William goldman

*44 (1) oppression and (2) unfair surprise.164 In a seminal analysis, Professor Arthur Allen Leff labeled these two concepts “substantive” and “procedural” unconscionability, respectively.165 Substantive unconscionability includes the actual terms of the agreement; procedural unconscionability refers to the bargaining process between the parties.

Substantive unconscionability occurs where the terms of the contract are so onerous, unreasonable or unfair166 that someone with common sense hearing the terms could not help exclaiming at the inequality of the agreement.167 Common examples of contract provisions that raise substantive unconscionability concerns include excessive price, termination-at-will clauses, add-on security clauses, limitations on damages for breach, and short time periods for filing claims.168

Procedural unconscionability, what Professor Leff calls “bargaining naughtiness,”169 arises when contracts involve the element of unfair surprise. This typically takes the form of terms hidden in a mass of contract language, terms hidden in small print, or on the back of an agreement where one would not think to look, or the like.170 Procedural unconscionability also assumes another, less clearly delineated form, that of “oppressive” tactics. When the dominant party *45 uses high-pressure tactics in circumstances that result in unfair control of the situation, the courts will intercede.171 Although perhaps fully cognizant of the terms, the victim has to accept what the other party demands because of the victim’s limited bargaining power. The abuse falls short of duress, but qualifies for judicial relief under the doctrine of unconscionability.172

While it is theoretically possible to have substantive uncon-scionability without procedural unconscionability and vice-versa,173 both elements not unsurprisingly usually find their way into the same contract.174 In fact, a number of courts insist that both be *46 present before they will make a determination of unconscion- ability.175

Virtually all cases in which unconscionability arises as an issue involve significant disparities in bargaining power, but that, standing alone, rarely justifies a finding of unconscionability according to most courts176 and commentators.177 What draws judicial fire is when the party endowed with superior bargaining power imposes an extremely unfair and one-sided agreement on the weaker.178 In effect, the stronger party oppresses the weaker party through the application of brute power, thereby removing any real “choice” from the victim.179 Accordingly, inequality of bargaining power seems a generally necessary, but not sufficient, condition of unconscionability.180

*47 One contract form that alerts judges to look for unconscionability is the so-called contract of adhesion.181 These contracts, used ubiquitously by commercial entities such as banks and large retailers,182 typically offer terms on a printed form on a non-negotiable basis.183 Contracts of adhesion, although not unconscionable per se,184 invariably signal that a substantial disparity in bargaining power exists between the parties.185 When the power differential in an adhesion *48 contract results in a bargain that unnecessarily or unreasonably favors the stronger party, the courts may rule the contract unconscionable.186

How concerned should a negotiator be-especially one with superior bargaining power-that pursuing an advantage in a contract will result in a court ruling that the agreement is unconscionable? Our best answer: some, but not much. For the most part, the courts have taken a cautious approach to finding unconscionability in negotiated agreements.187 The vast majority of successful unconscionability claims involve poor, often unsophisticated, consumers challenging oppressive adhesion contracts foisted on them by retail merchants or credit sellers.188 In fact, the courts have generally been unreceptive to unconscionability claims by middle class purchasers or by merchants against other merchants.189 No doubt this reflects the general view that persons of greater sophistication suffer less contractual abuse and need less protection.190

*49 4. Good Faith and Fair Dealing in Contractual Performance and Enforcement

Reaching an agreement without committing or falling prey to undue influence, fraud, duress, unconscionability, or violations of various consumer protection statutes does not end the law’s scrutiny. Having entered into a contract, the parties assume obligations to perform and enforce their duties in good faith.191 Virtually every contract that a person enters into in the United States carries an implied obligation of good faith.192 Accordingly, even parties with a decided power advantage in a contract face legal limits on the degree of freedom their power permits them to exercise.193 For example, employment-at-will contracts, usually interpreted to permit employers to terminate workers for no reason, nonetheless, often have been held to be subject to an obligation of good faith.194

Good faith requirements arise both under the Uniform Commercial Code and the Restatement of Contracts.195 The Uniform Commercial Code states that “[e]very contract or duty within this Act imposes an obligation of good faith in its performance or enforcement.”196 The Restatement provides “[e] very contract imposes upon each party a duty of good faith and fair dealing in its performance *50 and its enforcement.”197 Good faith appears to be a fundamental building block of agreements, applicable to virtually all contracts198 and expressly non-disclaimable.199 The UCC refers to good faith in thirteen of the sections on sales alone and in at least 60 of the 400 sections of the whole Code.200

