Contract Formation and the Entrenchment of Power

Abstract

Conventional wisdom has it that modern contract law evolved at least in part to address problems created (or ignored) by the classical legal system. Consequently, modern contract law is different from classical contract in ways that make the current system work better than the regime it ostensibly replaced. For this to be true, however, the changes made by modern contract have to be effective in rectifying the problems engendered by the classical system. But herein lays the problem. Modern contract identified coercion in the bargaining process that produces a bad bargain as a problem serious enough to warrant a solution. The solution came in the form of “expanded” contract policing doctrines, like unconscionability, economic duress, and misrepresentation. But modern contract’s solution to the coercion/bad bargain problem has failed. Indeed, the modern system makes the coercion problem worse, because it only partially rejected classical contract, while retaining key parts of the older regime. More specifically, modern contract law leaves the core of classical contract - contract formation - completely intact. And contract formation, particularly in the doctrine of mutual assent, is where the power in contracting is created, embedded and, under modern contract law, largely immunized from effective challenge by the contract policing doctrines. Consequently, by leaving the core of contract intact, modern contract law has ensured that the expanded policing doctrines it adopted will not alleviate, let alone correct, the coercion problem. Instead, it will increase the coercive capacity of the party with superior bargaining power, particularly during contract formation, and incentivize that party to use its increased coercive capacity. So, the conventional wisdom is wrong. The differences between the classical and modern contract law systems are not the most important part of the evolutionary story. Instead, understanding the ways in which the two systems are the same is more critical in determining whether modern contract law is in fact, or will be, successful in tempering the harshest aspects of the classical contract law system.