Doctrine Of Unconscionability Research Articles

The Renewed Death of Contract? Post-Crisis Financial Product Conduct Reforms

Post-crisis financial re-regulation in place or underway in Hong Kong and elsewhere includes restrictions on forms of contracting and new rules governing business and financial product conduct. Measures of this kind may dampen activity but do little to protect investors or other users, nor mitigate against future instability. They resemble a swing towards state incursion on contracting of a kind regularly identified by legal scholars. To the extent that the state wishes to protect the interests of retail investors or speculative users of complex financial instruments there may be more merit in requiring “intelligent disclosure” specific to each class of instrument, and extending the doctrine of unconscionability to include financial instruments, as in certain circumstances in Australia. Outright contractual bans are an unreasonable and costly extension of state policy, the underlying purpose of which is to divert popular attention from regulatory failure, while highly prescriptive point of sale rules may make it less likely for legitimate complaints of mis-selling to succeed.

Is Greed Good? A Catholic Perspective on Modern Usury

In an era of increasing financial complexity, the Catholic legal and intellectual tradition offers not only a symbolic moral witness to the policy debates concerning lending, but a voice that offers real solutions to the problem of modern usury. The duty of those in the economic world to safeguard the weaker, more vulnerable parties in society as articulated by Pope Benedict XVI in Caritas in Veritate can best find its expression in vigorous adherence to the unconscionability doctrine of contract law. In addition, the Catholic legal and intellectual tradition promotes microcredit lending programs and community credit unions as strong economic alternatives to modern usury.

How Bargaining Power Affects Non-Price Terms in Contracts

While practitioners and commentators in industry invoke bargaining power to explain patterns in non-price contract terms, conventional law and economics scholarship contends that bargaining power should affect only the price and not other contract terms. This paper looks at the impact of bargaining power on non-price terms, such as warranties, termination rights and dispute resolution provisions, when the value and cost of these terms varies across contracting parties, and when such values are private information. We conceptualize bargaining power as having three primary components: (1) lack of competition; (2) power to dictate the contract terms; and (3) power to commit not to renegotiate. In the extreme cases in which one or the other party enjoys overwhelming bargaining power, the efforts of that party to capture a larger share of the surplus by screening or signaling will compromise the efficiency of the non-price terms. We demonstrate that this incentive is mitigated or disappears when bargaining power is more evenly shared between the parties. This analysis provides a basis for understanding the intuition among market participants that the impact of bargaining power extends beyond price terms. We also suggest implications for legal policy, particularly the contract law doctrine of unconscionability.

Penalty Clauses Through the Lens of Unconscionability Doctrine: Birch v. Union of Taxation Employees, Local 70030

Canadian courts have shown an interest in abandoning the common law’s traditional rule against enforcing penalty clauses and instead analyzing those clauses through the lens of the doctrine of unconscionability. The Ontario Court of Appeal’s decision in Birch v. Union of Taxation Employees, Local 70030 adopts this approach. This short comment argues that in doing so the majority missed several opportunities to use unconscionability doctrine to examine features of the case that would have been ignored under the penalty doctrine.

Penalty Clauses through the Lens of Unconscionability Doctrine: Birch v. Union of Taxation Employees, Local 70030

The author reviews the recent case of Birch v. Union of Taxation Employees, Local 70030, in which the Ontario Court of Appeal evaluated—in terms of the doctrine of unconscionability—the enforceability of a clause fining union members who cross picket lines during legal strikes. He applauds the decision as an important step toward jettisoning the traditional common law penalty doctrine, according to which stipulated remedy clauses designed to have an in terrorem effect upon a contracting party are per se unenforceable. The author criticizes the decision, however, for its failure to examine features of the case that would have been ignored under the penalty doctrine but that should have been prominent under the unconscionability doctrine. These features include: other provisions of the contract, the relative difficulty of arriving at “a genuine pre-estimate of the loss” as opposed to a “reasonable penalty”, and the process by which the contract was formed. The author concludes that, in failing to examine these features, the court missed an opportunity to clarify the changing law on the enforceability of stipulated remedy clauses.

