Key Takeaways

  • An unconscionable bargain refers to a highly unfair contract term or agreement that one party imposes on another, often due to a significant imbalance in bargaining power.
  • Courts look at both procedural (how the contract was formed) and substantive (the actual terms) unconscionability.
  • Common indicators include coercion, undue influence, hidden clauses, or extremely one-sided terms.
  • An unconscionable bargain may not always void an entire contract—courts can also strike the clause or order modification.
  • Remedies include rescission, reformation, or refusing to enforce the unconscionable provision.
  • Legal advice is crucial when determining if a contract is legally unconscionable or merely unfavorable.

An unconscionable bargain is an unfair provision or clause identified in a contract that could deem the entire contract invalid. It is essentially a transaction that no reasonable person would enter into. Courts almost always invalidate unconscionable bargains as the entire contract would be unfair for one of the parties. However, the court could also void only part of the contract by removing the unconscionable terms or alternatively request that such terms in the contract be modified.

What is an Unconscionable Contract?

When a court deems an entire contract unconscionable, no specific damages or specific performance under the contract is issued; rather, the parties will be released from all contractual obligations.

There are five factors that could deem a contract unconscionable, and these include:

  1. Undue influence
  2. Duress
  3. Unequal bargaining power
  4. Unfair surprise
  5. Limiting warranty

Undue Influence

Undue influence occurs when one party exercises pressure on the other party to sign the contract. While such pressure doesn’t necessarily constitute threatening acts, the pressure itself causes the other party to feel forced into signing the agreement.

Duress

Duress involves one party making a threat to the other party to sign the contract. This could be a physical or verbal threat in which the one party threatens the other party in such a way that the victim feels as though there is no other choice but to sign the agreement.

Unequal Bargaining Power

Unequal bargaining power occurs when one party has an unreasonable advantage over another party. This can be proven if the disadvantaged party can prove that the other party has additional resources and knowledge of the terms under the contract. For example, if the other party included complex technical jargon in the contract that the disadvantaged party wouldn’t be aware of, this will likely deem the contract unconscionable. Some other examples include inputting content into the contract that is in very small font or inserting it in such a way that would mislead the other party signing the contract.

Unfair Surprise

Unfair surprise occurs when one of the parties in the contract creates a clause or provision without the other party’s knowledge that wouldn’t be a provision that the other party would agree to.

Procedural vs. Substantive Unconscionability

When courts evaluate whether a contract includes an unconscionable bargain, they typically assess two forms of unconscionability:

  • Procedural unconscionability focuses on how the contract was formed. This includes hidden terms, confusing legal language, high-pressure sales tactics, or lack of meaningful choice (e.g., take-it-or-leave-it contracts).
  • Substantive unconscionability examines the actual terms of the contract. A clause may be substantively unconscionable if it is overly harsh or one-sided—such as requiring only one party to arbitrate or imposing severe penalties on only one side.

Both elements are often required, but a strong showing of one may offset a weaker showing of the other.

Limiting Warranty

Limiting warranty involves one party attempting to limit their own liability in the event the contract is breached. An example of this is if the one party includes terms and provisions in the contract indicating that even if they breach the contract, they can’t be held personally liable.

Examples of Unconscionable Bargains

Here are real-world examples where courts have identified unconscionable bargains:

  • Predatory lending: A lender charges an extremely high interest rate while concealing critical terms in fine print.
  • Arbitration clauses: A contract includes a mandatory arbitration clause buried in dense legal text, giving the drafting party the sole right to choose the arbitrator.
  • Lease agreements: A tenant is required to waive all legal claims against a landlord regardless of the circumstances.
  • Employment contracts: An employer mandates non-compete clauses with unreasonable duration and geographic scope that limit future job opportunities.

These examples show how unconscionable terms can arise in consumer, employment, landlord-tenant, and loan agreements.

Unconscionable vs. Illegal Contract

These two terms are not the same. An illegal contract is an agreement that is against the law because the actual subject matter of the contract is illegal. An example of this could be a contract involving illegal gambling. In contrast, an unconscionable contract might be entirely legal in its terms and provisions, but is unenforceable due to the circumstances in which the contract was entered.

Factors Courts Consider in Unconscionable Bargains

To determine whether a contract term is unconscionable, courts typically evaluate factors such as:

  • Whether the contract was presented on a "take-it-or-leave-it" basis (adhesion contract).
  • The relative education and sophistication of the parties.
  • Whether the weaker party had a chance to negotiate or seek legal advice.
  • If critical terms were hidden in fine print or difficult to understand.
  • Whether the stronger party exploited a vulnerable condition such as financial distress, disability, or language barrier.

Courts aim to prevent exploitation rather than protect parties from bad deals alone.

What are the Remedies for an Unconscionable Contract?

There are three main remedies that are available:

  1. Void the entire contract
  2. Void part of the contract
  3. Modify the contract

The court might deem the entire contract void as if it never existed. Therefore, both parties must stop performing under the agreement, and have to repay any money that was paid by either of the parties.

The court might also determine to void only part of the contract, particularly the provision or terms that were deemed unconscionable. But the remainder of the contract will be deemed valid.

The court could also decide to have the contract modified. Therefore, the court could uphold the contract, but request the terms be modified to exclude any unconscionable provisions.

Are Unconscionable Bargains Enforceable?

Generally, unconscionable bargains are not enforceable. Courts can:

  • Refuse to enforce the entire agreement if the unconscionable element is central to the contract.
  • Strike the unconscionable clause and enforce the rest of the agreement.
  • Reform the contract by rewriting the clause to eliminate unfairness.

However, a contract won't be deemed unconscionable just because it favors one party. It must rise to the level of being shockingly unjust or oppressive.

Is a Lawyer Required for Disputes Arising from Unconscionable Bargain?

Such unconscionable bargains can represent challenges. Therefore, you might want to hire an attorney who can better assist you with any questions that you might have regarding the terms of the contract. An attorney can go over the laws with you, and help you identify if you have a claim.

Frequently Asked Questions

  1. What is the legal definition of an unconscionable bargain?
    An unconscionable bargain refers to an extremely unfair agreement where one party takes advantage of the other's lack of bargaining power, often resulting in oppressive or one-sided terms.
  2. How do courts determine if a contract is unconscionable?
    Courts examine both procedural and substantive elements—how the contract was formed and whether the terms are unreasonably harsh or one-sided.
  3. Can a contract be partially unconscionable?
    Yes. Courts can sever or modify the specific unconscionable provision while enforcing the rest of the contract.
  4. Is it enough for a contract to be unfair to be voided?
    No. A contract must be so unfair that it shocks the conscience of the court. Mere disadvantage or poor judgment isn’t enough.
  5. Should I hire a lawyer if I suspect an unconscionable bargain?
    Yes. A qualified attorney can evaluate your case, determine if the contract meets legal thresholds for unconscionability, and advise you on your legal options.

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