Legal Memorandum: Unconscionable Contracts in VI

Issue: Under federal law in the Third Circuit (Virgin Islands), what is the standard for evaluating claims of unconscionability in a contract?

Area of Law: Business Organizations & Contracts
Keywords: Unconscionability in a contract; Standards for evaluation; Substantive unconscionability
Jurisdiction: Federal, Virgin Islands
Cited Cases: 172 F.2d 80; 341 F.3d 256; 790 So. 2d 933
Cited Statutes: Restatement (Second) of the Law of Contracts § 208
Date: 03/01/2005

The Virgin Islands law of unconscionability is found in § 208 of the Contracts Restatement:

If a contract or term thereof is unconscionable at the time the contract is made a court may refuse to enforce the contract, or may enforce the remainder of the contract without the unconscionable terms, or may so limit the application of any unconscionable term as to avoid any unconscionable result.

Restatement (Second) of the Law of Contracts § 208 (1979).  Virgin Islands courts have rarely addressed whether a contract term is unconscionable.  And of those few, none has analyzed the doctrine in sufficient depth to provide guidance to courts and contracting parties.  In Alexander v. Anthony International, L.L.P, 341 F.3d 256 (3d Cir. 2003), the Court of Appeals for the Third Circuit thoroughly analyzed the historical background and modern application of the doctrine of unconscionability. 

Courts have generally recognized that the doctrine of unconscionability involves both “procedural” and “substantive” elements.  “Procedural unconscionability pertains to the process by which an agreement is reached and the form of an agreement, including the use therein of fine print and convoluted or unclear language.”  This element is generally satisfied if the agreement constitutes a contract of adhesion.  A contract of adhesion “‘is one which is prepared by the party with excessive bargaining power who presents it to the other party for signature on a take-it-or-leave-it basis.'”

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In the end, unconscionability “‘requires a two-fold determination:  […]


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