What You Need to Know About Unconscionable Contracts

Unconscionable Contracts: What You Need To Know

Recently, we discussed the elements of contracts in our blog post on contract formation. As we mentioned, it is important that businesspeople have at least a basic understanding of contract law and contract formation. Equipping themselves with this type of knowledge will make business professionals much more effective when it comes to contract negotiation, communication with attorneys, and even dealing with colleagues on the job. If you have some sense of the legal implications of your words and actions on the job, you may be able to prevent undesirable obligations from being made.

As we mentioned before, contract law consists of fixed requirements, but it is also informed by reasonableness. Among other things, this means that seemingly enforceable contracts can be rendered unenforceable depending on their practical impact. The key point to absorb is that the analysis of contracts does not stop after all the elements are checked off. For instance, the doctrine of “unconscionability” enables courts to overturn an otherwise valid contract. In this post, we will discuss a few points on unconscionability which may be useful for businesspeople to know about. Even though most businesspeople probably won’t come into contact with this notion frequently, having an understanding of its purpose and significance can be beneficial. 

The Example of Jones v. Star Credit Corp (1969)

One of the most famous examples of unconscionability comes from the case of Jones v. Star Credit Corp. (1969). In this well-known case, a traveling salesperson sold a home freezer to a customer who couldn’t afford the full price up front. The customer and the door-to-door salesperson worked out a payment arrangement which would include interest. The standard retail price for the item was $300; the price agreed upon between the parties in this case was $900, and then an additional $334.80 with interest, for a grand total of $1,234.80. 

The plaintiff (in this case, the buyer) began making payments, and paid a total of $619.88 before the matter was brought to court. The plaintiffs defaulted on the payment arrangement, but argued that the terms of the contract were patently unfair. The court agreed: given the huge disparity because the market value of the item and the price paid by the plaintiffs, the court concluded that the contract was unconscionable on its face. On paper, the contract in this case was completely valid; all the elements were satisfied, including writing, and the terms were voluntarily agreed upon by the parties. But the court determined that the difference between the market value and price of the item was sufficient to overturn the contract. The court took note of the fact that there was a gap in educational level between the parties, and that this gap affected the ability of the plaintiffs to effectively negotiate the terms.

Lessons from the Case: The Importance of Fairness

One thing which makes Jones v. Star Credit Corp. an interesting case is the fact that there isn’t any real evidence of aggressive sales tactics on the part of the salesperson. The plaintiffs willingly agreed to the terms, and there was no evidence of predatory behavior. However, the sheer size of the gap between the market value and final price indicated unfairness in the eyes of the court. In other words, the contract was unconscionable just on its face; the end result was sufficient to denote unfairness, even if the conduct of the salesperson wasn’t necessarily reprehensible. One thing you should take away from this is that there is an underlying principle of fairness which informs contract analysis. If the behavior of the one party indicates unfair bargaining power, or the terms of the contract itself are patently unfair, then the doctrine of unconscionability may come into play.

Reach Out to Trembly Law Today

Again, it’s not likely that you will encounter the notion of unconscionability on a daily basis. But, there is a chance that you will come across it at some point during your business career, and so it’s helpful to be aware of it. If you’d like to learn more about unconscionability, or if you’d like advice on a certain issue, please contact Trembly Law Firm today. Our lawyers have a huge amount of experience when it comes to business contracts, contract formation, and other related areas. Don’t hesitate to give us a call today at 954-280-6677.

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