An Economic Perspective on Legal Remedies for Unconscionable Contracts

This paper applies a law-and-economics approach to the study of legal remedies for unconscionable contracts, intending to develop a theoretical framework for the private law remedies in relation to the doctrine of unconscionability. It examines how the different legal remedies will modify a contractor's incentive for unconscionable contracts. It is argued that there is a strong positive correlation between legal deterrence of unconscionable contract and disincentive for a party to trade that should be taken in consideration seriously in designing the legal remedies for unconscionable contract. Résumé Cet article applique une approche d'analyse économique du droit à l'étude des remèdes juridiques pour les contrats «unconscionable» (type particulier de contrats abusifs en Common Law), dans l'idée de développer un cadre théorique pour les remèdes de droit privé en relation avec la doctrine de l'«unconscionability». Il examine comment les différents remèdes juridiques vont modifier l'incitation d'un contractant à conclure de tels contrats abusifs. L'article soutient qu'il y a une corrélation forte entre la dissuasion légale de conclure de tels contrats et l'incitation pour une partie à renoncer à commercer qu'il faudrait prendre sérieusement en considération en forgeant les remèdes juridiques relatifs au contrat abusif. Die vorliegende Abhandlung untersucht – mit dem Instrumentarium einer ökonomischen Analyse – die Rechtsbehelfe gegen sittenwidrige Verträge. Ziel ist es, einen solideren theoretischen Rahmen für die Lehre von der Sittenwidrigkeit zu entwickeln. Es wird untersucht, wie die verschiedenen Rechtsbehelfe den Anreiz von Vertragspartnern zur sittenwidrigen Gestaltung von Verträgen beeinflussen. Möglicherweise gehen rechtliche Sanktionen mit hoher Abschreckungswirkung gegenüber sittenwidrigen Verträgen allgemein mit negativen Anreizen für Parteien einher, überhaupt Verträge abzuschließen. Diese Abhängigkeit sollte nach hier vertretener Ansicht bei der Gestaltung rechtlicher Regeln für sittenwidrige Verträge berücksichtigt werden.

An Economic Perspective on Legal Remedies for Unconscionable Contracts

This paper applies a law-and-economics approach to the study of legal remedies for unconscionable contracts, intending to develop a theoretical framework for the private law remedies in relation to the doctrine of unconscionability. It examines how the different legal remedies will modify a contractor's incentive for unconscionable contracts. It is argued that there is a strong positive correlation between legal deterrence of unconscionable contract and disincentive for a party to trade that should be taken in consideration seriously in designing the legal remedies for unconscionable contract.

Enforceability of Database Licensing Agreement: A Comparatives Study Between Malaysia and the United States of America

Licensing agreement is one of the mechanisms to secure the interest of database producers. A breach of any contractual term in the agreement will entitle a database producer to a contractual remedy. As regards to contractual protection, there are two important issues to be addressed. First, the clauses in the licensing agreement, and secondly, the issue of enforceability of certain database agreement, such as shrink wrap or click wrap license. The second issue must be resolved before a database producer is able to implement the terms and conditions provided in the database licensing agreement. This is because it determines the validity of the contract. With a valid contract, the contractual terms may be used to protect the interest of the database producers. The unconscionability of the terms in the database licensing seems to be a major issue. This issue arises due to the fact that the contractual terms are not read by licensee upon the conclusion of agreement and the inequality of bargaining power exists. Asymmetrical or unfair terms will cause unfairness to database users who will be prevented through the principle of undue influence or the common law doctrine of unconscionability. Although no clear statutory provision has provided a solution to the problem, there are two ways of dealing with it. First, the database producer must ensure that he does not use his dominant position to exercise unconscionable dealings. Secondly, it is advisable to incorporate a term providing that the buyer or user has the opportunity to reject the contract if he disagrees with the terms. To ensure the interest of the database producers the agreement should provide notice as to the database’s terms of usage. This may form the basis of a breach of contract in the event that the stipulated terms are violated. A good contractual agreement is an agreement which protects the interest of both parties; i.e., the database producers and the users. To achieve that, both parties should come to a mutual agreement on the terms in the contract. The license should incorporate necessary provisions such as restrictions on use to protect the legitimate interest of the database producer. However licensees should also be given sufficient freedom to use the database content to meet their legitimate needs and should be prohibited from using the information in ways that would diminish the value of the database producer’s investment in the database.

