Unconscionable Conduct Cases: Everything You Need to Know
Unconscionable conduct cases refer to cases in which actions are shockingly unfair and can lead to the invalidation of a contract by a court. 3 min read
2. Unconscionable Conduct and Loan Terms
3. Unconscionable Conduct and Class Action Waivers or Compulsory Arbitration Clauses
4. Other Cases Involving Unconscionable Conduct
Unconscionable conduct cases refer to cases in which actions are shockingly unfair and can lead to the invalidation of a contract by a court. A popular unconscionable conduct cases example is the Rochin v. California case, in which the U.S. Supreme court ruled in 1952 that it is unconscionable to forcefully extract evidence from a suspect's body.
Types of Unconscionable Conduct
What constitutes unconscionable conduct varies from state to state but typical examples of unconscionable conduct include:
- A business tricking an uneducated man into a one-sided contract
- Financial institutions levying shockingly high interest rates on their lenders
- A business signing a contract with a minor
- A business levying unfairly high financial penalties on another entity
- A contract in which a business prohibits another signatory from seeking court intervention if disgruntled by the contract
- A contract clause that absolves a business of any liability in case its products are defective
Below are some examples of popular court rulings involving unconscionable conduct.
Unconscionable Conduct and Loan Terms
Harsh Loan Contract
In the James v. National Financial, LLC, C.A. case, a woman was given a loan at an interest of 800%. She sued the lender on the grounds that the loan contract was unconscionable. In its 2016 ruling, the Delaware Court of Chancery ruled that the loan contract was null and void because it was unconscionable. In this case, the terms of the of the loan contract were too harsh.
"Unreasonably Generous" Loan Terms
Several West Virginia homeowners filed lawsuits claiming that the loan amounts they got for their homes are too high. They claimed that the loan contracts are unconscionable because they were allowed to borrow too much. In one of the cases a homeowner, McFarland, sued Wells Fargo for giving him a loan that was $62,000 more than the value of his house. He reasoned that the loan amount and the conduct of Wells Fargo were unconscionable. On appeal in 2014, the U.S. District Court for the Southern District of West Virginia ruled in favor of Wells Fargo. The court stated that a home loan cannot be unconscionable because of the amount of the loan. The judge observed that the loan amount actually disadvantaged the lender which is the direct opposite of unconscionable. He ruled that unconscionability would have to result because of harsh interest rates or payment schedule.
Unconscionable Conduct and Class Action Waivers or Compulsory Arbitration Clauses
Compulsory Arbitration Clause
In 2015, the U.S Supreme court upheld compulsory arbitration clauses in consumer contracts. In the DIRECTV, Inc. v. Imburgia case, California courts had upheld the right of DIRECTV customers to file a class action lawsuit against their TV provider over high termination fees reasoning that class action waiver clause in their consumer contracts in unconscionable. However, the U.S. Supreme Court threw out the lawsuit hence affirming the validity of arbitration clauses.
The Arbitration Clause and Costs
A woman bought a trailer home from a manufacturer whose contract mandated that any dispute with the seller should be settled through arbitration. This kind of arbitration clause is supported by the Federal Arbitration Act and the Uniform Arbitration Act. But the buyer sued the trailer manufacturer for millions of dollars citing fraud. The seller told her to halt court proceedings to pursue arbitration but the woman refused saying that she could not afford arbitration costs which were proportional to the amount of damages claimed. The case went up to the U.S. Supreme Court which upheld the arbitration clause.
Other Cases Involving Unconscionable Conduct
One-Sided or Superior Bargaining Power Cases
Entities have successfully brought claims against others on the basis that the contract is unconscionable because one of the parties to the contract had superior bargaining power. Examples include:
- When the warranty period of a product expires before the good is even installed
- A clause that limits the time to make a claim against a product with latent defects
- A handwritten contract that is not legible
- A clause buried in a big stack of company rules and regulations
- A disclaimer of warranties which specifically discusses issues of a new car when actually a used car was sold
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