An unconscionable contract is one that is so one-sided that it is unfair to one party and therefore unenforceable under law. It is a type of contract that leaves one party with no real, meaningful choice, usually due to major differences in bargaining power between the parties.
In a lawsuit, if the court finds a contract to be unconscionable, they will typically declare the contract to be void. No damages award or specific performance will be issued, but instead the parties will be released from their contract obligations.
A contract may be found to be unconscionable based on three different factors:
- Undue Influence: This is where one party exercises unreasonable pressure in order to get the other party to sign the contract (especially where one party takes advantage of the other in some way)
- Duress: This where one party uses threats in order to get the other to agree to the contract terms. This can take the form of physical threats, or other types of threats (such as not releasing goods in the proper way until the other party signs)
- Unequal Bargaining Power: This occurs where one party has an unreasonable advantage of the other. This is usually proved if one party is aware that the other obviously did not understand the contract terms
- Unfair Surprise: When the party who creates the contract includes a term in the contract without the other parties knowledge and is not within the other parties expectations
- Limiting Warranty: A contract would be unconscionable if one party tries ti limit their liability to a breach of contract or to any damages that he may incur on other party
The basic characteristic of most unconscionable contracts is that one party signed the contract under situations involving pressure, lack of information, or by being misled.
A typical example of an unconscionable contract is where one party is an experienced dealer in a type of business, while the other party is an average consumer.
Suppose that the business dealer requires the consumer to sign a contract. Within the contract, they have buried very complicated, technical language that most people wouldn’t understand or recognize. The business dealer used very small font and inserted the clause in a way that would purposefully mislead the consumer into signing on unfair terms.
In this case, the contract might be declared unconscionable due to the unequal bargaining power between the parties, and the fact that one party used their knowledge and experience to take advantage of the other. If the court finds the contract unconscionable, it will be declared void and unenforceable.
An unconscionable contract is not the same as an illegal contract. An illegal contract is one that is against the law because the subject matter of the contract is illegal. An example of this is a contract that seeks to address illegal gambling matters.
In comparison, an unconscionable contract may not be illegal in terms of subject matter, but instead is unenforceable due to the circumstances in which the contract was entered into by the parties. In other words, a perfectly legal contract might be considered unconscionable based on the way that one party obtained the other’s signature.
If the court determines that the contract is unconscionable, it can do three things:
- Void Contract: The court can void the entire contract as if the contract never existed. Both parties must discharge their performance and repay any money or benefits given to them in preparation of the contract
- Void Part of the Contract: The courts can also void the contract as far as the unconscionable terms apply to and keep the rest of the contract valid if the remaining terms are still fair and conscionable.
- Modify the Contract: The court may also uphold the entire contract, but modify the terms of the contract in regards to the unconscionable parts and terms. This will allow the court to avoid the unconscionable result without having to create a entire new contract.
Unconscionable contracts can present many legal difficulties. You may wish to hire a contract lawyer if you have any legal disputes or questions such as “What is an unconscionable contract?” An experienced contracts attorney can go over the laws in your area with you to help determine the extent of your claim. They can provide you with much-needed legal advice and will be able to represent you in court if a lawsuit is filed.