The Incoherent Role of Bargaining Power in Contract Law
43 Pages Posted: 3 Apr 2014
Date Written: April 1, 2014
Contracts that result from the abuse of unequal bargaining power have long been a concern of contract law. Courts have proscribed efforts by the "powerful" to take unfair advantage of the "weak" through contracts of adhesion and standard form contracts. Certain kinds of clauses — liability waivers, and covenants not to compete, among others — regularly attract judicial suspicion because their appearance is deemed indicative of such advantage-taking. In books, symposia, and journal articles, generations of legal scholars have debated the role of bargaining power considerations in the analysis of contracts and contractual terms. The "bargaining power" construct has become deeply embedded in the law.
But the construct suffers from two insoluble problems. First, no one knows how to define or measure "bargaining power." No court or scholar has adopted or even proposed a coherent definition of the term. Nor has anyone come up with an objective means for measuring power disparities. These fundamental failings are no simple oversight, but result from the inherent and irresolvable indeterminacy of the "bargaining power" concept itself. Second, "bargaining power" performs no useful work for contract law. It divides otherwise identical contracts and terms into two arbitrary groupings: those resulting from "significant" inter-party "power" disparities; and all others. Courts apply heightened scrutiny to contracts placed in the first group, while applying very little, if any, to those in the second.
The "bargaining power" construct should be replaced or eliminated. If courts use the construct as a guise for public policy determinations, then the public policy defense would itself serve that purpose better. If they employ it to eliminate types of contract terms that are systematically abusive, then legislation or regulation would provide a superior tool. Everything that "bargaining power" analysis seeks to accomplish can be achieved better and more coherently by alternative means.
Keywords: contract law, bargaining power, contracts of adhesion, commercial regulation
Suggested Citation: Suggested Citation