Procedural Unconscionability: Everything You Need to Know
Procedural unconscionability refers to the unconscionability in how a contract was formed between parties and a party having an advantage over another.3 min read
2. What is Unconscionability in a Contract?
3. Examples of Procedural Unconscionability
4. Application of Unconscionability
Procedural unconscionability refers to the unconscionability in how a contract was formed between parties. It could result from one party having a significant advantage over another, i.e., bargaining power and intelligence.
What Does Procedural Unconscionability Do?
Procedural unconscionability indicates that the parties didn’t freely consent to the terms and provisions identified in the contract. Such doctrine will allow the court to void the contract as if it was never created in the first place.
The concept of procedural unconscionability focuses on two factors:
- Oppression, which means that one party has great bargaining power over the other party in which the disadvantaged party is oppressed
- Surprise, which results if one of the parties includes hidden terms that the other party didn’t agree upon, i.e., including terms in much smaller font, adding in terms after the other party signed the agreement, and including very complex provisions with technical jargon that the other party wouldn’t otherwise understand
Keep in mind that procedural unconscionability is not the same as substantive unconscionability. The latter is based on actual terms or provisions in the contract that are deemed unconscionable, whereas the former means that the actual procedural steps taken when entering into the contract were found to be unconscionable.
Courts will generally look at several factors when determining procedural unconscionability, including:
- Ignorance, as most consumers have less knowledge of the particular area than established businesses that have operated in the industry for years
- The fine print of the terms included in the contract when negotiating, i.e., if, during the negotiation phase, the superior party communicates to the disadvantaged party in writing terms that are confusing, complex, and overall hard to understand
- If the disadvantaged party was forced or threatened into signing the agreement, i.e., duress or coercion
What is Unconscionability in a Contract?
Generally, if you sign a contract, you will be required to perform what is expected of you under the contract. However, there are several exceptions and defenses that can invalidate the contract. Therefore, if a contractual dispute arises based on the unconscionable terms of the contract (substantive unconscionability), the unconscionable procedures used to enter into the contract (procedural unconscionability), or the illegality of the contract (illegal conduct or fraudulent activity), the court can do any one of the following:
- Invalidate the entire contract, which means that the contract will be void and unenforceable
- Invalidate certain terms or provisions of the contract, meaning that those terms that were deemed unconscionable would be removed from the contract, but the contract will still remain in tact
- Modify the terms of the contract, meaning that any unconscionable terms or provisions would remain in tact but have to be modified by the parties before they can move forward with performing under the contract
Examples of Procedural Unconscionability
There are several examples of procedural unconscionability, as noted above. However, many additional circumstances can amount to procedural unconscionability; such examples are as follows:
- Making statements to the disadvantaged party prior to signing the agreement which wholly contradict the language in the contract
- Persuading a disadvantaged party to sign the agreement that he or she wouldn’t otherwise have signed
- Downplaying significant contractual terms to the disadvantaged party
- If one party threatens the other party with violence toward him or his family or friends, i.e., duress
- If one party forces the other party into signing the agreement, i.e., coercion
- If one party includes a limited liability clause indicating that it will not be liable for breach of contract, even if the advantaged party is the cause of the breach
Application of Unconscionability
Some states requires that a court find both procedural and substantive unconscionability in order to render a contractual provision void. Particularly, the state of Nevada will use a sliding scale for unconscionability, and has stated that the more procedurally unconscionable the contract is, the more apt it will be to find the contract void. Therefore, it will usually look at the procedural concept rather than the substantive terms of the agreement.
Other courts might determine that the entire contract is void, particularly for instances of illegality, duress, and coercion. If this is the case, the parties will be free to walk away as if the contract never existed in the first place.
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