Also known as: unconscionable contract · unconscionable contracts · unconscionable clause · unconscionable clauses · unconscionability · unconscionable bargain
Written by attorneys · grounded in primary & secondary sources — see below
A contract or clause so unfair or one-sided at the time of formation that enforcement would shock the conscience. A court may refuse to enforce the entire agreement, excise the offending clause, or limit its application to prevent an unconscionable result. The determination rests on the commercial setting, purpose, and effect of the term together with any procedural defects in the bargaining process.
Ultrasonic Dynamics contracted with Unity Capital to supply specialized components at a fixed price that assumed stable production yields. After yields proved far lower than expected, enforcing the volume and price terms would have bankrupted the supplier. The court refused to enforce the price and quantity clauses because they were unconscionable when made.
Usha Upton and her former spouse signed a separation agreement that divided pensions and barred future modification regardless of later financial shifts. Years afterward one spouse sought adjustment because of changed economic conditions. The court enforced the non-modification provision because the agreement had been conscionable when executed.
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Una Ueda purchased a phone under a contract containing a class-arbitration waiver. She later argued the waiver was unconscionable under state law and sought to litigate a class claim. The court enforced the clause because the Federal Arbitration Act preempted the state unconscionability rule.
Ugo Ucelli agreed to supply aluminum to Essex Group under a contract that fixed prices without adequate adjustment for raw-material cost surges. Performance became commercially impracticable and grossly one-sided. The court limited the price term to avoid an unconscionable result while preserving the remainder of the agreement.
Ursula Ureña signed an employment contract that required arbitration of all claims but limited remedies and imposed one-sided procedural burdens. She later sought to avoid the clause after a dispute arose. The court refused to enforce the arbitration provision because it was unconscionable when made.
Uma Upadhyay bought furniture on credit under contracts that allowed the seller to repossess all prior purchases upon default on any item. The seller knew her limited income and large family obligations. The court refused to enforce the cross-collateral clause because it was unconscionable at formation.
Procedural unconscionability arises from defects in the bargaining process such as lack of meaningful choice or hidden terms. Substantive unconscionability arises from grossly unfair terms such as extreme price disparity or one-sided remedies. Both elements are usually required, though gross substantive unfairness alone may suffice in some cases.
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A court may limit application of the clause to avoid an unconscionable result while enforcing the remainder of the contract. This approach preserves the parties' bargain to the greatest extent possible consistent with fairness.
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No. Gross disparity in values exchanged is relevant but does not by itself invalidate a contract. It may corroborate other bargaining defects or support denial of specific performance.
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When unconscionability appears, the court must give the parties a reasonable opportunity to present evidence of the commercial setting, purpose, and effect of the contract or clause.
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…is a ground for revocation of an arbitration agreement”); In re Poly-America, L. P. , 262 S. W. 3d 337, 348 (Tex. 2008) (“Unconscionable contracts, however—whether relating to arbitration or not—are unenforceable under Texas law”). The Discover Bank rule amounts to a variation on this theme. California is free to define…