The Doctrine of Unconscionability
Just because a contract appears superficially or facially valid doesn't mean it will always stand up to scrutiny. The inverse is also true: in some cases, a contract that is superficially invalid can still provide a basis for recovery (i.e., cases in which "promissory estoppel" applies). Fundamentally, the law is concerned with reasonable outcomes, and sometimes following the letter of the law strictly or rigidly can produce unreasonable results. In those instances, judges often go outside the letter and find ways to develop equitable solutions. The doctrine of unconscionability was developed in this way and was responsive to situations that may have led to inequitable results.
Unconscionability refers to a contractual agreement that is unfairly or unreasonably skewed in a particular direction. If we put this in technical terms, we would say that unconscionable contracts lack mutual consideration, which means that the terms are unbalanced in favor of one side. However, what sets unconscionable contracts apart is that these contracts often undergo the normal negotiation phase of agreements and are frequently valid on the surface. Usually, the bargaining power of the parties is unbalanced in some way, and this, in turn, produces unbalanced terms. The result is a contract that seems valid but is flawed in a fundamental way. We can also put this in other technical terms and say that the "acceptance" of an unconscionable contract is questionable because the party in the lesser position didn't fully appreciate the terms.
The Famous Case of Jones v. Star Credit Corporation
The seminal case regarding unconscionability in contracts is the case of Jones v. Star Credit Corporation (1969). Although the case is a bit older, the central lesson is still relevant. The case facts are as follows: the plaintiff bought a freezer from a door-to-door salesman. The salesman didn't use outright fraud in the negotiations but was savvier when understanding the full implications of the transaction. Ultimately, the plaintiff paid $900 for the freezer, plus considerable interest, even though the item's retail price was $300 at that time. With interest, the plaintiff would have paid over $1,200 for the freezer.
The judge examined the case and determined that not only were the terms extremely lopsided. The plaintiff was not financially well-educated, so that an intelligent decision could be expected. Under the circumstances, the salesman had superior bargaining power, which led to the contract's severely skewed terms. The judge determined that the agreement was unconscionable and ruled for the plaintiff.
Takeaway: Be on the Watch as a Businessperson
We can take many valuable pieces of information away from the Jones case and the basics of the unconscionability doctrine. The scenario in Jones may not be too common, but businesspeople need to be aware that the law has these types of "safety valves" in place. Often, people think that a bad deal will simply be written off, but this isn't always true. In some cases, the law won't assist a lousy negotiator, but in other cases, the law simply can't allow certain types of borderline predatory behavior. Unconscionable contracts are those deemed predatory in nature or have a strong predatory quality.
As business people, our readers should know that unconscionability is a grave matter that can overturn an otherwise valid contract. Although this situation may not appear too often, readers can quickly spot instances when they happen.
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