Examples of Unconscionable Contract Terms
A court may find that a contract, or some of its terms, should not be enforced if the contract as a whole or certain contract terms are unconscionable. Regardless of whether you are drafting a contract or signing one, it is important to understand what types of contract terms may be found unconscionable. Below are a few examples and specific considerations.
Courts commonly describe unconscionable contracts or contract terms as those that “shock the conscience.” This means that it is so remarkably unfair that it would be wrong to uphold it. Types of contracts or terms a court may invalidate for unconscionability will probably evidence severe unfairness, unequal bargaining power, and lack of notice.
California’s Consumer Legal Remedies Act explicitly prohibits “inserting an unconscionable provision in the contract.” Cal. Civ. Code § 1770(a)(19). Likewise, California law also prohibits businesses from using certain early termination fees that are, in reality, unlawful penalties.
Certain contracts, by their very nature, are closely scrutinized for unconscionability. For example, adhesion contracts, also referred to as standard form contracts, usually evidence mismatched drafting power, so a court will examine their terms more closely. If it looks like the consumer was at a disadvantage when he or she signed, or if the consumer had zero negotiation power, a court may invalidate the contract or the particular unconscionable term. This scenario is often present in agreements associated with gym memberships, rental cars, cell phone services, cable/satellite TV services, and mortgages.
Other contract terms that could indicate unfair one-sidedness include:
- Damage limitations against the seller;
- Limitations on a consumer’s right to seek court relief against the seller;
- Imposition of punitive penalties or fees on the consumer; and
- Open-ended provisions that give the seller unilateral discretion to set or change price or other terms.
Keep in mind that a court will not free a party from its contractual obligations just because he or she did not read or understand a contract. As a general rule, the parties are bound to the agreements they make, even if the bargain made is to the detriment of one of the parties.
If you are questioning the fairness of a contract term, an experienced attorney will be able to help you determine whether it is unconscionable. Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and businesses. Contact us at (310) 277-7747 to see how we can help you with your business or contract law needs.