First-year law students learn that a contract represents “a meeting of the minds,” and attorneys often refer to contracts as “agreements.” For a contract to be valid, it must include an offer, acceptance, and consideration. That’s it. However, while parties can agree to anything they want in a contract, there are some limits as to whether a contract’s terms will be enforceable.
One reason that a contract may be unenforceable is if one of its terms is determined by a court to be unconscionable. The Washington Supreme Court has described a contract term to be substantively unconscionable where it is “one-sided or overly harsh”, where the provision is “shocking to the conscience”, and where the term is “exceedingly calloused.” For a term in a contract to be substantively unconscionable, it is not enough for it just to be unfair; it must be grossly, shockingly, almost absurdly, unfair.
While it is extraordinary for a court to find a contract term unconscionable, it is not impossible. An article in the June 2023 issue of the Washington State Bar News discusses one such case and poses the question, “Is Your Contract Enforceable? Unconscionability in the wake of Tadych v. Noble Ridge.” Tadych v. Noble Ridge is a 2022 Washington Supreme Court case in which the court held a term in a construction contract between a builder and homeowners to be unconscionable. The contract imposed a one-year statute of limitations on the homeowners’ ability to sue the builder for construction defects, rather than the six-year statute of limitations that would otherwise apply under Washington law.
A contract absolutely can provide for a shorter statute of limitations for the parties to sue one another than would be imposed by law. However, there are limits to how far a provision amending a statute of limitations can go. In Tadych, the Washington Supreme Court wrote:
Our cases analyzing and finding substantive unconscionability focus on the effect the contractual provision has on existing statutorily established rights and the policies underlying those statutory rights. The substantive nature of this analysis requires a determination of what existing rights or policies are being limited or eliminated by the contractual provision. Coupled with the substantive component is an assessment of the term’s unconscionability where we consider the unfairness of the contract term or result.
In relation to the specific contract at issue in Tadych, the court reasoned:
This contract’s one-year limitation provision deprives the Tadychs of the six-year statute of limitations established under chapter 4.16 RCW to seek damages for faulty construction. Under RCW 4.16.310, the Tadychs would be able to bring their claim within six years of substantial completion of construction or of termination of the construction services, whichever is later. Under this construction contract provision, any claim, including claims for latent defects, is barred one year from the date of first occupancy or from the date of completion, whichever is earlier. [Emphasis in original.]
The majority of the justices on the Washington Supreme Court agreed that the requirement in the Noble Ridge construction contract that any lawsuit alleging construction defects be brought within a year of when the homeowners first occupied their new home was unconscionable. It was too far afield from the statute of limitations that would otherwise apply under Washington law. In addition, the court considered how the shorter statute of limitations strongly favored the builder without providing a benefit to the homeowners. The result? The Tadychs were allowed to proceed with their case against the builder in the trial court. Although the lawsuit was filed more than a year after they moved into their new house, it was filed well within the six-year statute of limitations for construction defects imposed by RCW 4.16.310.
Even though they prevailed, the case was by no means a slam dunk for the homeowners. Both the trial court and the Court of Appeals ruled in favor of the builder and upheld the term in the agreement imposing the one-year statute of limitations. Further, Justice Gonzales wrote a vigorous and persuasive dissenting opinion disagreeing with the majority of the court’s justices who held that the contract’s one-year statute of limitations was unconscionable. In his dissent, Justice Gonzales noted that the Tadychs could have consulted with an attorney regarding the builder’s construction contract, but they chose not to have an attorney review the contract on their behalf before they signed it.
Do you have a question about a contract? Have an attorney review the agreement before you sign it.
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