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Contracts • Defenses to Enforcement and Formation
K#073
Legal Definition
Unconscionability occurs procedurally when there is an unfair surprise to a party, or substantively when a contract contains oppressive terms at the time of contracting. In the presence of unconscionability, a court may refuse to enforce all or part of the contract. Unfair pricing alone is not sufficient. Common examples include inconspicuous risk-shifting provisions, contracts of adhesion, exculpatory clauses, or limitations of remedies.
Plain English Explanation
"Unconscionable" is defined as being unreasonably excessive. Though parties are generally allowed to agree to any contract terms that aren't otherwise illegal, courts do not appreciate contract terms that are procedurally unfair (meaning the process of making the agreement was unfair) or substantively unfair (meaning the terms of the agreement are unfair).
Examples of Procedural Unconscionability:
1. Sneaky, inconspicuous risk-shifting provisions that try to move all or most of the risk from one party to another.
2. Contracts of adhesions, which offer no negotiation between the parties and are basically "take it or leave it" situations.
3. Exculpatory clauses that release a party from intentional wrong doings.
4. Attempts to limit a party's remedies and options to recover if things go wrong.
Examples of Procedural Unconscionability:
1. Sneaky, inconspicuous risk-shifting provisions that try to move all or most of the risk from one party to another.
2. Contracts of adhesions, which offer no negotiation between the parties and are basically "take it or leave it" situations.
3. Exculpatory clauses that release a party from intentional wrong doings.
4. Attempts to limit a party's remedies and options to recover if things go wrong.
Hypothetical
Hypo 1: Bob owns a car dealership. Sam wants to buy a car. In the purchase agreement, Bob has a term that limits his liability for any defects on the car to either replacement of the vehicle or repair of the defect. Sam agrees. A day later, Sam brings his car in because there is a knocking sound coming from the engine. Sam wants his money back. Result: Though Bob has limited Sam's remedies and Bob's own liability, this wouldn't necessarily be enough to rise to the level of unconscionable.
Hypo 2: Same facts as Hypo 1, except after Sam brings his car back to be fixed, two days later there is knocking again in the engine. Sam brings it back to get fixed. Four days after Sam gets the car back, there is a knocking in the engine. Bob replaces Sam's car. Sam drives that car for a week and there is a knocking in the engine. Sam wants his money back. Result: A court would likely find it unconscionable to force Sam to keep coming back to Bob with the same problem forever simply because the contract includes such a term. Thus, a court may get rid of the limitation of liability clause from the contract, enabling Sam to pursue other remedies for breach.
Hypo 2: Same facts as Hypo 1, except after Sam brings his car back to be fixed, two days later there is knocking again in the engine. Sam brings it back to get fixed. Four days after Sam gets the car back, there is a knocking in the engine. Bob replaces Sam's car. Sam drives that car for a week and there is a knocking in the engine. Sam wants his money back. Result: A court would likely find it unconscionable to force Sam to keep coming back to Bob with the same problem forever simply because the contract includes such a term. Thus, a court may get rid of the limitation of liability clause from the contract, enabling Sam to pursue other remedies for breach.
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