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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 the law considers …