The UCC defines good faith generally as “honesty in fact in the conduct or transaction concerned.”201 In Article 2, for merchants, the definition is more demanding: “honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade.”202 The Restatement goes beyond the UCC-it imposes a duty of good faith and fair dealing on all parties, not just merchants.203

The concept of good faith, because it is so general, carries substantial ambiguity with respect to how it is supposed to police contracts.204 To address this, Professor Robert Summers has offered the *51 most widely adopted interpretation of the term in an extremely influential law review article.205 In the article, he describes good faith as an “excluder,” namely a “phrase which has no general meaning or meanings of its own, but which serves to exclude many heterogeneous forms of bad faith.”206 The wide variety of acts in performing contractual terms that give rise to “bad faith” findings by the courts include: evasion of the spirit of the deal, lack of diligence, willful rendering of only substantial performance, abuse of power to specify terms, abuse of power to determine compliance, and interference with or failure to cooperate in the other party’s performance.207 With respect to enforcing contract terms, bad faith acts would include: conjuring up a dispute, adopting an overreaching or over-stretched interpretation and construction of contract language, and taking advantage of another to get a favorable readjustment or settlement of a dispute.208 In these cases, the failure to act in good faith, although not an independent cause of action, constitutes a breach of contract, giving rise to remedial action by the innocent party.209

Many, if not most, of the bad faith acts set forth in Summers’ examples involve some form of abuse of power. That is, one with superior power acts insincerely in some fashion that produces an unfair advantage for him or her. Although insincerity is difficult at times to document, the courts have shown increasing willingness to police bad behavior, especially as the doctrine of caveat emptor210 declines in the United States.211 This serves as a reminder that merely avoiding the more extreme forms of contractual abuse (such as fraud, duress or *52 unconscionability) does not provide a green light for those with greater power to do as they wish once they have consummated a deal.

5. The Special Case of Good Faith in Precontractual Negotiations

There is debate about whether the requirements of good faith and fair dealing apply to negotiations that do not lead to contractual agreements. By their terms, the UCC212 and the Restatement213 ignore contract formation: both expressly apply the concept of good faith to the “performance” and “enforcement” of contracts, but neither mentions precontractual negotiations where they do not lead to a contract. Based on this approach, most courts have refused to imply good faith obligations in precontractual negotiations.214

One might be tempted to ask whether judicial policing of precontractual behavior even matters. After all, if the negotiations result in a contract, then the precontractual words and deeds can be scrutinized to see whether undue influence, fraud, duress, unconscionability or the like played a role in the deal’s formation. If not, one might ask, where is the harm? In many cases, other than some lost time and bruised feelings, there might be none. On the other hand, in some instances, one can imagine substantial harm. For example, someone trying to choose between two parcels of land to purchase might be misled as to one owner’s intentions to sell and thereby lose the opportunity to purchase the other plot of land. Similarly, a party might invest substantially in inventory in anticipation of purchasing a business only to discover that the owner had lied about his intention to sell. In these and other cases, the damage from bad faith in negotiations might be severe even though the parties never entered into a contract.

Notwithstanding the general view that negotiations are excluded from coverage of good faith and fair dealing concepts, there is some authority to the contrary. Professor Summers, for example, cites a number of pre-Restatement cases that suggest that good faith concepts apply at least to some negotiations, such as negotiating without serious intent, abusing the privilege to withdraw a proposal or an *53 offer, entering a deal not intending to perform (or recklessly disregarding the prospective inability to perform), and taking advantage of another in driving a bargain.215 These examples demonstrate at least a nascent beginning in protecting precontractual interests.216

Another commentator, Professor Nicola Palmieri, schooled in the Civil Law system in Italy, is disturbed by the thought that the American legal system217 would not extend good faith concepts to negotiations.218 Professor Palmieri has argued forcefully in favor of applying good faith to precontractual negotiations. On the basis of a broad review of the law,219 Palmieri concludes that neither the UCC nor the Restatement preclude applying good faith and fair dealing to precontractual negotiations220 and that current tort law-as opposed to contract law-supplies substantial protection to those who might be exploited in precontractual negotiations.221

*54 We believe that Palmieri is correct that the current tort system provides some safeguards to those engaged in contract negotiations. Nonetheless, given the degree of uncertainty in the law, we believe that one who faces the prospect of extensive negotiations without the guarantee of an agreement at the other end needs to proceed with particular caution. The other party to a negotiation may be more free to act ignobly than one might initially assume. At a minimum, one should be on alert.

