Like in many other jurisdictions, Washington contracts, or parts thereof, may become void if found to be unconscionable. Either substantive or procedural unconscionability is sufficient to void a contract. The Washington Supreme Court has defined substantive unconscionability as “unfairness of the terms or results.”[i] Substantively unconscionable contracts are those which are ““‘one-sided or overly harsh,’” “‘[s]hocking to the conscience,’” “‘monstrously harsh,’” or “‘exceedingly calloused.’””[ii] Procedural unconscionability looks to the bargaining process itself, and what unfairness may have been present.
In Tadych[iii], plaintiffs hired defendant to build a custom home. Both parties signed a written contract, which contained a warranty provision. The warranty provision stated, among other things:
Any claim or cause of action arising under this Agreement, including under this warranty, must be filed in a court of competent jurisdiction within one year (or any longer period stated in any written warranty provided by the Contractor) from the date of Owner’s first occupancy of the Project or the date of completion as defined above, whichever comes first.[iv]
Defendant constructed the home, and plaintiffs became occupants in April 2014. Ten months later, plaintiffs began to notice the home shifting and flooring becoming uneven. They hired a construction expert, who opined the ventilation system potentially did not conform to code. Plaintiffs notified defendant, who agreed to come evaluate the situation.
Plaintiffs’ construction expert, plaintiffs, and defendant met at the home approximately two weeks later. After evaluating, defendant assured plaintiffs there were no issues which caused concern. During 2015 and 2016, more issues developed in the home. Plaintiffs raised their concerns with defendant, who repeatedly promised to complete repairs in January of 2017. Defendant never appeared to repair the home.
Several months later, plaintiffs hired another construction expert. The expert thoroughly inspected the home and opined significant defects included, “(1) water intrusion, (2) code violations, (3) poor structural framing, and (4) poor structure ventilation.”[v]
Plaintiff sued defendants. Defendants moved for summary judgment based on the one-year contractual provision, which was granted. The court of appeals affirmed, and the Washington Supreme Court granted review.
The Court evaluated the present case in light of the Revised Code of Washington (RCW), which contains various statutory requirements regarding contractual claims. In Adler, the Court found a contract requiring a claim to be filed to arbitration in 180 days instead of the statutory time of three years to be unconscionable.[vi] In Gandee, the court found a binding arbitration clause modifying the UCCs statute of limitations of four years to 30 days to be unconscionable.[vii]
Here, the RCWs provide an aggrieved party six years to file suit for faulty construction. The RCWs provide a statute of limitations beginning after “…substantial completion of construction or of termination of the construction services, whichever is later.[viii] In the present contract, plaintiffs’ claims were “…barred one year from the date of first occupancy or from the date of completion, whichever is earlier.”[ix] The court found this language to be substantively unconscionable.
The court also looked at the matter from a procedural standpoint. Here, defendant, not a layperson, drafted the contract. The one-year provision was tucked into one of three paragraphs on warranties, on page 10 of the 14-page contract. The court found the waiver was in no sense prominent and had “…little, if anything, to do with a warranty.”[x] It was “…not negotiated or bargained for, and provides no benefit to the affected party.”[xi]
Although parties typically have the freedom to contract at will, periodically, the contract may not be binding. Statutory (civil or criminal) limitations, unequal bargaining power, and many other reasons may make a contract, or parts thereof, void. Many people do not read contracts prior to signing them. How many people read the last 50-page electronic warranty or privacy statement before clicking, “I Agree” to access new software or hardware? It would be shocking to find even 1% do so. Perhaps we should all take a lesson from the likely-less-than-one-percent. Chances are we may not be inclined to sign some documents if we take the time to read them thoroughly. This is especially important in the insurance industry. Before signing any contracts, both parties must ensure they read the terms and have a meeting of the minds, as it will protect both parties when it comes to contract dispute.
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[i] Torgerson v. One Lincoln Tower, LLC, 166 Wn.2d 510, 518, 210 P.3d 318 (2009).
[ii] Gandee v. LDL Freedom Enters., Inc., 176 Wn.2d 598, 603, 293 P.3d 1197 (2013), (alteration in original) (internal quotation marks omitted) (quoting Adler v. Fred Lind Manor, 153 Wn.2d 331, 344-5, 103 P.3d 773 (2004).
[iii] Tadych v. Noble Ridge Construction, Inc., WL 15027140 (2022).
[vi] Adler, 153 Wn.2d at 355, 357-58.
[vii] Gandee, 176 Wn.2d at 607.
[viii] Tadych (emphasis in original).
[ix] Tadych (emphasis in original).