Oppressive-Exploitative Contracts: A Jewish Law Perspective

The people of the land have used oppression, and exercised robbery, and have wronged the poor and needy, and have oppressed the stranger unlawfully.(Ezekiel22:29)Ezekiel's lament emphasizes that oppression in general, and especially oppression of the needy and the distressed, is always an extremely immoral and illegal act. In the Bible, “oppression” describes the unilateral taking of another person's property or depriving her of her rights. Yet, sometimes even an apparently voluntary agreement might be oppressive. Preventing oppression, therefore, has became one of the declared aims of contractual doctrine, as in the well-known American doctrine of unconscionability.Unconscionability and oppression are broad concepts that describe a wide-ranging array of cases and situations. Not surprisingly, therefore, despite the formidable and complex body of legal writing on the unconscionability doctrine, a great deal of ambiguity remains as to its theoretical basis, as well as its practical content.In this article I seek to enrich the modern Western discussion by analyzing Jewish law doctrine which addresses the issue of oppressive exploitative contracts, an approach which is both unique and to date largely neglected by scholars in the area. This Jewish law doctrine developed in response to a specific kind of oppressive contract, in which a semi-monopolistic party exploits the distress of a needy party in order to demand an above-market price (hereinafter referred to as oppressive-exploitative contracts).

Efficient Penalty Clauses with Debiasing: Lessons from Cognitive Psychology

Efficient Penalty Clauses with Debiasing: Lessons from Cognitive Psychology

Avoiding Paternalism

Avoiding Paternalism

The Old, the Ignorant, and the Downright Shameful: A Study of the Parties and Circumstances of Early American Cases that Shaped the Legal Doctrine of Unconscionability

It has long been held that if a contract is unconscionable in its terms, equity will not enforce it. But what exactly unconscionability encompasses is not easily described. In one of earliest and most famous descriptions of unconscionability, Lord Hardwicke explained, unconscionable bargain is one such as no man in his senses and not under delusion would make on one hand, and as no honest and fair man would accept on other. One contract scholar described unconscionability as whatever court can't stomach. Although these two descriptions provide some guidance, they are far from conclusive and serve only to provide a general theme of doctrine. In modern era, much scholarly ink has been spilt attempting to uncover and clarify doctrine of unconscionability. This paper proposes that unconscionability is a doctrine about fairness, and ultimate success or failure of a case involving doctrine generally hinges on status of parties and their relationship with one another. After reviewing a number of pre-UCC cases, I have categorized early unconscionability cases into three groups. They include, the old, the ignorant, and the shameful. These characterizations accurately represent three groups of cases that courts have generally been willing to declare unconscionable if there is a hint of unfairness or undue influence. The Old represents cases in which an unfair advantage or undue influence has been exerted against a widow or an elderly person, thereby resulting in an unconscionable agreement. The Ignorant generally refers to cases in which a trusting person, or as described by court, an ignorant person, has been taken advantage of by another who was in a confidential relationship with ignorant individual. Typically, this group involves agreements between lawyers and their clients. And finally, the Shameful group represents cases in which parties have reached an agreement, but court is simply unwilling to enforce contract because result would be extremely harsh or oppressive. Notions of fairness and undue influence underlie early American unconscionability cases. Although undue influence is a separate contractual defense, courts, while exploring and developing doctrine of unconscionability, relied on it in determining whether a particular contract was enforceable. As was also evident from cases I explored, each court framed unconscionability in different terms. Instead of an explicit, objective definition, courts analyzed parties and circumstances of each case to determine if unconscionability existed. This approach established foundation for a flexible doctrine aimed at preserving justice and preventing harsh and oppressive outcomes.

Bounded Rationality, Standard Form Contracts, and Unconscionability

Economic theory suggests that, in most circumstances, market forces will ensure that stan-dard form contracts contain terms that are not only socially efficient but also beneficial to non-drafting parties as a class compared to other possible combinations of price and terms. This analy-sis in turn suggests that courts should enforce all form terms or, at a minimum, all form terms that non-drafting parties read and understand. Relying on social science research on decisionmaking, this Article argues that non-drafting parties (usually buyers) are boundedly rational decisionmak-ers who will normally price only a limited number of product attributes as part of their purchase decision. When contract terms are not among these attributes, drafting parties will have a market incentive to include terms in their standard forms that favor themselves, whether or not such terms are efficient. Thus, there is no a priori reason to assume form contract terms will be efficient. The Article then argues that the proper policy response to this conclusion is greater use of mandatory contract terms and judicial modification of the unconscionability doctrine to better respond to the primary cause of contractual inefficiency.

