Unconscionable Contract: Everything You Need to Know
An unconscionable contract is one-sided and unfair that the court usually deem this contract unenforceable either in whole or in part.3 min read
2. Bargaining Power
3. Unfair Terms
4. Unconscionable Contract Examples
5. Unconscionable Contract Remedies
An unconscionable contract is one that is so one-sided or so unfair that it shocks the conscience. The court usually deems such contracts unenforceable either in whole or in part, depending on if the entire contract is unconscionable, or if only certain terms or provisions identified therein are unconscionable.
Unconscionability is a common defense in a breach of contract claim. For example, if the plaintiff brings a breach of contract claim against the defendant for failing to perform under the contract, the defendant can make a counterclaim stating that either certain terms in the contract or the entire contract itself is unconscionable because it oppresses the party.
How a Court Determines Unconscionability
A court will usually look at two main factors when determining unconscionability:
- Bargaining power, i.e., oppression
- Unfair terms, i.e., surprise
One party will have bargaining power over another party if the disadvantaged party is less knowledgeable in the industry, much younger than the other party, or of less intelligence. For example, if two individuals enter into a contract – one is fifty and another is nineteen-years-old. Generally, the older individual will have more knowledge regarding the legal concept of contract due to his or her age. This could be a consideration that courts will take into account when looking at unconscionability. Another example is if one party to the contract is a well-established business that has operated in the lighting industry for decades. The other party, the consumer entering into the contract, might have much less knowledge in the lighting industry, and not understand the technical jargon, costs associated with such materials, etc. In this case, the court could deem the contract, or some of its provisions, unconscionable.
Unfair terms could include one-sided terms or provisions that benefit one party over another. For example, if one party includes a clause of limited liability if it breaches the contract, this will likely constitute unfairness and be unenforceable, particularly if the advantaged party is the cause of the breach. Another example of unfair terms would be hidden language found in the contract, whether it be included in small font or hidden in other clauses that are unrelated to the language being specified. Such hidden language will almost always constitute unfairness, particularly if the disadvantaged party was unaware of the verbiage in the agreement.
Unconscionable Contract Examples
A contract can be unconscionable in any one of the following circumstances:
- Undue influence
- Unequal bargaining power
Undue influence could occur if one party puts significant pressure on the other party to sign the contract. This could involve the superior party making false promises, or trying to persuade the other party into signing the agreement.
Duress occurs when one party threatens the other party. The threat itself might be physical or verbal, and could be a threat to injure the other party, his family, or friends.
Unequal bargaining power, as previously noted, occurs when one party has a significant advantage over the other party, due to age, intelligence, or knowledge.
Surprise occurs when one party includes terms unknown to the other party. This could include technical jargon, small font, or even adding in terms and provisions after the other party already signed the agreement.
Unconscionable Contract Remedies
The court has a few options when concluding that the contract or terms therein are unconscionable. Such options include:
- Voiding the entire contract
- Voiding part of the contract
- Having the party modify specific terms in the contract
If the court indicates that the entire contract is unconscionable, for any reason, it will deem the contract void. In this case, the parties will walk away free of any obligation to perform under the contract.
If the court determines that only part of the contract is void, then the terms and provisions that are deemed unconscionable will be stricken from the contract. In this case, the remainder of the contract will still be enforceable.
If the court asks the parties to modify the unconscionable terms of the contract, they will be able to keep that language in, but will ask only that those terms be modified. Thereafter, performance under the contract can continue.
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