William goldman

*27 “Enigma” decryption machine87-may well have meant the difference between an Allied victory or defeat in World War II. In similar fashion, accurate information about an opponent’s intentions, strength, or vulnerabilities can dramatically alter the power dynamic of a negotiation. For example, a buyer who knows an automobile dealer’s costs for a car and a sense of what a reasonable markup on the vehicle is stands a substantially better chance of obtaining a good deal than one who lacks this information.88 Similarly, one who has gone to the Internet to compare prices for similar products will be well situated to bargain for the purchase of the products.

Expertise is one of the most critical and powerful sources of information. Those who are viewed as having mastered an area of knowledge can often influence a proceeding by expressing an opinion about a critical point in contention, often without justifying the basis of their opinion.89 For example, the ability of experts to sway juries has long been recognized, so much so that it has drawn increasing court scrutiny of expert testimony.90

The explosion in access to information brought by the Internet will no doubt make information an even more potent source of power *28 in negotiations. Research costs in time and money likely will drop significantly with the growth of this electronic medium, perhaps dramatically shifting power in negotiations from sellers to buyers.91

4. Moral Power

We use the term “moral power” to refer to those instances in which negotiators achieve gains through appeals to fairness or morality. In some instances, moral claims may be the only source of leverage available against those with greater power.92 For example, a POW held in captivity may convince a guard to provide minimum amenities simply by appealing to the guard’s basic humanity. Moral appeals seem likely to carry the greatest impact when they employ empathy to persuade opponents to place themselves in one’s shoes. Contemplating how one would like to be treated if the situation were reversed constitutes the heart of ethical appeals. Obviously, moral power depends primarily on the willingness of those with the upper hand to exercise restraint, but this fact should not lead to a too-quick dismissal of moral power. In fact, it can be operate as an extremely effective manner. Moral power carries a degree of sincerity that may be lacking in other negotiation approaches.

III. Power Imbalances in Negotiations: Legal Issues

One additional source of power is legal authority. That is, statutory or common law provisions may shift the power balance by *29 prohibiting either side from overreaching. We now turn to an exploration of legal protections that apply in negotiation situations involving power imbalances.

Although the superior bargaining power of one party, standing alone, does not generally provide the basis for invalidating an agreement,93 the law does set limits within which bargainers must operate. These limits apply both with respect to the terms that can be negotiated and to the methods one can use to influence an opponent to agree to the terms.94 They are premised on the assumption that at some point in the bargaining process, power advantages can produce inequities so pronounced that the law must step in to protect the weak.95 In negotiations involving power imbalances, most abuses arise when the stronger party, either through threats or other overt displays of power, intimidates the other into entering an agreement so one-sided that it offends reasonable sensibilities. Of course, not all bargaining abuses result from overt power displays.96 Some arise from shifting the balance of power by exploiting trust97 or employing deceit.98

Depending on the nature of the abuse, the law may take different approaches-regulating modestly where “arm’s length” conditions exist or expansively where a “special relationship” requires protection for particularly vulnerable individuals. Where special relationships exist, special protections apply.

A. Undue Influence

When a relationship of trust and dependency between two or more parties exists, the law typically polices the relationship closely *30 and imposes especially stringent duties on the dominant parties. For example, although tort law generally imposes no obligations on citizens to assist those in danger,99 the courts take the opposite position when they determine that a special relationship exists.100 In those cases, the courts unhesitatingly find an affirmative duty to rescue.101

Contract law imposes similar duties in the case of agreements involving undue influence in special relationships. Where one party-because of family position, business connection, legal authority or other circumstances-gains extraordinary trust from another party,102 the courts will scrutinize any agreements between them with great care to ensure fairness. Common examples of special relationships include guardian-ward, trustee-beneficiary, agent-principal, spouses, parent-child, attorney-client, physician-patient, and clergy-parishioner.103 To treat negotiations in these settings as arm’s length interactions would invite “unfair persuasion” by the dominant parties either through threats, deception, or misplaced *31 trust.104 Accordingly, the law imposes special obligations on those who play the dominant role in such relationships,105 requiring them to exercise good faith106 and to make full disclosure of all critical facts107 when negotiating agreements with dependent parties. In determining whether a dominant party in a special relationship exerted undue influence, the courts generally look to the fairness of the contract, the availability of independent advice, and the vulnerability of the dependent party.108 An agreement entered into as a result of undue influence is voidable by the victim.109

