The Duty to Negotiate in Good Faith: Are BATNA Strategies Legal?

31 Pages Posted: 4 Aug 2017 Last revised: 16 Aug 2017

See all articles by Gregory Marsden

Gregory Marsden

Facultad Libre de Derecho de Monterrey

George J. Siedel

Ross School of Business, University of Michigan

Date Written: June 4, 2017

Abstract

A negotiator's Best Alternative to a Negotiated Agreement ("BATNA") is a key source of negotiating power. The BATNA concept was originally developed in the United States and has been exported to other countries through negotiation books and courses. But can negotiators legally rely on BATNA strategies in civil law countries, where there is a duty to negotiate in good faith? And when does a duty to negotiate in good faith arise in a common law country like the United States?

In addressing these research questions, this article concludes that the duty to negotiate in good faith under the civil law weakens the ability of negotiators to rely on their BATNA power and subjects them to the possibility of reliance damages when they violate the duty.

Under the common law approach used in the United States, negotiators can exercise their BATNA power unless they decide to assume a duty to negotiate in good faith. The risk of assuming this duty increases when negotiators use preliminary agreements — such as term sheets, memoranda of understanding, letters of intent, and agreements in principle. In light of a recent Delaware Supreme Court decision allowing the plaintiff to recover expectation damages, the consequences of breaching this duty can be severe. The article includes several practical lessons for negotiators who are considering the use of preliminary agreements.

Keywords: Negotiation, Good Faith, Civil Law, Common Law, BATNA, Contracts, Preliminary Agreements, Term Sheets, Memorandum of Understanding, Agreement in Principle, Letter of Intent, Reliance Damages, Expectation Damages, Power, Delaware

JEL Classification: K10, K12, K13, K19, K20, K29, K30, K33, K39, K40, K41, K49

Suggested Citation

Marsden, Gregory and Siedel, George J., The Duty to Negotiate in Good Faith: Are BATNA Strategies Legal? (June 4, 2017). Berkeley Business Law Journal, Vol. 14, No. 1, 2017, Available at SSRN: https://ssrn.com/abstract=3012750

Gregory Marsden

Facultad Libre de Derecho de Monterrey ( email )

Avenida Morones Prieto, 1000 Pte.
Colonia Loma Blanca
Santa Catarina, Nuevo León 66197
Mexico

George J. Siedel (Contact Author)

Ross School of Business, University of Michigan ( email )

701 Tappan Street
Ann Arbor, MI MI 48109-1234
United States
734-764-1392 (Phone)
734-936-8716 (Fax)

HOME PAGE: http://michiganross.umich.edu/faculty-research/faculty/george-siedel

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