Unconscionability in Texas Contracts

Doctrine of Unconscionability in Texas

Generally, parties with capacity are free to contract for whatever they want in the state of Texas, with a few exceptions such as contracts for illegal acts or contracts that are against public policy. However, a contract can sometimes be so one-sided that courts will not enforce it because the contract is deemed unconscionable. It is rare that a contract will rise to this level, but in the event one does, unconscionability is an important avenue for a contracting party to escape a harmful situation.

The Texas Supreme Court has stated, “Unconscionability is to be determined in light of a variety of factors, which aim to prevent oppression and unfair surprise; in general, a contract will be found unconscionable if it is grossly one-sided.” In re Poly-Am., L.P., 262 S.W.3d 337, 348 (Tex. 2008). The Texas Supreme Court has also stated “. . . the basic test for unconscionability is whether, given the parties' general commercial background and the commercial needs of the particular trade or case, the clause involved is so one-sided that it is unconscionable under the circumstances existing when the parties made the contract.” In re FirstMerit Bank, N.A., 52 S.W.3d 749, 757 (Tex. 2001). This determination is extremely fact intensive and will be unique to each contract. When determining unconscionability, the courts will look at how the contract was formed and the terms of the contract. Bell Tel. Co. v. DeLanney, 809 S.W.2d 493,498- 499 (Tex. 1991). If gross unfairness is found at either of these stages, the contract may rise to the level of unconscionability.

Unconscionability is distinguishable from mere unfairness in a contract. Just because a contract has provisions which are more favorable to one contracting party than the other does not mean that a contract is unconscionable. For example, a contract between a bank and purchasers of a mobile home allowing the bank to litigate claims while requiring the purchasers to arbitrate their claims was not found to be unconscionable. In re FirstMerit Bank, N.A., 52 S.W.3d 749, 758 (Tex. 2001). However, a contract in which an employee signed away legal rights and remedies under the Workers Compensation Act was found to be unconscionable. In re Poly-Am., L.P., 262 S.W.3d 337, 348 (Tex. 2008). Additionally, It should be noted that unconscionability in the context of a Texas Deceptive Trade Practices Consumer Protection Act claim will vary slightly.

Issues of contract interpretation are nuanced and fact intensive. It is important to consult with an experienced business attorney to analyze unconscionability, or any other issues, related to a contract to determine your rights and remedies under Texas law.

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