Procedural Unconscionability in Contracts Explained

Key Takeaways

• Procedural unconscionability occurs when a contract is formed through unfair practices, such as hidden terms, misleading language, or pressure to sign.
• Courts assess factors like oppression, surprise, unequal bargaining power, and whether terms were buried in fine print or presented as a “formality.”
• A finding of procedural unconscionability alone is insufficient; substantive unconscionability is also required to invalidate a contract.
• States like Nevada apply a “sliding scale,” meaning stronger procedural unconscionability can compensate for weaker substantive unconscionability.
• Remedies may include voiding the contract, striking specific clauses, or modifying terms to make them fairer.

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:

1. Oppression, which means that one party has great bargaining power over the other party in which the disadvantaged party is oppressed
2. 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:

1. Ignorance, as most consumers have less knowledge of the particular area than established businesses that have operated in the industry for years
2. 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
3. If the disadvantaged party was forced or threatened into signing the agreement, i.e., duress or coercion

Key Factors Courts Consider in Procedural Unconscionability

When determining procedural unconscionability, courts examine multiple factors to assess whether one party was deprived of a meaningful choice. These factors may include:

• Inequality of bargaining power: One party holds significantly more power or expertise, often seen in adhesion contracts offered on a "take it or leave it" basis.
• Complex or hidden terms: Critical terms are buried in fine print, obscure legal language, or misleading formatting that prevents reasonable understanding.
• Lack of negotiation opportunity: The disadvantaged party had no chance to negotiate key terms or was presented with a non-negotiable contract.
• Pressure or coercion: High-pressure tactics or time-sensitive ultimatums coerced a signature.
• Representation of the contract: Statements minimizing the seriousness of the contract (e.g., calling it a mere formality) prior to signing may contribute to procedural unfairness.

Courts are particularly sensitive to cases where oppressive tactics are combined with “surprise,” meaning unexpected or hidden contractual obligations.

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:

1. Invalidate the entire contract, which means that the contract will be void and unenforceable
2. 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
3. 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

Procedural vs. Substantive Unconscionability: A Comparison

Procedural unconscionability focuses on how the contract was formed, while substantive unconscionability addresses what the contract says. Both elements must usually be present for a court to declare a contract unenforceable:

Some states, like Nevada, apply a “sliding scale” approach—meaning a high level of procedural unconscionability may reduce the need to prove severe substantive unconscionability.

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:

1. Making statements to the disadvantaged party prior to signing the agreement which wholly contradict the language in the contract
2. Persuading a disadvantaged party to sign the agreement that he or she wouldn’t otherwise have signed
3. Downplaying significant contractual terms to the disadvantaged party
4. If one party threatens the other party with violence toward him or his family or friends, i.e., duress
5. If one party forces the other party into signing the agreement, i.e., coercion
6. 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

Additional Examples of Procedural Unconscionability in Practice

Beyond the examples already noted, procedural unconscionability can also arise in:

• Pre-printed standard contracts: Where a business uses generic contracts that are not tailored to the specific transaction.
• Language barriers: Presenting a contract in a language the signer doesn’t understand without translation.
• Limited access to documents: Providing crucial terms only moments before signing or not allowing review at all.
• Digital contracts: “Clickwrap” or “browsewrap” agreements where users are bound without clear disclosure of terms.

In D.R. Horton v. Green, the court highlighted that downplaying significant terms by hiding them among trivial ones, or describing the contract as inconsequential, could indicate procedural unconscionability.

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.

Remedies and Legal Consequences of Procedural Unconscionability

When a court finds both procedural and substantive unconscionability, it has several options:

• Void the contract entirely: Especially if unconscionability affects the core of the agreement.
• Strike specific clauses: The court may sever only the unconscionable provisions and enforce the rest.
• Modify the contract: Courts may adjust terms to remove unfairness while keeping the agreement intact.
• Rescission: Cancels the contract and restores the parties to their pre-contract positions.

Courts aim to balance fairness without unduly interfering with freedom of contract, intervening only when the process and terms cross legal thresholds of unconscionability.

Frequently Asked Questions

1. What are common signs of procedural unconscionability?
   Signs include hidden terms, unfair bargaining power, misleading explanations, and “take it or leave it” contracts.
2. Can a contract be voided solely for procedural unconscionability?
   No; most courts require both procedural and substantive unconscionability to void or modify a contract.
3. How do courts evaluate procedural unconscionability?
   Courts look at oppression, surprise, lack of negotiation, and whether the weaker party had a meaningful choice.
4. Does procedural unconscionability apply to digital agreements?
   Yes; courts have found unconscionability in online contracts where terms are buried or consent isn’t clear.
5. What remedies are available for procedural unconscionability?
   Remedies may include voiding the contract, severing unfair terms, or requiring modifications to make it fair.

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