B. Protections in Arm’s Length Transactions

Under the “bargain theory” of contracts,110 parties negotiate at arm’s length to exchange consideration. An arm’s length transaction is one in which the parties stand in no special relationship with each other, owe each other no special duties, and each acts in his or her *32 own interest.111 The vast majority of contracts fall within the arm’s length category, which means that no special obligations of disclosure, fair dealing or good faith are generally required. This is not to suggest that parties are free to operate without rules, but it does mean that they are accorded substantial leeway in negotiating contracts.112 They certainly maintain the freedom to assume even foolish and shortsighted contractual obligations, so long as they do so knowingly and voluntarily.113 Once one of the parties acts in a patently abusive manner, however, the law does provide protection, as, for example, with fraud, duress, and unconscionability.

1. Fraud

Negotiated agreements, to be binding, must be entered into by the parties in a knowing and voluntary manner. Lies undermine agreements by removing the “knowing” element from the bargain. That is, one induced by misrepresentations to purchase a relatively worthless item of personal property typically buys the product “voluntarily” -in fact, eagerly-with enthusiasm generated by the false promise of the product’s value. The catch is that because of the defrauder’s lies, the victim has unfairly lost the opportunity to “know” the precise nature of what he or she has bought. Lies of this nature clearly alter the normal contractual dynamic, unfairly shifting power *33 from the victim to the defrauder.114 Because of the dramatic impact that fraud has on the power balance in negotiations, we necessarily review this doctrine.

In its classic formulation, common law fraud115 requires five elements: (1) a false representation of a material fact made by the defendant, (2) with knowledge or belief as to its falsity, (3) with an intent to induce the plaintiff to rely on the representations, (4) justifiable reliance on the misrepresentation by the plaintiff, and (5) damage or injury to the plaintiff by the reliance.116 Fraud entitles the victim to void the transaction and permits him or her to pursue restitution or tort damages.117 A false representation may be made in several ways-through a positive statement, through misleading conduct, or by concealing a fact that the defrauder has a duty to disclose.118

*34 The law generally does not impose a duty on the parties to disclose information harmful to their positions,119 leaving it to each on his or her own to discover whatever he or she can that will help in the negotiation. For example, a real estate broker who secures an option on a parcel of land generally need not disclose to the land owner that the option is for a supermarket chain’s new store.120 In some instances, however, the courts have imposed a common law duty of disclosure121 and Congress, in various consumer protection statutes, has *35 done the same.122 Typically, the courts and legislatures have done so in areas where information acquisition is extremely expensive and where fraud has been rampant.123 In most cases, governmental action seeks to equalize otherwise disproportionate power balances.

Sadly, it appears that lying in negotiations occurs frequently124 - often to the great advantage of the liar125-and dramatically shifts *36 the power balance when it goes undetected.126 Unfortunately, those who fail to appreciate and take precautions against lies set themselves up to be victimized in their dealings.

Compounding the issue of lying in negotiations is drawing the distinction between what is permissible bluffing,127 or harmless puffing,128 and what is truly improper. Traditionally, the distinction, although difficult to draw with precision,129 is between a factual representation and mere generalized praise or opinion. Factual misrepresentations may constitute fraud, while generalized opinions usually do not.130 One legal scholar, Professor Charles Pierson, insists that although legal commentators seem tolerant of “puffs,” the courts are not. To the contrary, he argues, most courts find “sales *37 talk,” if exaggerated, to be actionable.131 Although Pierson’s claim is debatable in light of the many rulings that continue to find sales talk to be puff,132 he is correct that a number of courts treat attempted puffs as misrepresentations.133 We find his logic persuasive. As Pierson argues, if so-called puffs did not create legitimate expectations in the minds of prospective purchasers, salespeople would not so often resort to them.134

*38 Lawyers have not always improved the moral climate of bargaining. Indeed, lawyers have adopted ethics rules that permit misrepresentations in certain negotiation settings135 based on the questionable premise that since the other side has no “right” to know this information, attorneys should not be held to speak honestly about it.136

We acknowledge that the lines between proper and improper behavior are difficult to draw at times. We also recognize the general human proclivity to lie, including in negotiations.137 Nonetheless, we find ourselves persuaded by a careful analysis by Professor Richard *39 Shell that, despite the casual approach that negotiators sometimes take towards the truth, the law actually has adopted a much stronger stance against misrepresentations than is generally recognized.138 Accordingly, we conclude that there is less room for playing with the truth than many negotiators believe possible.

