What is Unconscionability?
Courts and the law have an interest in making sure that contracts are enforced. Not every contract is fair, and both sides don’t always get equal parts of a deal in a contractual agreement. If simply being “unfair” were a defense to a breach of contract action, you can imagine it would be near impossible to have any certainty that our contracts will be performed.
What is Unconscionability?
There is one defense that does allow for a limited defense of unfairness, called unconscionability. Unconscionability is not just intended to avoid unfairness, as there is nothing illegal about unfairness. Rather, it is supposed to stop overreaching; a party using its greater influence or greater power to create a contractual agreement that is nearly devoid of any benefit to one party or the other.
To prove unconscionability, one party to the contract must have had almost no choice but to agree to the terms of the agreement, along with terms that are highly unfavorable to that party. In other words, the substance of the agreement must be unfair, but also, something in the formation of the agreement must also have been inequitable.
Courts will usually ask whether both parties had an equal chance to negotiate or bargain. Courts will look to make sure there are no terms that were hidden, buried, or concealed in the language of the agreement.
As far as the terms of the agreement are concerned, they must not only be unfair, but must be so lopsided that the terms would “shock the conscience.” The court will ask if a reasonable person who was honest and fair and who acted diligently, ever would have agreed to the terms of the agreement. If not, the contract will be considered unconscionable.
Both elements – procedural and substantive unconscionability-must be present, but not in equal degrees. Parties seeking to avoid performance under an agreement under an unconscionability theory should be able to show both problems in the formation as well as the content of the agreement, but need not show both in equal measure.
Heavy, undue influence could lead to unconscionability even if the terms are only slightly unfair. Likewise, slight inequity in the creation of the agreement, along with terms that are grossly unfair, could lead to an unconscionability defense.
Sometimes, when parties have unequal bargaining power, unconscionability issues can arise. Just because one party has more power, or because the other party has less of a choice, doesn’t make an agreement unconscionable—but it should make you aware (if you are the party with the power) that you need to review the terms of the agreement and ensure they aren’t so grossly unfair such as to give rise to an unconscionability argument.
Your business depends on the ability to enforce your contractual agreements. Get legal help as soon as a problem looks like it is arising. Call the West Palm Beach business litigation lawyers at Pike & Lustig for help.