What Is an Unconscionable Contract? (2024)

An unconscionable contract is a contract that is so severely one-sided and unfair to one of the parties that it is deemed unenforceable under the law. Unconscionability in contract law means that the contract is one that leaves one of the parties with no real, meaningful choice, typically due to significant differences in bargaining power between the parties to the contract. One of the main characteristics of unconscionable contracts is that one of the parties signed the contract in a situation that involved pressure, lack of information, or because they were misled.

If a lawsuit is filed and the court finds that a contract is unconscionable, the contract will typically be declared void. If a contract is declared void, there is no damages awarded or specific performance ordered, but, instead the parties will be released from their original contract obligations.

An unconscionable contract is also a type of abusive contract. Abusive contracts are illegal or unfair to one of the parties. These types of contracts are void under the law and are not enforceable.

An unconscionable abusive contract is a contract that is so one sided, it would be unjust for one of the parties to be required to perform their duties under the contract. The majority of abusive contracts are deemed unconscionable due to unequal bargaining power between the parties due to one party’s lack of knowledge, experience, or resources.

What are the Elements of an Unconscionable Contract?

There are several elements or factors that may cause a contract to be found unconscionable. In unconscionable contract cases, the party wishing to cancel the contract must show one of the following:

• Undue influence;
• Duress;
• Unequal bargaining power;
• Unfair surprise; or
• Limiting warranty.

When one party exercises undue influence over another, it means that one party unreasonably pressures another party to get them to sign the contract, especially in cases where one party takes advantage of the other party in some way.

Duress occurs when one party uses threats or intimidation in order to get the other party to agree to the terms of the contract. Threatening actions can include physical threats or other types of threats, such as not releasing the goods which are the subject of the contract in the proper manner until the other party signs the contract.

Unequal bargaining power occurs when one party has an unreasonable advantage over the other party. This can be demonstrated by showing that one party is aware that the other party obviously did not understand the contract terms.

Unfair surprise occurs when the party that created the contract includes a term or terms in the contract that the other party was not aware of. It is also a term or terms that is not within the other party’s expectations.

A limiting warranty would cause a contract to be unconscionable if one of the parties tries to limit their liability to a breach of contract. It would also apply if the party tried to limit their liability to any damages that they may cause.

What is an Unconscionable Contract Example?

A typical example of an unconscionable contract occurs when one party is an experienced dealer in a certain type of business and the other party is an average customer. For instance, suppose that the business healer required the customer to sign a contract.

Suppose that, in that contract, the business dealer buried very complex and technical language that most ordinary individuals would not understand or recognize. Suppose the business dealer used a very small font and inserted the clause in such a way that it would purposefully mislead the consumer into signing a contract that contained unfair terms.

In this example, the contract may be declared unconscionable due to the unequal bargaining power between the two parties as well as the fact that one party used their knowledge and experience to take advantage of another party. If the court deems the contract unconscionable, it will be declared unenforceable and void.

What is an Unconscionable Contract Compared to an Illegal Contract?

An unconscionable contract is different from an illegal contract. An illegal contract is a contract that is against the law because the subject matter of the contract is illegal. For example, an illegal contract is one that seeks to address illegal gambling issues.

An unconscionable contract, on the other hand, may not be illegal in terms of the subject matter but is unenforceable because of the circ*mstances in which the contract was entered into by the parties involved. For example, a contract that would otherwise be perfectly legal may be deemed unconscionable based on the manner in which one party obtained the other party’s signature.

What is an Unconscionable Contract Remedy?

There are several different possible remedies for unconscionable contracts. If a court determines a contract is unconscionable, the court may do one of three things:

• Void the contract;
• Void part of the contract; or
• Modify the contract.

The court may void the entire contract and treat it as though it never existed. All parties to the contract would be required to discharge their performance and repay any money or other benefits that were given to them in preparation for the contract.

The court may also void part of the contract but not the entire contract. In this case, the court would void the unconscionable terms of the contract and keep the remaining terms of the contract in place so long as they are still fair and conscionable.

The court may choose to uphold the entire contract but modify the terms of the contract that are unconscionable. This option allows the court to avoid an unconscionable result without being required to create an entirely new contract.

It is important to avoid entering into an unconscionable contract if possible. There are some steps individuals can take in order to avoid this issue, including:

• Read the entire contract carefully. Most abusive contracts are entered into because one party did not fully understand all of the contract terms;
• Have an attorney review the contract to ensure that the terms are not illegal or abusive;
• If an individual is unsure or unsatisfied with any contract provisions, be sure to bring this up during negotiations and attempt to reach a more satisfactory agreement;
• Do not sign any contract if the other party cannot explain the terms clearly; and
• Do research to learn about the business or person that the individual is dealing with. This is especially important if the individual is taking over duties for previously existing business dealings.

It is important to be aware that contract laws vary greatly from jurisdiction to jurisdiction. An attorney can provide advice regarding local contract laws.

Do I Need a Lawyer If I Have a Dispute Involving an Unconscionable Contract?

Yes, it is essential to have the assistance of an experienced contract lawyer if you have a dispute involving an unconscionable contract. An unconscionable contract can present many legal difficulties.

An attorney can review your specific contract to determine if there are portions of the contract that are unconscionable or if the entire contract is unconscionable. Your attorney can also represent you during any court proceedings if it becomes necessary to file a lawsuit.