The Protection of the Weak Contractual Party in Italy vs. United States Doctrine of Unconscionability. A Comparative Analysis

Asymmetry in the allocation of information, together with personal and market conditions, may lead to an inequality of bargaining power between contracting parties. In other words, in the context of contract formation, one party may enjoy a superior bargaining position on the other, which may be exploited in the form of unfair contractual terms and misleading conduct. Different legal regimes have developed their own remedies to protect the weaker contractual party, more generally consumers, in such scenarios. The aim of this paper is to confront U.S. and Italian legal rules, in terms of effectiveness and efficacy in accomplishing this goal. This work will try to address differences and analogies between these legal systems, aiming to ascertain their ability both to foster freedom of contract and offer consumer protection at the same time. The work will present an introductory part, which will define what is meant by “inequality of bargaining position“ and “vices of consent” in the contractual setting, followed by two other main sections. The first section will introduce the “doctrine of unconscionability”, by evidencing those aspects which distinguish it from classical contractual remedies. Subsequently, attention will focus on Italian legal provisions of standard terms and contracts, and consumer protection. Together with the Italian Civil Code provisions, contents and aims of the European Directive 13/93 on “unfair terms in consumer contracts” will be briefly considered. The second part will provide a comparative analysis between of the Italian and the U.S. provisions, where differences and analogies between the two legal systems will be underpinned. The aim is to tackle the legal tendencies which have been developed in the Italian context with the consolidated practices of U.S. law. The results of this comparative analysis will offer some conclusions on the efficacy of the Italian legal norm, in an attempt to provide a cross-country overview of legal remedies against oppressive clauses and other forms of unequal bargaining.

The Philosophical Dimensions of the Doctrine of Unconscionability

The doctrine of unconscionability permits courts to invalidate contracts that they deem to be fundamentally unfair. Section 2-302 of the Uniform Commercial Code (UCC),' which embodies this doctrine, is one of the Code's most controversial provisions.2 By 1967, only 16 years after the first official version of the Code appeared, over 130 articles had been published on the doctrine of unconscionability.3 Many of the articles published in the 1960s were aimed at providing guidance to courts applying the unconscionability doctrine. However, in 1970, Robert Braucher, author of the UCC's provisions concerning unconscionability, remarked that are probably not much more ready now than we were twenty years ago to arrive at comprehensive reasoned elaboration of what is unconscionable .... We may not have added much to the old saw,'A fair exchange is no robbery.'5 Braucher's remark raises two important questions. First, why after nineteen years and well over one hundred law review articles did legal scholars feel that they were unable to provide courts with a rea-

Bounded Rationality, Standard Form Contracts, and Unconscionability

Economic theory suggests that, in most circumstances, market forces will ensure that stan-dard form contracts contain terms that are not only socially efficient but also beneficial to non-drafting parties as a class compared to other possible combinations of price and terms. This analy-sis in turn suggests that courts should enforce all form terms or, at a minimum, all form terms that non-drafting parties read and understand. Relying on social science research on decisionmaking, this Article argues that non-drafting parties (usually buyers) are boundedly rational decisionmak-ers who will normally price only a limited number of product attributes as part of their purchase decision. When contract terms are not among these attributes, drafting parties will have a market incentive to include terms in their standard forms that favor themselves, whether or not such terms are efficient. Thus, there is no a priori reason to assume form contract terms will be efficient. The Article then argues that the proper policy response to this conclusion is greater use of mandatory contract terms and judicial modification of the unconscionability doctrine to better respond to the primary cause of contractual inefficiency.

Paternalism, Unconscionability Doctrine, and Accommodation

L'A. defend la doctrine juridique du deraisonnable, qui consiste a refuser l'application d'un contrat injuste, contre l'objection parternaliste qui lui est opposee. Face aux normes sociales qui garantissent l'autonomie de l'action, l'A. montre que la doctrine du deraisonnable pose probleme a la theorie liberale du compromis, ainsi qu'a la theorie politique du bien-etre et a la theorie constitutionnelle du droit.

