Research On Doctrine Of Unconscionability

Under the traditional freedom of contract theory, freedom of contract equals to fairness of contract. However, due to the change of the social economic environment and the use of standard form contract, the traditional freedom of contract theory no longer meets the needs of pursuing contractual fairness. That is to say, the doctrine of unconscionability is established for protecting the fairness of contract.Both Article 59 of “General Principle of Civil Law” and Article 54 of “Contract Law” stipulate that if a contract is seriously unconscionable, the court can modify or revoke it. Although Article 72 of “Judicial Opinions of General Principle of Civil Law” gives an explanation on doctrine of unconscionability, there are still a lot of debates regarding the legislative model, cognizance standard and legal effect of this doctrine. In order to clarify the different opinions, this dissertation will talk about the issues of whether it is necessary to establish the doctrine of unconscionability, how to judge an unconscionable contract and what is the legal effect of the unconscionable contract.This dissertation has three chapters. The first chapter, “History and Value theory of Doctrine of Unconscionablity”, discusses about the development of doctrine of unconscionability in both civil law jurisdiction and common law jurisdiction, as well as the value and the meaning of pursuing the contractual fairness. The second chapter, “the Doctrine of Unconscionability in American Judicial Practice”, talks about the legislative model, legal effect and cognizance standard of this doctrine under American law. The third chapter, “the Doctrine of Unconscionability in Chinese law and its Improvements”, focuses on analyzing the problems of the doctrine under Chinese law and putting forward some practical ideas to perfect the doctrine.The first chapter discusses about the history of the doctrine of unconscionability and its value theory. This doctrine was first introduced into legislation by Roman law and was later developed by “Contractual Damage” in French law and “Profiteering” in German law. Under French law,“Contractual Damage” could only be applied to certain type of contract, such as division or sale of real state when it was first established. After the revision of the legislation, the applicable scope of the rule has been expanded to other limited types of contract which was expressly stipulated in the Civil Law Code. On the contrary, “Profiteering” under German law can be applied to all kinds of contracts and the rule of “Profiteering” aims to safeguard the principle of good social customs instead of the principle of fairness. In common law jurisdiction, the doctrine of unconscionability was first introduced by equity law of English law and formally established by Article 2-302 of American “Uniform Commercial Code”. The meaning of this doctrine was explained and expanded by lots of judicial cases. Since it is more flexible to apply the doctrine in practice in common law jurisdiction than in civil law jurisdiction, a lot of valuable ideas from the cases deserve our country to learn when applying this doctrine in China. The value theory of the doctrine of unconscionability is the redefining the meaning of the traditional freedom of contract theory. This doctrine aims to seek for a balance between the freedom of contract and fairness of contract instead of denying the value of the traditional theory, so as to realize the dream of pursuing the contractual fairness.The second chapter focuses on introduction and analysis on “Unconscionability” in American judicial practice. To judge whether a contract is unconscionable, the court usually looks into two aspects, substantive unconscionability and procedural unconscionability. Substantive unconscionability focuses on the outcome of the contract and procedural unconscionability aims to check whether one has made “a meaningful choice” when entering into a contract. In addition, the substantive unconscionability and the procedural unconscionability do not function independently, they appear to be a dialectical union as the procedural unconscionability is the premise of the substantive unconscionability while the substantive unconscionability is the proof of procedural unconscionability. Since fraud, duress, undue influence cannot cover all the procedurally unconscionable behaviors within the process of contract negotiation, “Unconscionability”, as the general rule in American law, can function as the supplement to above mentioned rules.The third chapter analyzes the doctrine of unconscionability and its improvents under Chinese law. There are two different opinions regarding the elements of unconscionability. One is that only objective element can constitute unconscionability, the other is that both objective element and subjective element are required for judging whether a contract is unconscionable. The latter is more appropriate. Pursuant to article 72 of “Judicial Opinions of General Principle of Civil Law”, the objective element refers to the status that the consideration is unconscionable and the subjective element refers to the intention and fault of taking advantage of the other party’s inexperience or weakness. Since the explanation provided in “Judicial Opinions of General Principle of Civil Law” is quite obscure, each court has its own applicable standard of this doctrine. In order to unify the cognizance standard, we should learn from American judicial practice to consider the objective element and the subjective element as a whole. As to the objective element, we should take both the nature of the contract and the commercial practice into consideration; as to the subjective element, whether one has made a meaningful choice is the key to be taken into account. The clarify of the elements of unconscionability can help to distinguish it from the rule of misunderstanding, fraud, duress and taking advantage of the other party’s disaster. Although thinking from the context, unconscionability seems to refer to the unfair outcome of the contract, unconscionability also contains the inappropriate behaviors that result in the unfair outcome of the contract. That is to say, unconscionability as well as misunderstanding, fraud, duress, taking advantage of the other party’s disaster all aim to relieve the party if he enters into a contract without his true intention. In addition, we can also learn how to save the suffering party out of the seriously unconscionable from “Unconscionability” of American law, in which sense, change of contract is the first choice and cancellation of the contract is the last choice. Hope all these can help to perfect the doctrine of unconscionability under Chinese law.