What Is Unconscionability in a Contract?

As a general rule, if you sign a contract, you will be bound to its terms. In limited circumstances, you can even be bound to contracts someone signs on your behalf. However, there are several exceptions that invalidate an otherwise enforceable contract. One of those relates to a contract’s conscionability.

When something is “conscionable,” it conforms to the conscience. It is just. Unconscionable means unjust or unreasonable. In the context of contract law, it means that a contract (or one of its terms) is so unfair that a court will decline to enforce it. In Nevada, before a court will find a contract unenforceable for unconscionability, the contract must be found both procedurally and substantively unconscionable. D.R. Horton, Inc. v. Green, 120 Nev. 549, 553, 96 P.3d 1159, 1162 (2004).

Procedural Unconscionability

Procedural unconscionability relates to the degree of meaningful opportunity available to a party to agree to the terms of a contract clause. Often one party is disadvantaged due to unequal bargaining power, like with an adhesion contract. In other circumstances, it is not immediately clear what a certain contract term means even after review of the contract.

Where a contract’s terms are hidden in fine print or the language of one of its clauses is complex, incomplete, or misleading, and it “fails to inform  reasonable person of the contractual language’s consequences,” it is more likely to be considered procedurally unconscionable. Other factors that may weigh in favor of a finding of procedural unconscionability include downplaying significant contract terms by hiding them within other less significant terms, and making statements prior to the signing of the contract suggesting that the contract is a formality that does not substantially affect any of the contracting party’s rights. D.R. Horton, 120 Nev. at 553, 96 P.3d at 1162–63.

The laws surrounding procedural unconscionability are designed to prevent oppression (taking advantage of parties with less bargaining power) and surprise (tricking a party to agree to terms they are not aware of despite reading the contract).

However, procedural unconscionability alone is not enough to render a contract unenforceable. It must also be substantively unconscionable.

Substantive Unconscionability

Substantive unconscionability relates to the “one-sidedness of the contract terms.” Ting v. AT&T, 319 F.3d 1126, 1149 (9th Cir. 2003).

Because one party often has superior bargaining power, like where adhesion contracts are concerned, courts will decline to enforce contracts where the party with more leverage has taken advantage of the superior leverage to include terms that unfairly favor the stronger party.

Application of Unconscionability

A court must find both procedural and substantive unconscionability before it will render void a contractual provision. Nevada courts use a sliding scale for unconscionability, meaning that the more procedurally unconscionable a provision, the less substantively unconscionable it has to be to be unenforceable, and vice versa. D.R. Horton, 120 Nev. at 553, 96 P.3d at 1162.

If a court does make a finding of both procedural and substantive unconscionability, it will most likely invalidate the unconscionable provision and leave the remainder of the contract intact and enforceable. However, it is also within a court’s discretion to invalidate the entire contract or modify the unconscionable provision to make it enforceable. See NRS 104.2302(1).

If in doubt about the enforceability of a contract, speak to an experienced attorney.

 

Zachariah B. Parry is an attorney and founding partner at the law firm Parry & Pfau and is an adjunct professor who teaches torts, contracts, and Nevada practice and procedure for UNLV’s paralegal program. He can be reached at 702-912-4451 or zach@p2lawyers.com.