2. Duress

Coercion, whether express or implied, takes many forms. One party, for example, might threaten to take its business elsewhere if its terms are not met. Another might threaten to file suit if its financial claims are not resolved. Still another might insist that it will no longer provide a discount or expedited delivery if a deal cannot be struck. These threats, designed to exert pressure on an opponent to secure his or her cooperation, generally fall into a category that the law would consider to be hard bargaining, but not illegal.139 At some point, however, coercion becomes objectionable. How does one distinguish between proper and improper behavior? Unfortunately, there is no clear dividing line. As various commentators and courts have stated, threats per se are acceptable; only wrongful threats are forbidden.140 What makes one threat “wrongful” and another not depends on the circumstances of each case. To constitute duress, threats must be of a particularly virulent nature.

*40 In assessing what makes agreements prompted by duress illegal, one is tempted to emphasize the coerced party’s lack of assent.141 As Professor John Dalzell points out, however, consent of a perverse sort exists even when there is duress. For example, when a parent pays a kidnapper to save his daughter’s life, his action may be the “expression of the most genuine, heartfelt consent.”142 Admittedly, this form of consent is with respect to a set of extremely unpleasant alternatives, but that one dislikes life’s available alternatives does not, by itself, make the case for duress. Unhappy souls faced with the choice between paying a debt or being sued might find both options unpalatable, but could not argue successfully that improper coercion led to their choice.143 The extreme and improper nature of the threat constitutes duress within a given scenario.144 In the kidnapping example, a threat to harm the victim is sufficiently extreme.145

Threatened action need not be illegal-even acts otherwise legal may constitute duress if directed towards an improper goal.146 For *41 example, a threat to bring a lawsuit-normally a legitimate form of coercion-becomes abusive if “made with the corrupt intent to coerce a transaction grossly unfair to the victim and not related to the subject of such proceedings.”147 Similarly, a threat to release embarrassing, but true, information about another person, although abhorrent, would not constitute duress (in the form of blackmail) unless accompanied by an improper demand for financial or other favors.148

Should negotiators with a decided power advantage feel inhibited from pushing for as hard a bargain as they can in light of the law of duress? Generally, no. Judging from the language in the courts’ opinions, hard bargainers should have little to fear from the doctrine of duress. Nothing in the law149 of duress prevents negotiators from pushing to the limits of their bargaining power150 or from taking advantage of the economic vulnerabilities or bad luck of their opponents.151 Trouble arises only when a party makes threats that lapse *42 into the illegal,152 immoral153 and unconscionable.154 Of greater impact on negotiators concerned about legal protections is the law of unconscionability, to which we now turn.

3. Unconscionability

The doctrine of unconscionability functions to protect bargainers of lesser power from overreaching by dominant parties. Invoked in a variety of cases under the Uniform Commercial Code155 and elsewhere,156 the term has never been precisely defined, no doubt to provide greater flexibility in its use.157 Although the doctrine traces its ancestry to Roman law,158 its modern incarnation arises generally *43 from equity law159 with its emphasis on fairness.160 To the drafters of the UCC, establishing unconscionability marked a major step forward in promoting judicial honesty. For the first time, they felt, courts no longer needed to stretch or distort legal rules to invalidate unfair contracts.161 Unconscionability provided courts with the means to reject oppressive agreements on that basis alone. This point is made explicit in the official comment to section 2-302:

This section is intended to make it possible for the courts to police explicitly against the contracts or clauses which they find to be unconscionable. In the past such policing has been accomplished by adverse construction of language, by manipulation of the rules of offer and acceptance or by determinations that the clause is contrary to public policy or to the dominant purpose of the contract. This section is intended to allow the court to pass directly on the unconscionability of the contract or particular clause therein and to make a conclusion of law as to its unconscionability.162

What is an unconscionable contract? Given that the UCC drafters deliberately avoided an explicit definition, one cannot simply and easily capture the concept. At a minimum, an unconscionable contract is one “such as no man in his senses and not under delusion would make on the one hand and no honest and fair man would accept on the other.”163 Unconscionability seeks to prevent two evils: