Legal Memorandum: Unconscionable Contracts in CO

Issue: Under the laws of Colorado or any other state, when is a lease of real property unconscionable?

While there is a paucity of case law discussing this precise issue in Colorado, case law from other jurisdictions should assist in determining the relative merits of an unconscionability argument.

The Supreme Court of Utah considered the issue in Resource Mgmt. Co. v. Weston Ranch & Livestock Co., 706 P.2d 1028 (Utah 1985).  In Resource Management, landowners had entered into protracted negotiations with a company for the lease of oil and gas royalty rights on ranch land.  Id. at 1031.  Eventually, the landowners objected to the manner in which they were being compensated and refused to uphold their end of the bargain.  Id. at 1036.  The trial court concluded that the company’s promises constituted “illusory consideration” and that the contract was unconscionable.  Id.  The company appealed the ruling of the trial court, arguing that even if the contract were unconscionable, equity prohibited the result determined by the trial court.  Id.

The appellate court engaged in a lengthy analysis of the facts of the case and their application to the doctrines of both substantive and procedural unconscionability.  Id. at 1040-49.  The court noted that generally “‘persons dealing at arm’s length’ are entitled to contract on their own terms without the intervention of the courts for the purpose of relieving one side or the other from the effects of a bad bargain.” Id. at 1040.  The Resource Management court also noted that parties “should be permitted to enter into contracts that actually may be unreasonable or which may lead […]