Key Takeaways

  • Substantive unconscionability refers to contract terms that are excessively unfair, one-sided, or oppressive.
  • It is assessed independently but often arises alongside procedural unconscionability, which relates to the formation of the contract.
  • Courts examine factors like disproportionate obligations, excessive prices, denial of legal remedies, and imbalance in rights and responsibilities.
  • Substantive unconscionability can render a contract or certain clauses unenforceable.
  • Legal remedies may include contract reformation, voiding specific clauses, or declaring the entire contract void.

Substantive unconscionability refers to the unconscionability of the actual terms and provisions in a contract. This is different from procedural unconscionability, which refers to the actual procedures taken when entering into the contract.

Such procedural unconscionability can result from difference in age, intelligence, bargaining power, etc. While these two doctrines are different, they do in fact relate to one another, as procedural unconscionability will usually result in unconscionable substantive terms in the contract.

Substantive Unconscionability: An Overview

This doctrine can be used in a legal dispute as a defense to a breach of contract claim. Therefore, if a plaintiff brings a contractual dispute against the defendant for breach of contract, the defendant can argue that the terms identified in the contract are unconscionable. Courts will usually look at several factors in order to determine if a term or provision is, in fact, unconscionable. Such factors include:

  1. If one party has significant bargaining power over the other party
  2. If one of the parties included hidden language in the contract, whether it be language included in a different provision, verbiage that was included in much smaller font than the remainder of the contract, or language that is overly complex and hard to understand
  3. If any illegal conduct is identified in the contract
  4. If duress or coercion exist

Keep in mind that illegality in a contract is an entirely separate doctrine; however, courts will still use this as a factor in determining if the defendant did, in fact, breach the contract. While a defendant can bring the substantive unconscionability defense into play, he or she can also indicate that the contract was illegal if any wrongful or illegal conduct took place on behalf of the other party.

Duress or coercion are usually factors taken into account for the doctrine of procedural unconscionability, but courts will still look to such factors in any contractual dispute to determine if the contract itself is enforceable. Duress occurs if one party threatens the other party into signing the agreement. Coercion exists if one party was forced into signing the agreement. While such terms seem interchangeable, they are quite different in terms of how courts determine if a contract is valid or not.

For example, if John threatens to physically injure Sue if she doesn’t sign the agreement, then this constitutes duress. If John doesn’t threaten Sue but continues trying to persuade or force her to sign the agreement by making other false promises, then this constitutes coercion.

What Makes a Contract Term Substantively Unconscionable

Substantive unconscionability focuses on the content of a contract—specifically, whether the actual terms are so one-sided or oppressive that they shock the conscience. It often arises when one party imposes harsh conditions that limit the other party’s rights or benefits excessively from the agreement.

Common indicators of substantive unconscionability include:

  • Excessive price disparity: When the price charged grossly exceeds market value.
  • Lack of mutuality: If obligations are imposed only on one party while the other is given wide discretion.
  • Limitations on legal remedies: Contract provisions that waive rights to sue, enforce arbitration in distant jurisdictions, or limit damages unreasonably.
  • Unfair penalty clauses: Terms that impose disproportionate penalties for breach of contract.
  • Hidden or confusing terms: Clauses buried in fine print or using overly technical language.

Courts will typically assess whether the provisions are commercially reasonable and consistent with good faith and fair dealing. If not, the contract—or at least the unconscionable terms—may be voided or reformed.

Understand Contract Law Before Entering into an Agreement

You should do your best to fully understand all of the contractual rights under the agreement before entering into it. Ensure that you are aware of contract law, and what rights you have if a contractual dispute arises between you and the other party.

Understand the elements of entering into a contract. Such elements include the offer, acceptance, consideration, mental capacity, substantive legal subject matter, consent, and mutual understanding. If during the procedural steps of entering into a contract, you are offered something, you must accept it. If you accept the offer but want to modify the terms of the initial offer, then this constitutes a counter-offer. Once you do eventually accept the offer, there must be consideration. This is the easiest element to prove, as even a simple promise to do something constitutes consideration.

Next, you need to make sure that you and the other party are mentally competent. This might seem odd, but in addition to both parties being mentally capable of entering into the agreement, both parties must be at least 18 years of age. Anyone under the age of 18 isn’t considered mentally competent.

Thereafter, you need to ensure that the subject matter identified in the contract is legal. For example, if the contract involves illegal gambling, then this contract will be deemed void and unenforceable.

Consent is the next element in a contract. Did both parties consent? Were you coerced into signing the agreement? Did you enter into it under duress? This is where these concepts come in.

The last element is mutual understanding. Do you and the other party both understand your rights and responsibilities under the contract? Is there hidden language? Is there technical jargon that you don’t understand?

Legal Consequences of Substantive Unconscionability

If a court finds a contract to be substantively unconscionable, it has several options depending on the severity and context of the unfair terms:

  • Strike down the offending clause: The court may remove only the unconscionable term and enforce the remainder of the contract.
  • Reform the contract: Courts may modify the clause to make it fair and reasonable for both parties.
  • Void the entire contract: If the unconscionable term is central to the agreement, the court might declare the entire contract unenforceable.

It’s important to note that courts generally require both substantive and procedural unconscionability to be present, although the degree of one may compensate for a lesser degree of the other.

Examples of Substantively Unconscionable Terms

To better understand substantive unconscionability, consider the following examples:

  • Arbitration clauses requiring travel: A term that forces a low-income employee to arbitrate disputes in a faraway state at their own cost.
  • Excessive interest rates: A payday loan contract that charges interest rates over 500% annually.
  • Non-reciprocal termination rights: A contract allowing one party to cancel anytime for any reason, while binding the other party indefinitely.
  • Warranty disclaimers: A retail sales contract that denies any and all warranties, leaving the buyer with no recourse if the product fails.

These examples illustrate how imbalanced or exploitative terms can raise red flags for courts when evaluating the enforceability of a contract.

Frequently Asked Questions

  • What is the difference between substantive and procedural unconscionability?
    Substantive unconscionability concerns the fairness of the contract terms themselves, while procedural unconscionability deals with how the contract was formed, such as through pressure, deceit, or imbalance in bargaining power.
  • Can a contract be voided solely for substantive unconscionability?
    Typically, both types of unconscionability must be present. However, a high degree of substantive unfairness may still prompt a court to intervene, especially in consumer or employment contracts.
  • What are common signs of substantive unconscionability in a contract?
    Look for extreme pricing, unilateral obligations, restricted legal remedies, or terms that are overly technical or buried in the fine print.
  • Can I sue if I signed a contract with unconscionable terms?
    Yes. If the terms are egregiously unfair and you had little choice or understanding at the time of signing, you may have grounds to challenge the contract in court.
  • How can I avoid signing an unconscionable contract?
    Review all terms carefully, seek legal advice if needed, and avoid signing under pressure or without full understanding of your rights and obligations.

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