CHAPTER 13

The Judicial Regulation of Improper Bargaining and of Violations of Law and Public Policy

§13.1 INTRODUCTION

This chapter and Chapter 14 deal with several related but distinct doctrines. Sections 13.2 through 13.12 cover a group of doctrines that are designed to regulate improper bargaining: misrepresentation, duress, undue influence, and unconscionability. The theme that connects these doctrines is the balance between the policy of protecting reliance that underlies the objective test of contract and the policy of freedom of contract that dictates not only that parties should have the freedom to enter contracts, but also that they should not be held to contracts to which they did not voluntarily assent. Although the objective test focuses on the manifested intent of the parties rather than on their subjective states of mind, a rigid adherence to objectivity could mask the fact that the apparent assent was not genuine, but was obtained by deceit or improper bargaining tactics. The doctrines mentioned above allow the court to go behind the manifestation of intent to decide if a party’s apparent agreement is based on an acceptable degree of volition. They are regulatory in that they allow the court to regulate improper bargaining behavior. They are sometimes called policing doctrines.

  Section 13.13 deals with a different kind of regulation—the policing of contracts for compliance with law and public policy. Although this form of regulation has some affinity to the improper bargaining doctrines, it is distinct. Its focus is not on whether one of the parties induced the other’s manifestation of assent by deceit or improper tactics, but whether the contract violates a statute, a rule of common law, or an important public policy. If it does, the court will not enforce it, even though the parties acted with full knowledge and deliberate intent in entering it. The possibility that a court might refuse to enforce a genuinely consensual contract creates tension between the contractual policies of freedom of contract and assent and the other public policy that is implicated in the transaction. Section 13.13 discusses how courts resolve that tension.

  Chapter 14 deals with the problem of lack of contractual capacity, either as a result of minority or of mental illness. Although capacity to contract is a subject distinct from those discussed in this chapter, you will see that there are close connections because it also involves fundamental questions of reliance, assent, and public policy.