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What is an Unconscionable Contract?

By Felicia Dye
Updated Feb 07, 2024
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An agreement that is grossly unjust, unfair, or dishonest may be deemed an unconscionable contract. Determining whether or not an agreement is unconscionable usually raises questions of competency, fairness, and honesty. If it is found that these things have been manipulated in such a way that an agreement is shocking to the conscience of a normal person, a court will not allow the contract to be enforced.

The unconscionability of a contract usually arises as a defense. When one party sues for breach of contract, the other party may claim she did not fulfill her obligations because it was an unconscionable contract. It is important to understand that an agreement is not likely to be deemed unconscionable simply because one party’s terms are unfavorable.

For a contract to be deemed unconscionable, it needs to be grossly unfair or unjust. The terms and potential benefit of the contract should be generally shocking to a normal person’s conscience. Courts do not review questionable contracts with the aim to teach people to make better business decisions. A court’s role in determining whether a contract is unconscionable is to prevent one party from benefiting from the exploitation of another.

Competency is one of the factors usually considered in such a case. An unconscionable contract is one that a competent person would not enter. When competency is taken into account, age is also commonly considered. An example could be an adolescent singer who signs a contract with a music executive that is unjustly in favor of the music company. A judge may find it is an unconscionable contract due to the knowledge and experience of the music executive compared to the youth and incompetence of the singer.

People usually have a great deal of liberty with regards to entering and drafting contracts. A court, however, may have the authority to assess the fairness of those contracts. The judicial system is based on a high level of integrity. To allow the judicial system to be used to enforce agreements that are grossly imbalanced is not generally viewed as serving the best interest of society.

Honesty is also considered when there are questions of conscionability. A court does not generally allow one party to benefit from an agreement where the facts have been intentionally and grossly misrepresented to another. Honesty is also considered with regards to the benefits to be received. Courts do not generally enforce contracts that are so one-sided that an honest person would disagree to the benefits.

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Discussion Comments
By anon93969 — On Jul 06, 2010

Why would a judge render a plaintiff the loser when a contract for buying a home was not honest?

The new owners were in the house for a period of only 8 months. There were serious home defects that were omitted and never shown to the buyer.

There were two home inspection reports, one that the buyer never saw. If they had seen the first report, they would have never signed the contract to buy the home. It had an electrical panel that had been recalled, there were foundation problems that were not disclosed, a deck that had been repaired (not reported) and was dangerous. A city engineer said that a rock dike had to be erected to keep the house from falling, and that even if the new owners (8 months) had the rock dike built for around $20,000 it still could not be guaranteed.

The judge ruled in favor of the previous owner. This was in Missouri. Somehow, I feel that the judge made an error in judgment.

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