unconscionability

Definition of unconscionability

Noun

unconscionability (plural unconscionabilities)

1. (law, contract law) A principle that one party to a contract might be entitled to a remedy if the other party has behaved in an unconscionable manner.
   
   "The infusion of principles of unconscionability into contract law has given the courts greater flexibility in fashioning relief."

Further reading

Unconscionability (also known as unconscientious dealings) is a term used in contract law to describe a defense against the enforcement of a contract based on the presence of terms that are excessively unfair to one party. Typically, such a contract is held to be unenforceable because the consideration offered is lacking or is so obviously inadequate that to enforce the contract would be unfair to the party seeking to escape the contract.

In and of itself, inadequate consideration is likely not enough to make a contract unenforceable. However, a court of law will consider evidence that one party to the contract took advantage of its superior bargaining power to insert provisions that make the agreement overwhelmingly favor the interests of that party. Usually for a court to find a contract unconscionable the party claiming unconscionability will have to prove both that there was a problem with the substance of the contract and the process through which that contract was formed. The substantive problem will usually be the consideration, but could also be the terms, interest payments, or other obligations the court finds unfair. Procedural issues that a court could consider include a party's lack of choice, superior bargaining position or knowledge, and other circumstances surrounding the bargaining process.

Upon finding unconscionability a court has a great deal of flexibility on how it remedies the situation. It may refuse to enforce the contract, refuse to enforce the offending clause, or take other measures it deems necessary to have a fair outcome. Damages are usually not awarded.

Typical scenarios

There are several typical scenarios in which unconscionability is most frequently found:

1. Where a party that typically engages in sophisticated business transactions inserts boilerplate language into a contract containing terms unlikely to be understood or appreciated by the average person. Such terms might include a disclaimer of warranties, or a provision extending liability for a newly purchased item to goods previously purchased from the same seller.
2. Where a seller offers a contract of adhesion for the purchase of necessary goods (e.g. food, shelter, means of transportation).
3. Where a seller is vastly inflating the price of goods, particularly where this inflation is conducted in a way that conceals from the buyer the total cost for which the buyer will be liable.

In the 2009 case of Harris v. Blockbuster, Inc., the plaintiff argued that Blockbuster's provision to compel arbitration and forbid class action lawsuits was illusory and unconscionable. However, whether or not it is unconscionable is unknown, as the court agreed that it was illusory (not enforceable), and disregarded all further consideration.

For the defense of unconscionability to apply, the contract has to have been unconscionable at the time that it was made - later circumstances that have the effect of making the contract extremely one-sided are irrelevant. The determination of unconscionability is made by the judge, not by a jury.

Case law

- U.S. case law

The leading case on unconscionability in the United States is Williams v. Walker-Thomas Furniture Co., 350 F.2d 445 (D.C. Cir. 1965). In this case, the plaintiff, a retail furniture store, sold multiple items to a customer. The contract was written so that none of the furniture was considered paid for until all of it was paid for. When the defendant failed to make payments on the last furniture item, the furniture store attempted to repossess all of the furniture, not just the last one purchased. The court ruled that this was unconscionable and ruled that the lower court did not need to enforce the contract.

- English case law

The leading case on this point is considered to be the English case of Lloyds Bank Ltd v Bundy. In that case, Bundy had agreed to increase the mortgage on his house in order to maintain the line of credit being extended to his son's business. The Court of Appeal of England and Wales ruled that as Bundy received no direct benefit from the agreement to increase the mortgage amount, and that the bank had threatened to call in the son's loan if Bundy had not agreed to the extension, and that the amount of the loan was already higher than the existing mortgage, that the transaction was unconscionable and Bundy only had to honor the lower mortgage. Essentially, the court ruled that only the bank benefitted from the agreement to raise the amount of the mortgage. Note that Lord Denning's judgment was held not to represent the law in National Westminster Bank Ltd v Morgan.