Accepting the premise that loan documents constitute an adhesion contract does not make the agreement unconscionable and unenforceable. Such a contract will be enforceable if it is within the reasonable expectations of the adhering party, and is not unconscionable. The failure to explain the terms sought to be enforced may be sufficient to raise an issue of fact concerning whether the terms were within the nondrafting party's reasonable expectations.
The borrower financed a purchase through a loan from the lender. A few years later, the borrower entered into another agreement with the same lender for a cash loan. The balance remaining on the first loan was consolidated into the second transaction. The borrower made payments on the loan, then brought an action to declare the promissory notes, security agreements, and deeds of trust on her home to be unconscionable. The trial court granted summary judgment to the lender, holding that the doctrine of novation barred the borrower's recovery.
Was 1984 loan transaction unconscionable, and therefore unenforceable, contract?
Maxwell contends that the issue of "unconscionability" of a contract is always a question of fact and the trial court erred in granting Fidelity's motion for summary judgment. The Court recently determined that "unconscionability is a question of law for the court to decide."
Maxwell argued the 1984 loan transaction constituted an adhesion contract, that is, a form contract with terms she neither negotiated nor could have negotiated. Maxwell pointed out that although she read portions of the contract documents evidencing the 1984 loan transaction, she did not read them in their entirety and did not fully understand the implications of the documents that she was signing. Accepting the premise that the loan documents constituted an adhesion contract which Maxwell neither read in its entirety nor completely understood does not make the agreement unconscionable and unenforceable. Such a contract will be enforceable if it is within "the reasonable expectations of the adhering party," and is not unconscionable.