What is unconscionability?

In contract law, the term "unconscionability" refers to a legal doctrine that allows a court to invalidate or render unenforceable a contractual agreement if it is found to be so one-sided, oppressive, or fundamentally unfair that it “shocks the conscience of the court.”

Types of Unconscionability: Procedural vs. Substantive

Unconscionability in contract law refers to fairness and equity issues that can be divided into two distinct categories - procedural and substantive unconscionability. 

Procedural unconscionability deals with the circumstances surrounding the contract formation. It questions the methods and conditions under which a contract was negotiated and agreed upon. This form of unconscionability often arises from an imbalance in bargaining power, where one party, typically the more powerful, uses its position to impose contract terms on the weaker party. Factors considered include:

• Imbalance in Bargaining Power: This occurs when there's a significant disparity in the power, knowledge, or resources between the parties, often leaving the weaker party with no real choice but to accept the terms as presented.
• Inadequate Disclosure or Opportunity to Understand the Terms: Contracts might be considered procedurally unconscionable if they are complex, use dense legal jargon, or if crucial terms are hidden in fine print, thus preventing a party, typically the one with less power or knowledge, from fully understanding the implications.
•  Pressure and Coercion: High-pressure sales tactics or situations where a party is rushed into signing a contract without adequate time for consideration also contribute to procedural unconscionability.

Substantive unconscionability concerns the actual content of the contract, focusing on the fairness of the terms themselves and whether they are so one-sided as to be oppressive or excessively harsh. Elements of substantive unconscionability include:

• Excessive Fees or Penalties: Terms imposing unreasonably high fees for breaches, such as liquidated damages clauses that are so disproportionately large compared to the harm caused, that they could be more accurately considered penalties.
• Waivers of Fundamental Rights: Provisions requiring a party to waive significant legal rights (e.g., mandatory arbitration clauses that deny a party the right to sue in a court of law).
• Restrictive Remedies and Unilateral Amendments: Clauses severely limiting a party's ability to seek legal remedies, or allow one party to change contract terms unilaterally.

CommonTypes of Unconsiocnable Contracts 

Unconscionable contracts and clauses can take different forms and appear across various types of contracts. One example is consumer contracts, where businesses interact with individual consumers, creating an imbalance in knowledge and bargaining power. Such contracts may contain unfair warranty disclaimers, excessive breach penalties, or mandatory arbitration clauses that limit a consumer's ability to seek legal redress. 

Employment contracts are another example, often containing terms that unfairly restrict employees' rights, such as non-compete agreements or mandatory arbitration clauses. Residential lease agreements may also have unconscionable terms, such as clauses that waive tenant rights, impose excessive penalties for late payments, or unreasonably restrict the use of the property. 

Finally, contracts of adhesion are standardized contracts used in mass-market situations where the parties have significantly different bargaining powers. The stronger party, typically a business, presents the terms to consumers on a "take-it-or-leave-it" basis with little to no room for negotiation.

Remedies for Unconscionable Contracts

In case a contract is considered unconscionable, there are several remedies available. The court can declare the contract null and void, or it might determine it to be voidable. Alternatively, the court might choose to remove or strike out specific clauses that are unconscionable while retaining the remaining parts of the contract. This way, the contract can be enforced without the unfair terms.