savvy in real estate matters, often trust that the agent knows more than they do, and are not about to take advantage of them. Important disclosures and executions aren’t properly handled, including a review of the public offering statement, and even delivery of deeded conveyances.

The sales staff does not disclose that many of the resorts depicted in the glossy marketing literature are only bookable through access to an exchange network entailing additional upcharges and other fees. The consumers then come to understand that they were misled in this regard, and cannot make reservations at the opulent destinations portrayed in the literature cost effectively, if at all. They are especially disappointed to learn that non-members of the vacation club can access the network, often on more favorable terms and conditions than the ‘members’. It also becomes clear that membership in the network is not a financial investment in any sense. Hence, the consumers become burdened with suffocating debt, with little or no consideration to show for it.

Once a purchaser becomes obligated, she inevitability finds herself at another sales meeting. These are generally characterized as ‘owners update’ meetings, intended to ‘educate’ the buyer on how to properly access the timeshare network. By this time, the purchaser will likely be disaffected with the deal, and welcome the chance to sit down with someone who can make it better. Then, sales agents seize upon the very consumer dissatisfaction prompting the meeting, promising to rectify whatever flaws exist, and the solution is always the same:  Pay more money for an upgraded membership.  Other examples of procedural unconscionability involve threats that a member’s timeshare interest is about to be phased out and forfeited, false promises addressing consumer complaints about the quality of accommodations, or the lack of access to resorts in the network. In each instance, the ‘solution’ is always the same: Pay more money to upgrade.

Substantive unconscionability, by contrast, focuses on the agreement itself and looks to whether the terms of the contract are unreasonable and unfair.  Bellsouth Mobility, LLC v. Christopher, 819 So. 2d 171, 173, (Fla. 4th DCA 2002).  Timeshare sales contracts are particularly onerous in these respects, typically containing very specific disclaimers purporting to waive consumer claims for precisely the kinds of misrepresentations specific to deceptive timeshare sales practices. For example, legal claims for deceptive promises about the resale, rental, profitability, and future capital appreciation of the ‘investment’ are invariably ‘waived’ by the consumer in the boilerplate of the forms.

There exist serious questions as to the enforceability of such provisions. First, controlling authority in most jurisdictions provides that fraud-in-the-inducement, a common-law theory of relief, constitutes an exception to the general rule prohibiting the maintenance of a tort claim in conjunction with a contract claim. PK Ventures, Inc. v Raymond James & Associates, 690 So. 2d 1296 (Fla. 1997); Indem. Ins. Co. of N. Am. v. Am. Aviation, Inc., 29 Fla. L. Weekly S 815 (Fla. 2004); Comptech Int’l, Inc. v. Milam Commerce Park, Ltd., 753 So. 2d 1219, 1999 Fla. LEXIS 1858, 24 Fla. L. Weekly S 507 (Fla. 1999); Linn-Well Dev. Corp. v. Preston & Farley, Inc., 22 Fla. L. Weekly S 424 (Fla. July 10, 1997). To this extent, the procurement of the consumer’s signature on the contractual provisions – including those purporting to disclaim liability for fraud – is deemed to be the product of a preexisting tort – fraud itself. An illegal contract is unenforceable, and thus the contract is void ab initio.

Section 163 of the Restatement provides that a “if, because of a misrepresentation as to the character or essential terms of a proposed contract, a party does not know or have reasonable opportunity to know of its character or essential terms, then he neither knows nor has reason to know that the other party may infer from his conduct that he assents to that contract. In such a case there is no effective manifestation of assent and no contract at all.” Restatement (Second) of Contracts § 163 cmt. a (1979).

Where misrepresentation of the character or essential terms of a proposed contract occurs, assent to the contract is impossible. In such a case there is no contract at all. Restatement (Second) of Contracts § 163, comment a (1977). In Par-Knit Mills, Inc. v. Stockbridge Fabrics Co., 636 F. 2d 51, 54-55 (3rd Cir. 1980), the court stated “the mere execution of a document . . . does not negate a factual assertion that such signature was not intended to represent a contractual undertaking.”  See also Lummus Co. v. Commonwealth Oil Refining Co., 280 F. 2d 915, 923 (1st Cir. 1960), (in holding that fraud in the inducement of a contract was subject to arbitration, the court distinguished cases of fraud in the factum).

Next, many jurisdictions have timeshare-specific consumer protection statutes, such as Florida Statute § 721, Nevada Statute § 119A, Virginia Statute § 55-360, and California Statute § 11210, et. seq. Under these laws, even where contractual provisions expressly disclaim liability for the specific misrepresentations complained of (e.g., ‘the timeshare will appreciate in value’), these disclaimers will not ‘trump’ a remedial statute on the books enacted specifically to address these very abuses. Otherwise, an unscrupulous party could effectively negate the clear intent of the law intended to prohibit deceptive sales practices, simply by disclaiming every black-letter provision in the statute. Fla. Farm Bureau Cas. Ins. Co. v. Cox, 943 So. 2d 823 (Fla. 1st DCA 2006) (disallowing an insurance policy provision contravening the Florida Statutes). Moreover, the common law doctrine construing contractual principles is superseded by any statutory provisions to the contrary. Rosati v. Vaillancourt, 848 So. 2d 467 (Fla. 5th DCA 2003) (Florida Statute § 627.7263 ‘trumps’ common law indemnity relief where conflict exists).

In summary, there is fertile ground for litigation of these issues in the context of timeshare law, even if much is located on virgin land. Given the right circumstances and a sympathetic trier of fact, compelling arguments can be advanced in opposition to the contractual barriers erected by the institutional party.

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