Viewing Unconscionability through a Market Lens

William and Mary Law Review, Vol. 52, p. 133, 2010

U of Chicago Law & Economics, Olin Working Paper No. 489

64 Pages Posted: 24 Oct 2009 Last revised: 9 Jan 2012

See all articles by David Gilo

David Gilo

Tel Aviv University - Buchmann Faculty of Law

Ariel Porat

Tel Aviv University; University of Chicago - Law School

Date Written: October 23, 2009

Abstract

This Article calls for a move to the third phase in courts' attitudes toward consumer contracts. In the first phase, consumer contracts were considered ordinary contracts by courts thus requiring no special treatment. In the second phase, courts and legislatures became suspicious of consumer contracts and developed several tools for handling them, focusing on the characteristics of the parties and the transaction. In this Article, we suggest that it is time to introduce a third phase: Rather than examining each consumer contract in isolation, courts need to acknowledge that consumer contracts are a market-phenomenon which calls for a market-based approach. Instead of focusing on the characteristics of the parties and the transaction, courts should inquire whether there is competition, or potential competition, over contracts in the supplier’s market. In order to do so, courts should look at the particular features of the supplier’s market, that we identify, and also on the potential strategic interaction among competitors. We argue that when competition over contracts, or the threat of such competition, is sufficiently strong, consumer contracts should be deemed efficient and fair, and courts should not strike down clauses incorporated in such contracts. Interestingly, and counter-intuitively, this conclusion holds even where consumers are uninformed. We offer workable guidelines for courts as to how they could implement the market-based approach proposed in this Article and show how this approach could produce outcomes opposite to, but more efficient and fair, than the ones conventionally adopted by courts or offered by legal scholars.

Keywords: contracts, consumer contracts, market-based approach

Suggested Citation

Gilo, David and Porat, Ariel, Viewing Unconscionability through a Market Lens (October 23, 2009). William and Mary Law Review, Vol. 52, p. 133, 2010; U of Chicago Law & Economics, Olin Working Paper No. 489 . Available at SSRN: https://ssrn.com/abstract=1493303 or http://dx.doi.org/10.2139/ssrn.1493303

David Gilo

Tel Aviv University - Buchmann Faculty of Law ( email )

Ramat Aviv
Tel Aviv 69978, IL
Israel
+972-3-6406299 (Phone)

Ariel Porat (Contact Author)

Tel Aviv University ( email )

Ramat Aviv
Tel Aviv 69978, IL
Israel
972-3-6408283 (Phone)
972-3-6407260 (Fax)

HOME PAGE: http://english.tau.ac.il/profile/porata

University of Chicago - Law School ( email )

1111 E. 60th St.
Chicago, IL 60637
United States

HOME PAGE: http://www.law.uchicago.edu/faculty/porat

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