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Law & Economics Working Papers Archive: 2003-2009

2007

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How To Repair Unconscionable Contracts, Omri Ben-Shahar Dec 2007

How To Repair Unconscionable Contracts, Omri Ben-Shahar

Law & Economics Working Papers Archive: 2003-2009

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 ...