Privately Legislated Intellectual Property Rights: Reconciling Freedom of Contract with Public Good Uses of Information

In drafting the assent-based paradigm of Article 2 of the U.C.C., Professor Karl Llewelyn established the concept of a negotiated middle ground with which to overcome unforeseen difficulties in relational contracts and to preserve the status of the parties over time.In the emerging information economy, however, the efficiencies of electronic transactions have led the drafters of a proposed model law, the Uniform Computer Information Transactions Act (UCITA), based completely on prior U.C.C. Article 2B proposals, to break with the assent-driven model of contract formation altogether. [Our article, which was written prior to the removal of UCITA from the U.C.C. framework, is no less applicable to UCITA as a stand alone model law.] The goal of the drafters is to promote the growth of a new kind of market in which information goods defined by standard form contracts of adhesion compete with other, similarly defined information products in a perfectly free market.This project presents an array of new problems whose optimal solutions can only be surmised. That, indeed, is the best reason for preferring a contractual approach which, by proceeding case by case, can gradually reveal the empirical foundations for more refined legislative solutions later on. Yet, little is gained by pretending that the model law merely represents some logical extension of the assent-driven model of contract formation embodied in the provisions of Article 2 concerning sales of goods. Such disingenuous pretensions breed mistrust by appearing to cover up the truth in order to vindicate the exercise of naked market power.Critics and supporters alike should recognize that UCITA, formerly proposed U.C.C. Article 2B, presupposes a quest for a different kind of contracts model better suited to the information economy. It then becomes possible to consider ways of replacing the negotiated middle ground philosophy that underlies Article 2 with a middle ground capable of sustaining information transactions rooted in click-on and shrinkwrap licenses that suffer from a chronic lack of mutual assent. Unlike the tenets of Article 2, however, the philosophical grounding of the model law affects the future development of core sectors of the information-based economy. It must, therefore, mesh with intellectual property laws and policies in a way that suitably accommodates the national system of innovation. The public interest unconscionability doctrine, whose contours we explore in this Article, would facilitate non-negotiable computerized information transactions without allowing content providers to disrupt the upstream operations of a research-based information economy. It would provide incentives from within the governing rules of contracts law for licensors to formulate standard form contracts that avoid undue conflicts with both state and federal intellectual property laws.

Risky Business: Rejecting Adherence to Industry Standards in Exclusive Songwriter Agreements

Part I of this Comment addresses the formation of the doctrine of unconscionability. Part I also covers the nature of exclusive songwriter agreements and how the doctrine of unconscionability can be utilized to level the playing field between songwriters and music publishers. Part II analogizes other areas within the entertainment industry where the courts have rejected adherence to industry standards and reformed the contractual agreements between the parties. This section's primary focus will be the court's reasoning in Phase II of Buchwald v. Paramount Pictures Corp. (Buchwald II) and how that court's analysis can be applied to exclusive songwriter agreements. Although Buchwald II is unpublished, the case is cited by commentators when addressing what they believe should be the appropriate analysis regarding unconscionability in contracts. The decision in Buchwald II will be contrasted with decisions reached in other areas of the entertainment industry in the United States and the cases that have become known simply as the "English Music Trilogy."'" The conclusion of this Comment will include both legal and policy arguments as to why adherence to current industry standards in exclusive songwriter agreements is a disservice to both parties of the contract.

Contract Law in the Welfare State: A Defense of the Unconscionability Doctrine, Usury Laws, and Related Limitations on the Freedom to Contract

Conventional theories of contract law do not satisfactorily account for laws that restrict contractual freedom, such as usury laws, the unconscionability and related doctrines, and certain bankruptcy laws. Arguments that these laws protect consumers against fraud or that they redistribute wealth founder on a variety of well-known shoals. Indeed, economic theories agree that courts should enforce voluntary contracts, and wealth redistribution should occur through the welfare system. This article argues that this view overlooks distortions produced by the welfare system. The provision of welfare in a free market produces perverse incentives to take excessive credit risks, which both drive up the cost of the welfare system and undermine its goal of poverty reduction. The laws against usurious or unconscionable contracts are desirable because they deter this risky, socially costly behavior. The article also investigates evidence for the argument as a descriptive claim.