Bargaining Power in Contract Theory

VISIONS OF CONTRACT THEORY: RATIONALITY, BARGAINING AND INTERPRETATION, Larry A. DiMatteo, Robert A. Prentice, Blake D. Morant & Daniel D. Barnhizer, eds., pp. 85-148, Carolina Academic Press, 2007

MSU Legal Studies Research Paper No. 03-04

63 Pages Posted: 29 Aug 2005 Last revised: 9 Jul 2008

Daniel D. Barnhizer

Michigan State University College of Law

Abstract

This Article analyzes the role that legal conceptions of bargaining power play in defining the jurisprudence of contract law. Contract law cannot ignore bargaining power asymmetries. Unchecked power imbalances in the bargaining context soon become indistinguishable from naked coercion, and at some level the imbalance undermines both the consent of the weaker party and the legitimacy of the resulting bargain. The debate over the role of the legal doctrine of inequality of bargaining power and subdoctrines such as unconscionability and duress has largely focused on whether and how the state should intervene in individual private agreements to correct perceived power disparities. While bargaining power disparities may be difficult to analyze in these individual cases, legal conceptions of bargaining power may also be useful in defining the boundaries of contract law. Specifically, where both parties to a transaction possess some ability to affect the outcome of that transaction, they may take advantage of the relatively flexible and unregulated regime of private contract. In other types of transactions - such as labor agreements, consumer credit contracts and intrafamily gifts - one or both parties lack legally cognizable bargaining power and the resulting transaction is subject to relatively greater degrees of public ordering. At this macro level, bargaining power provides both a positive and normative explanation for why some promises are enforceable in contract and others are regulated under relatively more intrusive public orderings.

Suggested Citation

Barnhizer, Daniel D., Bargaining Power in Contract Theory. VISIONS OF CONTRACT THEORY: RATIONALITY, BARGAINING AND INTERPRETATION, Larry A. DiMatteo, Robert A. Prentice, Blake D. Morant & Daniel D. Barnhizer, eds., pp. 85-148, Carolina Academic Press, 2007; MSU Legal Studies Research Paper No. 03-04 . Available at SSRN: https://ssrn.com/abstract=578578

Daniel D. Barnhizer (Contact Author)

Michigan State University College of Law ( email )

318 Law College Building
East Lansing, MI 48824-1300
United States
517-432-6901 (Phone)

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