6. Legal Protections for Negotiators Facing Power Disparities: Final Thoughts

Having reviewed the legal protections available to negotiators, we now pause to reflect on the points thus far covered. As a general matter, we believe it clear that, notwithstanding the general movement away from caveat emptor, the law continues to accord parties in negotiations wide discretion to craft deals, even foolish ones, when the parties bargain with relatively equal power. Once inequality of bargaining power enters the picture, however, judicial scrutiny increases substantially.222 Unequal bargaining power does not automatically invalidate agreements, but it does make them more vulnerable to challenge if they are excessively one-sided or unfair. Nonetheless, the likelihood of successful legal challenge to a negotiated agreement remains small in our judgment,223 which strongly suggests that weaker parties must rely on their own resources when they negotiate. Accordingly, we now move to a discussion of strategies that parties, both weak and strong, may want to consider when they negotiate on an uneven playing field.

*55 IV. Strategic Bargaining in Unequal Power Settings: General Considerations

As anyone who has studied negotiation theory even to a mild extent knows, there are hundreds, if not thousands, of general techniques that various experts and commentators offer to assist bargainers. Having reviewed a large number of them and their relevance to our analysis of power disparities, we have concluded that some are so critical that we must discuss them if we are to provide meaningful advice on the topic. Accordingly, before addressing unequal power in bargaining situations specifically, we discuss several selected techniques that apply to negotiations generally.

At the outset, we note a critical point: given the wide variety of situations in which people bargain, no one negotiation technique works all the time. In fact, there may well be times in which doing the exact opposite of what we counsel will prove to be a better approach than what we suggest in this section. As frustrating as it may be to hear, the only advice that applies universally to negotiations is “it depends.”224 That said, we nonetheless believe that the approaches we describe offer significant advantages in helping negotiators reach achievable agreements.225

A. Characteristics of Effective Negotiators

A good way to understand how to negotiate effectively is to try to learn what successful negotiators do that makes them successful. Somewhat surprisingly, few studies have been conducted that address this point.226 Of the studies that have been done, perhaps the *56 best known are those conducted by Neil Rackham and his associates in England over a period of years beginning in 1968.227 Starting with a base of observations of real-life business negotiations and numerous assessments of those negotiations by the participants, Rackham identified a number of consistently successful bargainers.228 He and his associates then studied them to see the particular characteristics that permitted them to bargain to such advantage. Rackham found that successful negotiators tended to exhibit the following attributes:

• They considered many options, including those suggested by opponents.229

• They devoted substantial time to refining and expanding areas of agreement.

• They considered the “long-term” implications of agree- ments.230

• They adopted very flexible approaches in reaching agreements.

• They avoided irritating words and phrases.231

• They made few immediate counterproposals.232

• They refrained from emotional attacks on opponents.

• They tested their understanding frequently.

• They asked many questions.233

*57 • They shared their feelings with their opponents.234

Dr. Chester Karass, a practitioner turned researcher (and later a successful entrepreneur), conducted another of the significant studies of effective negotiators. Based on his years of experience as a negotiator for Hughes Aircraft Company, Karass organized 120 professional negotiators from four aerospace companies to undertake a series of negotiations, and to record their assessments of their own and their rivals’ performance.235 On the basis of these observations, Karass reached a number of conclusions about how skilled negotiators bargain:236

• They entered negotiations with high aspiration levels.237

• They made high initial demands, avoided making first concessions, conceded slowly, and avoided making as many large concessions as their opponents.

*58 • They used concessions in a dynamic way. That is, they tested the validity of their assumptions and the intent of their opponents through concessions.

A third study by Gerald Williams, a law professor at Brigham Young University, also merits mention. Professor Williams focused on attorneys238 identified by their peers as effective negotiators.239 This study led to several findings. The majority of attorney negotiators, about sixty-five percent, turned out to be what Williams called “cooperative” negotiators, i.e., those who consider fairness and ethical behavior to be the most important element in bargaining.240 The other major group consisted of those identified as “aggressive” negotiators, i.e., the attorneys for whom maximizing a client’s settlement is the top goal.241 Upon careful analysis, Professor Williams concluded that neither side could properly claim “a monopoly on effectiveness.”242 To the contrary, he determined that each style could either be effective or unsuccessful depending on the skill of the individual. Effective “cooperatives” and “aggressives” shared several key characteristics:243

• Prepared on the facts

• Prepared on the law

• Observed the customs and courtesies of the bar244

• Took satisfaction in using legal skills

• Effective trial attorney

• Self-controlled

Williams sought to determine which approach, cooperative or aggressive, proved more successful to negotiators. His conclusion: neither could be said to be consistently superior. Rather, the most