What Constitutes “Unconscionability” Under Contract Law?

One of the several grounds for invalidating a contract is “unconscionability.” Under contract law, a contract can be voided if it is so one-sided or unfair that it “shocks the conscience” of the court. It essentially establishes a defense against the enforcement of a contract entered into by one party. But what makes a contract “unconscionable?” In this article, the Columbus, Ohio, contract attorneys at Kohl & Cook Law Firm, LLC, will address that question.

Procedural unconscionability 

When determining if a contract is unconscionable, the court will look at the procedural and substantive aspects of the contract. Procedural unconscionability focuses on the bargaining process that established the contract. Its role is to examine whether one party was at a severe disadvantage due to specific factors. These include:

• Unequal bargaining power – If one party has considerably more bargaining power than the other, the court could interrogate the conscionability of the contract.

• Lack of meaningful choice – If one party has no opportunity to negotiate the terms of the contract, it might be considered unconscionable by the court.

• Hidden terms and surprises – If one party includes complex or technical language in the fine print of the contract, or includes clauses that are not within the other party’s expectations, the contract could be considered unconscionable.

• Misrepresentation or deception – If one party misleads the other concerning key terms of the contract, the court might see fit not to enforce it.

Substantive unconscionability 

Substantive unconscionability focuses on the contract’s terms and their fairness. Essentially, it examines whether the terms are excessively harsh or one-sided that they “shock the conscience” of the court. Examples of substantive unconscionability include:

• Excessive cost – If one party charges a price that far exceeds the market value of the goods or services offered in the contract, the court may find that the contract is substantively unconscionable.

• Unfair risk – If all of the risk falls on one party, the contract may be deemed unconscionable by the court.

• Excessive penalties – If the contract contains provisions that include excessive penalties or limit the legal recourse for an injured party, the contract may not be enforceable.

Essentially, unconscionability happens when there is a significant imbalance in the bargaining power of one party (procedural unconscionability) or there are excessively unfair terms in the contract itself (substantive unconscionability). Courts can consider both procedural and substantive unconscionability. Contracts are most likely to be found unconscionable if both elements are present.

Example in case law 

One landmark case that dealt specifically with unconscionability was Williams v. Walker-Thomas Furniture Co. Low-income customers purchased household items on installment contracts from Walker-Thomas Furniture. The contracts included a clause that stated the title to all purchased items would remain the property of the furniture company until the entire balance on all purchases was paid off. That means that if a customer failed to pay for a single item, the furniture store could repossess all the belongings originally purchased from the store, even if they’d paid everything else off.

Ultimately, the court found that the customers had a lack of meaningful choice due to unequal bargaining power and unreasonably unfavorable terms. Since both elements (procedural and substantive unconscionability) were present, the court voided that provision of the contract.

Talk to a Columbus, OH, Contract Attorney Today 

Kohl & Cook Law Firm, LLC, represents the interests of businesses and individuals in contract disputes. Call our Columbus civil litigation lawyers today to schedule an appointment, and we can begin discussing your next steps right away.

Source:

law.justia.com/cases/federal/appellate-courts/F2/350/445/74531/