Legal Memorandum: Substantively Unconscionable Contract

Issue: When is a contract substantively unconscionable?

Area of Law: Business Organizations & Contracts
Keywords: Substantive unconscionability; Contract
Jurisdiction: Federal
Cited Cases: 341 F.3d 256; 907 P.2d 51
Cited Statutes: Restatement (Second) of Contracts § 208, cmt. d (1981)
Date: 12/01/2008

Substantive unconscionability “refers to terms that unreasonably favor one party to which the disfavored party does not truly assent.”  Alexander v. Anthony Int’l LP, 341 F.3d 256, 265 (3rd Cir. 2003).  That is, the terms are so lopsided in favor of one party that they show “that the weaker party had no meaningful choice, no real alternative” but to “appear to assent to the unfair terms.”  Id. (citing Restatement (Second) of Contracts § 208, cmt. d (1981)).  A contract is substantively unconscionable if the terms are “so one-sided as to oppress or unfairly surprise an innocent party [or demonstrate] an overall imbalance in the obligations and rights imposed by the bargain,” Maxwell v. Fid. Fin. Servs., Inc., 907 P.2d 51, 58 (Ariz. 1995).