What is an Unconscionable Contract?

Unconscionable Contract

What is an unconscionable contract? In lay terms, an unconscionable contract is a contract that’s so unfair and one-sided that a court can properly decide not to enforce it. “Unconscionable contract” is an affirmative defense to a breach of contract lawsuit or an action to enforce a contract. The defense of an unconscionable contract may be raised under both the Florida common law and under the Florida Uniform Commercial Code in a breach of contract action.

Common Law Unconscionable Contracts

Under the common law, unconscionability is a doctrine that courts have long used to prevent the enforcement of contractual provisions by which one party overreaches to gain “an unjust and undeserved advantage which it would be inequitable to permit him to enforce.” Peacock Hotel, Inc. v. Shipman, 138 So. 44, 46 (Fla. 1931). A contract is unconscionable if a) it includes a lack of meaningful choice for one of the parties and b) contract terms that unreasonably favor the other party. The “lack of meaningful choice” prong is referred to as procedural unconscionability and the “unreasonably favorable contract terms” prong is referred to as substantive unconscionability. Procedural unconscionability refers to the manner by which the parties entered into the contract and substantive unconscionability refers to the terms of the contract itself. Both prongs must be proved to successfully prevent enforcement of the contract.

Although both procedural and substantive unconscionability must be present, they do not have to be present in equal parts. Instead, Florida courts now employ a “balancing test” or sliding scale. In other words, if the contract terms are extremely oppressive, then less evidence of procedural unconsionability is needed to show that the contract is unenforceable, and vice versa. In other words, the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa. Basulto v. Hialeah Automotive, 141 So. 3d 1145, 1159 (Fla. 2014).

One frequent argument raised in modern contract litigation, is that mandatory arbitration clauses contained in purchase agreements are unconscionable and thus, unenforceable. The Basulto case demonstrates the high bar that is set to prove a contract is unconscionable. In that case, the Basultos entered into a contract with a dealership to purchase a minivan. The Basultos spoke only Spanish, and the contract documents were all in English. The Florida Supreme Court eventually upheld the trial court’s determination that the arbitration provisions in the contract were unconscionable because the dealership personnel applied heavy pressure to make the Basultos sign the contract without appropriately explaining the legal rights they were giving up by agreeing to arbitration. Additionally, the arbitration provisions in the contract were oppressive in that they forced the customers to waive the right to a jury trial and the right to recover punitive damages, which were otherwise recoverable under applicable law. Because both procedural and substantive unconscionability were proven, the arbitration clause was unenforceable and the Basultos could sue the dealer.

Unconscionable Contracts Under the Florida Uniform Commercial Code

Under the Florida Uniform Commercial Code (UCC), Florida Statues 672.302 governs unconscionable contracts. Chapter 2 of the UCC applies only to “transactions in goods,” so it is a bit more limited than the common law theory. Goods are broadly defined under the UCC as anything that is movable at the time it is identified to the contract.

The Florida UCC states:

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.

The UCC, like the common law theory, requires both procedural and substantive unconscionability. Application of the UCC version of unconscionability tends to be a bit more difficult as the parties tend to be businesses, which are generally found to be more sophisticated. This element of sophistication makes the initial procedural unconscionability prong a bit more difficult to prove as sophisticated contracting parties are expected to read and understand the contract fully, so that they are making an informed choice to enter into the contract, as opposed to a potentially uninformed consumer who can be more easily bamboozled into a horrible contract. For example, in Credit Alliance Corp. v. Westland Mach. Co., 439 So. 2d 332, 333 (Fla. 3d DCA 1983), the court denied the one party’s demand to find the contract unconscionable as the contract was signed by experienced business people, so there was no evidence of overreaching as required under section 672.302.

So if you think the contract you signed is unconscionable, you have to show that you lacked a meaningful choice in the negotiation of the contract, usually due to vastly unequal bargaining power, and that the terms of the contract are unreasonably favorable to the other party. Also remember that just because it’s a bad deal does not make it unconscionable.

Contact The Spence Law Firm today if you have any questions on a potentially unconscionable contract.