The Doctrine of Unconscionability in New York - When a Contract May be Unenforceable

The doctrine of unconscionability is not new to American jurisprudence.  See, e.g.,  Hume v. United States, 132 U.S. 406 (1889); Scott v. United States, 79 U.S. 443 (1870).  An unconscionable contract has been defined as one which “is so grossly unreasonable or unconscionable in the light of the mores and business practices of the time and place as to be unenforceable according to its literal terms.”  Gillman v. Chase Manhattan, 73 N.Y.2d 1, 10 (1988); see also, King v. Fox, 7 N.Y.3d 181, 191 (2006); Mandel v. Liebman, 303 N.Y. 88, 94 (1951).  The doctrine, which is rooted in equitable principles, is a flexible one and the concept of unconscionability is “intended to be sensitive to the realities and nuances of the bargaining process.”  Gillman, supra, quoting Matter of State of New York v. Avco Fin. Serv., 50 N.Y.2d 383, 389-90 (1980).   

The New York Court of Appeals has characterized an unconscionable contract as “one which no person in his or her senses and not under any delusion would make on the one hand, and as no honest and fair person would accept on the other, the inequality being so strong and manifest as to shock the conscience and confound the judgment of any person of common sense.”  Christian v. Christian, 42 N.Y.2d 63, 71 (1977) (internal question marks, brackets and citations omitted). 

A determination of unconscionability generally requires a showing that the contract was both procedurally and substantively unconscionable when made, i.e., “some showing of an absence of meaningful choice on the part of one of the  parties together with contract terms which are unreasonably favorable to the other party.”  Williams v. Walker-Thomas Furniture Co., 350 F.2d 445, 449 (D.C. Cir. 1965); see also, King, supra; Gillman, supra.  However, “procedural and substantive unconscionability operate on a ‘sliding scale'; the more questionable the meaningfulness of choice, the less imbalance in a contract's terms should be tolerated and vice versa.”  Emigrant Mortgage Co., supra, quoting Wolowitz, 96 A.D.2d at 68; see also, Simar Holding Corp. v. Gsc, 87 A.D.3d 688, 690 (2nd Dept. 2011).   

The procedural element of unconscionability concerns the contract formation process and the alleged lack of meaningful choice; the substantive element looks to the content of the contract per seSee Lawrence v. Graubard Miller, 11 N.Y.3d 588, 595 (2008); Gillman, 73 N.Y.2d at 10-11; Simar Holding Corp. v. Gsc, 87 A.D.3d at 689.  Examples of procedural unconscionability include, but are not limited to, high pressure commercial tactics, inequality of bargaining power, deceptive practices and language in the contract, and an imbalance of understanding.  Id.; see also, New York v. Wolowitz, 96 A.D.2d 47, 67 (2nd Dept. 1983).  Examples of unreasonably favorable contractual provisions are “virtually limitless,” Wolowitz, supra, but include inflated prices, unfair limitations on consequential damages, and a significant disparity in the consideration exchanged by the parties.  Id.; see also, Emigrant Mortgage Co. v. Fitzpatrick, 95 A.D.3d 1169, 1170 (2nd Dept. 2012); Matter of Friedman, 64 A.D.2d 70, 84-85 (2nd Dept. 1978).

The foregoing notwithstanding, several courts have held that where the disparity in the consideration exchanged by the parties is overwhelming, that factor alone “may be sufficient to sustain [a finding that the contract is unconscionable],” since the disparity “itself leads inevitably to the felt conclusion that that knowing advantage was taken of [one party.]”  Matter of Friedman, 64 A.D.2d at 85, quoting Jones v. Star Credit Corp., 59 Misc.2d 189, 192 (1969) (Sup. Ct. Nassau Co.) (Wachtler, J.); see also, Wolowitz, supra; Miner v. Walden, 101 Misc.2d 814, 818 (1979) (Sup. Ct. Queens Co.).

A determination of unconscionability is a matter of law for the court to decide. Gillman, supra; Emigrant Mortgage Co., 95 A.D.3d at 1170-71; Simar Holding Corp., supra.  Where the significant facts germane to the unconscionability issue are known and essentially undisputed, the court may determine the issue without a hearing.  Id.  In the event they are not, a hearing may be necessary.  Id.