What characterizes an "unconscionable contract" under Texas law?

An unconscionable contract under Texas law is characterized as one that is deemed oppressive and fundamentally unfair. This concept focuses on the principle of equity in contract formation and enforcement. In determining whether a contract is unconscionable, courts will look at the circumstances surrounding the agreement, including the bargaining power of the parties involved and whether one party exploited its power to impose unfair terms on the other.

Texas courts often assess both procedural and substantive unconscionability. Procedural unconscionability involves issues of inequality in bargaining power and lack of meaningful choice, while substantive unconscionability pertains to the actual terms of the contract that may be excessively one-sided or oppressive.

The other options do not accurately reflect the definition of an unconscionable contract. For example, a contract containing no legal terms would not typically be enforceable, and the existence of arbitration clauses does not inherently render a contract unconscionable. Lastly, while unfair penalties may contribute to a contract being found unconscionable, they do not define the concept themselves. Unconscionability is broader, focusing on oppression and fundamental unfairness in the overall context of the agreement.