Contracts I, Pages 536–541

American Software, Inc. v. Ali

California Court of Appeal, 1996

Facts:

Plaintiff was an employee of defendant's from September 1991 to March 1994, when she resigned. She has hired to sell and market licensing agreements for software products to large companies. Defendant agreed to pay plaintiff a base monthly salary plus a draw. If products were sold during a month, any commissions paid were reduced by the amount of the draw. While the draw was paid regardless of commissions, the negative value was carried over against future commissions. Her annual salary was $75,000, her base monthly salary $3,333, and her nonrefundable draw $2,917. Her right to receive commissions terminated 30 days after the voluntary severance of her employment.

Plaintiff had a lawyer "buddy" review the contract and review it prior to employment. She was aware of the provision before being hired.

Procedural History:

The trial court found the provision terminating plaintiff's commissions to be unconscionable and awarded her $30,000.

Issue:

Was the provision of defendant's contract unconscionable?

Rules:

  • California courts generally require both procedural and substantive unconscionability. Some courts use a sliding scale for substantive and procedural unconscionability.

  • Page 539

    Substantive unconscionability is indicated by contract terms so one-sided as to "shock the conscience."

Reasoning:

  • Plaintiff knew the terms of her contract and had the ability to negotiate for better terms. There were no hidden or unclear terms. This shows a lack of procedural unconscionability.

  • Plaintiff's commissions post-termination did not exist when the contract was formed and hence could not be a basis for substantive unconscionability.

Holding:

No, the provision of defendant's contract was not unconscionable. Reversed with costs.

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