How does an Oregon court decide whether a contract or clause is unconscionable?
Unconscionability is a legal issue assessed as of the time of contract formation, so the doctrine applies to contract terms rather than to contract performance (Best v. U.S. National Bank; Bagley v. Mt. Bachelor). It may be procedural or substantive: procedural unconscionability refers to the conditions of contract formation and focuses on oppression and surprise. Oppression exists where inequality in bargaining power leaves no real opportunity to negotiate the terms and no meaningful choice; surprise is whether terms were hidden or obscure from the vantage of the party seeking to avoid them, with ambiguous wording and fine print its hallmarks. Substantive unconscionability refers instead to the terms themselves and focuses on whether they contravene the public interest or public policy. Both procedural and substantive deficiencies, frequently in combination, can preclude enforcement of a contract or term (Bagley). The Oregon Supreme Court has not decided whether both must be present; Bagley noted that some jurisdictions require both and expressly did not decide the issue. For sales of goods, if the court as a matter of law finds the contract or any clause unconscionable when made, it may refuse to enforce the contract, enforce the remainder without the clause, or limit the clause to avoid an unconscionable result (ORS 72.3020(1)), and the parties must be afforded a reasonable opportunity to present evidence of its commercial setting, purpose and effect (72.3020(2)).
The trap
The test looks at the terms when the contract was made, not at how a party later performs: in Best the only relevant term was that the account was subject to the bank's service charges existing at any time, the specific fee was set by the bank as part of its performance, and the doctrine was held inapplicable to the amount of that fee, which was not unconscionable (Best). Whether one kind of unconscionability alone is enough is an open question in the Oregon Supreme Court (Bagley n 8).
11 authorities
The words that state the rule
The doctrine of unconscionability, however, is largely inapplicable to this case, and, to the extent that it may apply, we conclude that the fee set by the Bank was not unconscionable. Unconscionability is a legal issue that must be assessed as of the time of contract formation. W.L. May Co. v. Philco-Ford Corp., 273 Or 701, 707 , 543 P2d 283 (1975). Thus, the doctrine applies to contract terms rather than to contract performance.
The words that state the rule
The specific fee charged, then, was not part of the depositors’ agreement with the Bank; rather, the fee was set by the Bank as part of its performance of the account agreement. The unconscionability doctrine is inapplicable to the amount of the fee.
The words that state the rule
Unconscionability is “assessed as of the time of contract formation,” and the doctrine “applies to con- tract terms rather than to contract performance.”
The words that state the rule
Unconscionability may be procedural or substan- tive. Procedural unconscionability refers to the conditions of contract formation and focuses on two factors: oppression and surprise.
The words that state the rule
Both procedural and substantive deficiencies—frequently in combination—can preclude enforce- ment of a contract or contract term on unconscionability grounds.
The words that state the rule
Oppression exists when there is inequality in bargaining power between the parties, resulting in no real opportunity to negotiate the terms of the contract and the absence of meaningful choice.
The words that state the rule
Surprise involves whether terms were hidden or obscure from the vantage of the party seeking to avoid them. Id. Generally speaking, factors such as ambiguous contract wording and fine print are the hallmarks of surprise.
The words that state the rule
Substantive unconscionability, on the other hand, generally refers to the terms of the contract, rather than the circumstances of formation, and focuses on whether the substantive terms contravene the public interest or public policy.
The words that state the rule
In some jurisdictions, courts require both procedural and substantive unconscionability before they will invalidate a contract.
The words that state the rule
This court has not addressed that issue, and because, as explained below, we conclude that both procedural and substantive considerations support the conclusion that the release here is unconscionable, we do not decide that issue in this case.
- statuteORS 72.3020enactment date not established
The words that state the rule
If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result. (2) When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose and effect to aid the court in making the determination.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.