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When Is a Contract Unconscionable in California?

The word “unconscionable” is one of those legal terms you might imagine Jackie Chiles, Kramer’s attorney from Seinfeld, throwing around in a show of big but perhaps empty accusations (as in “Unconscionable! Inconsiderate! Vexatious!”). But the term “unconscionability” does indeed have a long history in contract law, both in the state of California and across the nation.

 

Unconscionability is an “affirmative defense” to enforcement of a contract. With an affirmative defense in contract litigation, both sides to the contract may well be admitting that a contract does indeed exist, but one side is arguing that, despite the existence of the contract, there is a valid defense for why a court should not enforce the terms of that contract against the party.

 

Affirmative defenses to a contract can include fraud (the other party lied about a significant fact to obtain agreement to the contract) or duress (the proverbial “gun to the head” contract, or, to quote The Godfather, “I made him an offer he couldn’t refuse”), but unconscionability goes to something else entirely: the inherent fairness of the contract.

Defining Unconscionability in California Contract Law

In essence, when one party argues unconscionability, they are saying that the contract was so inherently unfair that a court should not enforce it. At the same time, much of deal making is about getting favorable terms for your side, so what is the difference between a deal that works out badly and one that should not be enforced at all because it is unconscionable?

 

California state law states that: “If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.”

 

Which does not by itself answer the question of what unconscionable actually means. But the California Supreme Court has ruled that “the central idea (of the) unconscionability doctrine is concerned not with ‘a simple old-fashioned bad bargain‘…but with terms that are ‘unreasonably favorable to the more powerful party.‘“ In other words, courts will not enforce contracts that are “overly harsh,” “unduly oppressive,” or “so one-sided as to shock the conscience.”

 

In making this determination, courts look at both the substantive aspects of the contract (are the terms on their own unfair to one party?) as well as the procedural aspects by which the contract was reached (did the complaining party have the time and/or resources to fully understand the contract?).

 

In particular, a court will look at what the reasonable expectations of the parties were in making the contract, and how clear the disputed terms were to the complaining party, e.g. whether they were buried in the fine print of the contract and contrary to what a reasonable person would expect in making the agreement.

 

If this all sounds somewhat subjective, it certainly can be, and judges have a fair amount of discretion in determining what is and is not unconscionable. Whether you believe you have entered into an unconscionable contract, or are facing an argument of unconscionability from a party with whom you have a contract, you are advised to speak with a breach of contract attorney about your particular circumstances.

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