Judge-Made Contracts: Reconstructing Unconscionable Contracts

20 Pages Posted: 26 Dec 2006

See all articles by Aristides N. Hatzis

Aristides N. Hatzis

University of Athens - Department of History & Philosophy of Science; National and Kapodistrian University of Athens - Faculty of Law; Athens University of Economics and Business - Department of Economics

Eleni Zervogianni

Faculty of International and European Studies, University of Piraeus

Date Written: December 2006

Abstract

Although unconscionability is thought to be a nearly exhausted topic, there are still some disputed issues regarding its remedies. This paper discusses one of these issues, namely the judicial reconstruction of unconscionable contracts or unreasonable contract clauses. More concretely, in many legal systems the judge is granted, at least in some cases, the power to revise the terms of unconscionable contracts: he may substitute "reasonable" terms for the "unreasonable" ones so that the contract remains valid. Nevertheless, an attempt by the judge to adjust an "unreasonable" term will create opportunism from both sides and will lead to arbitrary judicial decisions, thus upsetting the security of transactions and inevitably leading to higher transaction costs. Hence we argue that, with a few exceptions pertaining to monopoly or collusion situations, the judge should only decide between enforceability and non-enforceability of the contract or the clause. If the parties want their void contract to be enforced they can always renegotiate after the court decision and modify it themselves.

Keywords: economics of contract law, unconscionability, judicial revision of contracts, modification of contracts, severance of contract clauses, comparative law

JEL Classification: K12

Suggested Citation

Hatzis, Aristides N. and Zervogianni, Eleni, Judge-Made Contracts: Reconstructing Unconscionable Contracts (December 2006). Available at SSRN: https://ssrn.com/abstract=953669 or http://dx.doi.org/10.2139/ssrn.953669

Aristides N. Hatzis (Contact Author)

University of Athens - Department of History & Philosophy of Science ( email )

University Campus
Ano Ilisia
Athens, 15771
Greece
+30 210 7275565 (Phone)
+30 210 7275530 (Fax)

HOME PAGE: http://www.phs.uoa.gr/ahatzis

National and Kapodistrian University of Athens - Faculty of Law

Athens
Greece

Athens University of Economics and Business - Department of Economics ( email )

Athens
Greece

Eleni Zervogianni

Faculty of International and European Studies, University of Piraeus ( email )

Greece

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