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Law School Case Brief

Ellis v. McKinnon Broad. Co. - 18 Cal. App. 4th 1796, 23 Cal. Rptr. 2d 80 (1993)

Rule:

Unconscionability in a contract is generally recognized to include an absence of meaningful choice on the part of one of the parties, together with contract terms that are unreasonably favorable to the other party. Unconscionability has both a procedural and a substantive aspect. The procedural element focuses on two factors: oppression and surprise. "Oppression" arises from an inequality of bargaining power resulting in no real negotiation and an absence of meaningful choice. "Surprise" involves the extent to which the supposedly agreed-upon terms of the bargain are hidden in a prolix printed form drafted by the party seeking to enforce the disputed terms. Substantive unconscionability refers to an overly harsh allocation of risks or costs that is not justified by the circumstances under which the contract was made. Both procedural and substantive unconscionability must be present before a contract or clause will be held unenforceable. However, the greater the degree of substantive unconscionability, the less the degree of procedural unconscionability that is required to annul the contract or clause. Unconscionability is ultimately a question of law, although numerous factual inquiries bear upon that question.

Facts:

A television station owned by defendant employed plaintiff as an advertising salesman. Plaintiff's written employment contract contained a forfeiture provision that purported to deny him commissions on advertising he sold if the station had not yet received payment for the advertising before plaintiff terminated his employment. Upon leaving his job, plaintiff challenged the forfeiture provision before the Labor Commission, which found in his favor and awarded damages. The employer countered that the commission forfeiture provision in the parties' employment contract precluded petitioner's recovery of such commission. The employer obtained a trial de novo and the trial court determined that the forfeiture provision was enforceable. The employee appealed.

Issue:

Was the forfeiture provision enforceable?

Answer:

No

Conclusion:

The Court of Appeal of California, Fourth Appellate District, Division One, reversed the judgment with directions to the trial court to enter judgment in favor of the employee in the amount of the stipulated value of his 20 percent commission on the advertising fees collected by the employer after the termination of his employment. After determining that the terms of the contract were not ambiguous, the court held that the forfeiture provision was unenforceable. The court held that the forfeiture provision was procedurally and substantively unconscionable under Cal. Civ. Code § 1670.5, concluding that terms of the standard contract were not negotiated, that the provision would have superseded the parties' oral agreement without the employee being aware of that fact, that the employer had superior bargaining power, and that the benefit of the provision inured to the employer. The employee was unaware of the provision until he reread the contract shortly before he gave notice of his intent to leave. He had previously been asked to sign it without warning and was told that it was a mere "formality". The court held that the record showed procedural unconscionability consisting of oppression based on unequal bargaining power. The court further held that the forfeiture provision was substantively unconscionable, which, when combined with the other factors in the record, required a finding that the forfeiture provision was unconscionable within the meaning of Civ. Code, § 1670.5.

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