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Report No. 199

New Principles of procedural and Substantive Unconscionability (USA):

The definition of 'unconscionability' as stated in Williams v. Walker Thomas Furniture Co. (350 F.2d. 445C D.C. Cir 965) has been generally accepted in absence of definition in the UCC. That case defines: "Unconscionability" to include the absence of "meaningful choice" on the part of one of the parties together with contract terms which are unreasonably favourable to the other party. Whether a meaningful choice is present in a particular case or not can only be determined by consideration of all the circumstances surrounding the transaction. In many cases, the meaningful choice is negated by gross inequality of bargaining power.

A contract or a clause in a contract will be said to be unconscionable, if it satisfies the test of procedural as well as substantive unconscionability, indicated respectively by the words 'absence of meaningful choice' and 'terms unreasonably favourable' in the above definition; and where more of one is present, less of the other is required. Procedural unconscionability arises when there is an element of oppression or wrong doing in the process of the making of the contract and would include, use of fine print or technical language, lack of knowledge or understanding and inequality of bargaining power. "Substantive unconscionability" on the other hand affects the actual substance of the contract and its terms and will include wide exclusion clauses, or excessive prices etc.

We have referred to this dichotomy in Chapter I. We shall also be referring to these concepts in latter chapters.

Unfair (Procedural and Substantive) Terms in Contract Back

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