46 Pages Posted: 13 Jan 2008
Date Written: July 2008
Several doctrines of contract law allow courts to strike down excessively one-sided terms. A large literature explored which terms should be viewed as excessive, but a related question is often ignored - what provision should replace the vacated excessive term? This paper begins by suggesting that there are three competing criteria for a replacement provision: (1) the most reasonable term; (2) a punitive term, strongly unfavorable to the overreaching party; and (3) the maximally tolerable term. The paper explores in depth the third criterion - the maximally tolerable term - under which the excessive term is reduced merely to the highest level that the law considers tolerable. This solution preserves the original bargain to maximal permissible extent, and yet brings it within the tolerable range. The paper demonstrates that this criterion, which received no prior scholarly notice, is quite prevalent in legal doctrine, and that its adoption is based on powerful conceptual and normative underpinnings.
Keywords: contract law, maximally tolerable
JEL Classification: K12
Suggested Citation: Suggested Citation
Ben-Shahar, Omri, How to Repair Unconscionable Contracts (July 2008). U of Michigan Law & Economics, Olin Working Paper No. 07-023; U of Chicago Law & Economics, Olin Working Paper No. 417. Available at SSRN: https://ssrn.com/abstract=1082926 or http://dx.doi.org/10.2139/ssrn.1082926