Legally binding business agreements are supposed to be fair to all the parties involved, but that’s not always the case. Some clauses may tilt the balance too far in one party’s favor. These are collectively called “unconscionable clauses” because enforcing them would be unjust and not in the best interests of justice.
If you’re signing a contract, understanding the risks of such clauses could save you from serious financial or legal trouble. Here’s what you should know.
What makes a clause unconscionable?
A contract clause can be considered unconscionable when it’s extremely unfair or the result of unequal bargaining power. When determining this, the court may look at whether the contract was forced on the weaker party with no real choice but to sign it or whether the clause imposes harsh or oppressive terms that no reasonable person would willingly agree to under normal circumstances.
Common examples include excessive penalties, one-sided arbitration agreements, unfair warranty disclaimers and unreasonable terms of non-compete agreements.
How courts handle these clauses
Courts generally favor enforcing contracts but will step in when an agreement is grossly unfair. If a clause is found to be unconscionable, the court can strike down the entire contract, remove the unfair clause while enforcing the rest or interpret the contract in a way that minimizes the harm. It all depends on the particulars of each case.
Protect yourself from unfair contracts
Unconscionable clauses can put your business at serious risk, and once you sign, undoing the damage can be difficult. Remember, courts won’t always step in to save you from unfair deals. This underscores the need for qualified legal guidance to review important agreements before you sign. It can help catch issues you might miss and save you the cost and trouble of dealing with a problematic contract later.