unconscionability

unconscionability

If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.
UCC 2-302(1)

A court sitting in equity may find a contract "unconscionable" and thus unenforceable after formation. (Note that with the merger of law and equity, unconscionability is a general defense.) "Unconscionability" is determined from the facts at the time of the contract's formation. [Williams v Walker-Thomas Furniture Co].

In contrast to mere inadequate consideration, unconscionable bargains will still show a great disparity in price after accounting for attitude towards risk, discount rates, objective circumstances, etc.

Note that courts sometimes distinguish between "substantive unconscionability" (inadequate consideration) and "procedural unconscionability" (defects in the bargaining process, such as unequal bargaining power). "Substantive unconscionability" protects against the risk of oppression; "procedural unconscionability" protects against the risk of surprise.

Note that despite unconscionability or other factors meriting equitable relief, a court in equity may in its discretion refuse to order equitable remedies such as specific performance or recission. [Kleinberg v Ratett]. Theoretically, a plaintiff can then sue again at law to recover damages; however, in practice, plaintiffs who fail to gain equitable relief typically abandon their remaining claims at law.

See also the duty of good faith and fair dealing.

Factors creating possible unconscionability

Factors affecting possible unconscionability may include:
- lack of education or general naivete [Woolums v Horsley], Waters v Min Ltd
- unequal bargaining power [Woolums v Horsley] (although notice that the unconscionability doctrine may apply to contracts between sophisticated parties, as in [Gianni Sport Ltd v Gantos Inc]; one common application is between businesses with very disparate power, as in franchise disputes)
- unequal knowledge about the terms of the contract [Williams v Walker-Thomas Furniture Co]
- asymmetric information [Woolums v Horsley]
- grossly inadequate consideration, either by itself, Marks v Gates, or with other factors, Waters v Min Ltd, especially if the inadequate consideration implies fraud Seymour v Delancy
- the lack of a meaningful choice by the promisor [Williams v Walker-Thomas Furniture Co]
- mistake
- misrepresentation

Cases granting relief for unconscionability
Henningsen v Bloomfield Motors
Woollums v Horsley (rural farmer sold mineral rights to his land to sophisticated businessman at under a tenth the market value)
Marks v Gates ($1 contract for 20% of all AK property ever acquired by promisor, who had never been to AK at time of contract but later acquired mineral rights worth $750K)
Waters v Min Ltd (young promisor with large annuity sold annuity rights worth $150-$690K to ex-con for $50K, with no representation for promisor)
[Williams v Walker-Thomas Furniture Co] (promisor, on welfare, buying household goods under contract that allowed for repossession of all goods sold unless full balance on all goods was paid; promisor signed blank, pre-printed contract, and had paid for most of the goods when entire set was repossessed)
[Brower v Gateway 2000] (contract requiring arbitration from firm based in France, with arbitration costs far higher than plaintiff's injuries, and where losing would mean paying Gateway's high legal costs)
[Gianni Sport Ltd v Gantos Inc] (contract giving buyer excessive discretion to terminate the contract, with the effect that buyer could extort a much higher price from the seller, who could only sell to the buyer)

Cases witholding relief for unconscionability
[Kleinberg v Rattet] (refusing specific performance to seller of land with underground stream unknown to buyer, including warranty that land was free of encumbrances)
Seymour v Delancy (drunk traded land worth $12K for 1/3 interest in lot (worth $6K), of which he already held 2/3 interest)

[alias: unconscionable]