Simply because all of the elements of a contract have been completed does not necessarily mean that a court will enforce the contract in every individual case. There are special conditions which can make an otherwise perfectly valid contract unenforceable. For instance, when a contract – or a particular clause within a contract – has been deemed “unconscionable” for whatever reason by a court, it may be rendered unenforceable.
The doctrine of unconscionability developed from a tradition in English common law which has attempted to prevent the most vulnerable members of society from being unfairly taken advantage of by merchants. This doctrine continued in American law and was then adopted by the Uniform Commercial Code. The UCC section 2-302 states that when a court determines that a contract (or clause of a contract) is unconscionable it has the power to correct the situation in such manner as to avoid injustice. Courts have taken the language of the UCC on the doctrine of unconscionability and applied it to a number of specific cases. Jones v. Star Credit Corporation (1969) is an example of an unconscionable contract which was rendered unenforceable.
The plaintiffs (Jones) bought a home freezer from a door-to-door sales representative. Since they were unable to pay the full amount up front, the plaintiffs set up a financing arrangement through the defendant. The retail price of the freezer was approximately $300, but the plaintiffs were charged a price of $900 plus various other credit and insurance charges. The final purchase price of the freezer came out to $1234.80. The plaintiffs had paid $619.88 when the matter was brought before the court. The issue is whether the very large difference between the purchase price of the freezer and its maximum retail price indicates an unconscionable contract.
As mentioned above, a court may render an otherwise valid contract unenforceable if it finds the contract to be unconscionable either in whole or in part. In sales transactions, the court may give weight to the difference between the market (or retail) price of an item and its selling price. The court may also give weight to the specific circumstances (i.e. socioeconomic, financial, etc.) of the buyer.
The court (the Supreme Court of New York, Second District) determined that the contract was unenforceable given that the difference between the retail price and selling price was so vast. Although the court did not find any evidence of fraud or malice, the court nonetheless found that the sheer size of the disparity indicated an unconscionable contractual agreement on its face.
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Businesspeople should always be conscious of contract law since the formation of contracts is such a major part of the business world. To learn more about starting your own business view the following video