Another Case Just Came Down Involving The Issues Of When A Contract Is Unconscionable

By Laurie Murphy

Laurie Murphy

An employee sued her employer for sexual harassment and other claims.  The employer sought to compel arbitration pursuant to the provisions of its employment handbook.  The employee contended (and the trial court agreed) that because the handbook permitted the employer to change its provisions at the employer's sole discretion, the arbitration policy was illusory and therefore unconscionable.   

The court of appeals found the fact that the provisions of a contract can be modified does not alone render a contract unconscionable because the authority to change the provisions of a contract is limited by the covenant of good faith and fair dealing.  Moreover, the court found that unconscionability requires a finding that a contract is both procedurally and substantively unconscionable.  Here, even if the employment handbook was substantively unconscionable, there were no facts justifying a finding that it was also procedurally unconscionable (i.e. no surprise or oppression).  Serpa v. California Surety Investigations Inc. 2013 DJDAR 5124.

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When Are Boilerplate Unfair and One-sided Provisions in Consumer Agreements Unenforceable?

By Laurie Murphy

Laurie Murphy

This question was answered in a recent case decided by the court of appeals.  When clauses are so one sided or unfair, the courts can decline to enforce them if they are found to be both procedurally and substantively unconscionable.  

Procedural unconscionability is found when there is unequal bargaining power and the contracts are foisted on the unsuspecting with no explanation and/or when their terms conflict with oral representations, are buried in the fine print and/or required as a "take it or leave it" proposition.  Substantive unconscionability is where the complained of provision is overly harsh and one-sided.  In Vasquez v. Greene Motors Inc. 2013 DJDAR 4087 the appellate court overturned a trial court's finding that an arbitration clause in a used car sales contract was unconscionable.  

The appellate court found that though the sales contract was procedurally unconscionable because it was offered on a take it or leave it basis, there was not a high degree of procedural unconscionability.  And, the court further found that the complained of clause requiring the parties to arbitrate their dispute was not necessarily substantively unconscionable because there was no evidence that the cost to arbitrate would have been so significant to the plaintiff so as to prevent him from arbitrating and/or that arbitration necessarily favors the defendant dealership.  Because there was not a high degree of procedural unconscionability and essentially no evidence of substantive unconscionability the court reversed the trial court effectively ordering the parties to arbitrate their dispute.

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