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How do I know if a contract term is unconscionable?

On Behalf of | Jan 12, 2023 | Business Law

Negotiating contracts is one of the most challenging parts of owning and operating a business. In the end, you want a result that is fair and ensures the mutual success of both parties.

Contract law requires that no contract term, nor a contract as a whole, be “unconscionable.” If a court finds that a contract is unconscionable, it will rule that the contract is not enforceable. But what exactly does this term mean?

Unfairness and lack of bargaining power

It is not always easy to tell if a contract term is unconscionable. An unconscionable term or contract is generally defined as one that is so oppressive or unfair to one party that it leaves them no meaningful choice.

Unconscionability can be found in the contract terms themselves, or if one party has unfair bargaining power over the other.

Examples of unconscionability

Common examples of unconscionable contract terms include those that give one party the right to change terms to whatever they want at any time, limit a party’s right to sue or set unreasonably high monetary penalties in the event of a breach.

For example, in a contract involving purchasing items from a supplier, a term stating that the supplier can change the price at any time without your permission might be considered unconscionable.

One of the best ways to determine unconscionability is if any part of the contract leaves you feeling like you have no power. In the above example, that type of term would allow the supplier to triple their price the day after you sign the contract.

Per the contract term, you would have no choice but to accept the price increase, even if it meant the cost may put you out of business.

Remedies for unconscionability

Kentucky law allows you to file a legal claim if you feel a contract or its terms are unconscionable. While the court can choose to void the entire contract, it can also strike the unconscionable terms and keep the remainder of the contract in place.

If you have questions or concerns about your contracts, seeking legal advice is a good idea.