A Reexamination of Nonsubstantive Unconscionability

Abstract

The doctrine of unconscionability, which a court may invoke to invalidate a contract, has a nonsubstantive and a substantive branch. Nonsubstantive unconscionability arises when certain factors, such as a lack of commercial sophistication, apparently prevent a contracting party from exercising his freedom to choose the terms of an agreement. Substantive unconscionability arises when a contract yields a result that affects a contracting party too harshly or that affects a noncontracting party adversely. Such contracts may include an agreement containing a disclaimer of warranties or an assignment of wages. These two branches of unconscionability hereinafter are labeled "nonsubstantive" factors or objections and "substantive" factors or objections, respectively. This article explores the nonsubstantive objections to the enforcement of a contract. These objections fall into four categories. The first category, poverty, involves those situations where a poor consumer, although he would prefer not to bear certain risks under a contract, can afford only with great difficulty an agreement that allocates these risks to the seller. The second category, market unresponsiveness, comprises two possible restrictions upon a contracting party's freedom of choice. First, a buyer accepting a standardized agreement may have to take terms that do not reflect his true preferences because the additional cost of particularizing the contract would exceed the additional benefit that he would derive from an individualized agreement. Second, a seller exercising monopoly power may offer a buyer fewer choices than would exist in a competitive market. The third category of nonsubstantive unconscionability, incompetency, addresses the problem of a buyer who may be too unsophisticated or too inept to make contracts that fully satisfy his preferences. The fourth category, lack of information, involves those situations where a contracting party lacks the information to make his preferences and purchases congruent, either because the information is unavailable or because the cost of finding and absorbing it exceeds, at the margin, the value of the information.