Builders and Contractors Exchange
Weekly Bulletin: 12 Jan 2004
Is This Contract Unconscionable?
By: David Lannetti
When reviewing a contract, the question of whether the contract is "unconscionable" or is a "contract of adhesion" sometimes comes up. If it truly is unconscionable, the contract is illegal and therefore unenforceable because the law does not support agreements that are oppressive or that involve unfair surprise. Although this initially may appear to be an easy way to avoid your contract obligations, the standard of unconscionability under Virginia law is quite high. Virginia courts have defined an unconscionable contract to be "one that no man in his senses and not under a delusion would make, on the one hand, and as no fair man would accept, on the other." In other words, the inequality present in the contract must be so gross as to "shock the conscience."
When a court considers whether a contract is unconscionable, adequacy of price or the quality of value transferred in the contract is of initial concern. If a gross disparity in the exchanged value exists, then the court considers whether oppressive influence has affected the agreement to the extent that the process was unfair and the terms of the resulting agreement therefore are unenforceable. Similarly, when a contract provision disclaims liability for certain damages, such as consequential damages, courts evaluate the absence of meaningful choice with respect to one of the parties together with contract terms that are unreasonably favorable to the other party. However, because the reasonableness of contract terms depends on circumstances at the time the contract is formed, changes after contract formation (such as an increase in market price) are irrelevant.
Of significant note, the party claiming that the terms of an agreement are unconscionable bears the burden of proving that allegation by clear and convincing evidence, an extremely high legal standard that virtually amounts to proof with certainty. The analysis of whether a contract term is unconscionable necessarily involves an inquiry into the circumstances surrounding the formation of the contract and the fairness of the contract as a whole, and focuses on the relative positions of the parties, the adequacy of the bargaining positions, the meaningful alternatives available to the parties, and the existence of unfair terms in the contract. Simply put, do not assume that you will be able to successfully claim unconscionability to evade your contract obligations. Instead, you should carefully negotiate the terms of any contract before executing the contract, with the assistance of an attorney when necessary.
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This article is meant to bring awareness to this topic and is not intended to be used as legal advice.