A bargaining power theory of default rules

Columbia Law Review

Volumn 109, Issue 2, 2009, Pages 396-430

  Ben Shahar, Omri ^a  

^a UNIVERSITY OF CHICAGO   (United States)

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EID: 64549106519     PISSN: 00101958     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (156)

1. See Ian Ayres, Valuing Modern Contract Scholarship, 112 Yale L.J. 881, 890-92 (2003) (summarizing contribution of economic analysis to theory of default rules).
2. Richard Craswell, Contract Law: General Theories, in 3 Encyclopedia of Law and Economics 1, 3-4 (Boudewijn Bouckaert & Gerrit De Geest eds., 2000);
3. see Ian Ayres, Default Rules for Incomplete Contracts, in 1 The New Palgrave Dictionary of Economics and the Law 585, 586 (Peter Newman ed., 1998).
4. See E. Allen Farnsworth, Contracts 486 (4th ed. 2004) (noting courts may provide terms "that an economist would describe as maximizing the expected value of the transaction");
5. Richard A. Posner, Economic Analysis of Law 99 (7th ed. 2007) ("[C]ontract law cannot readily be used to achieve goals other than efficiency, as a ruling that fails to interpolate the efficient term will be reversed by the parties in their subsequent dealings.") ;
6. see also Frank H. Easterbrook & Daniel R. Fischel, The Economic Structure of Corporate Law 21-22 (1991) (stating that gap fillers must duplicate terms that optimally promote parties' interests);
7. Mark P. Gergen, The Use of Open Terms in Contract, 92 Colum. L. Rev. 997, 1064-72 (1992) (asserting that default rule should be a joint maximization rule);
8. Alan Schwartz & Robert E. Scott, Contract Theory and the Limits of Contract Law, 113 Yale L.J. 541, 554 (2003) [hereinafter Schwartz & Scott, Contract Theory] ("Parties jointly choose the contract terms so as to maximize the surplus, which the price may then divide unequally.").
9. See, e.g., George L. Priest, A Theory of the Consumer Product Warranty, 90 Yale L.J. 1297, 1313 (1981) (pointing out that disclaimers of warranty result in price adjustments) ;
10. Schwartz & Scott, Contract Theory, supra note 3, at 554 ("Bargaining power instead is exercised in the division of the surplus, which is determined by the price term.").
11. See, e.g., Omri Ben-Shahar, "Agreeing to Disagree": Filling Gaps in Deliberately Incomplete Contracts, 2004 Wis. L. Rev. 389, 399-405 [hereinafter Ben-Shahar, Agreeing to Disagree] (arguing that gaps in contracts are often created deliberately when parties fail to agree on a negotiated provision).
12. 556 N.E.2d 515, 518-20 (Ohio 1990).
13. The court found that any price between $5.00 and $7.44 per gross ton was a reasonable rate. Id. at 520.
14. Id. at 518.
15. U.C.C. § 2-305(1)-(2) & cmt. 3 (2004) (establishing that one party may be accorded power to set price, but must do so in good faith).
16. See, e.g., D.R. Curtis, Co. v. Mathews, 653 P.2d 1188, 1189, 1191 (Idaho Ct. App. 1982) (using original price set by middleman in damages calculation, even though final price was not set by contract).
17. For example, the doctrine of duress is often justified as redressing the disparity of bargaining power. See, e.g., John P. Dawson, Economic Duress - An Essay in Perspective, 45 Mich. L. Rev. 253, 282-88 (1947) (discussing work of duress doctrine in context of economic bargaining power). Likewise, weak bargaining power can support a claim of unconscionability.
18. See, e.g., Shell Oil Co. v. Marinello, 307 A.2d 598, 601 (N.J. 1973) (declaring that courts may find void a "grossly unfair contractual provision [ ]" when "there is grossly disproportionate bargaining power").
19. Many cases of intervention in unconscionable contracts explicitly recognize the presence of superior bargaining power. See Farnsworth, supra note 3, at 301-02.
20. See, e.g., Martin J. Osborne & Ariel Rubinstein, Bargaining and Markets 50-55 (1990) (showing that strategic bargaining power depends on bargaining procedure; parties' relative costs of delay and relative patience; outside options; and more).
21. 417 N.E.2d 541, 542 (N.Y. 1981). In that case, the court refused to fill the gap and held that the contract was too indefinite to be enforced. Id. at 543-44.
22. But the growing trend is to enforce such contracts. See, e.g., Daniel E. Feld, Annotation, Validity and Enforceability of Provision for Renewal of Lease at Rental to Be Fixed by Subsequent Agreement of the Parties, 58 A.L.R.3d 500, 503-06 (1974) (surveying case law on lease renewals subject to price agreement).
23. 139 N.E. 470, 470 (N.Y. 1923) (examining role of mutual assent in interpreting open terms and agreements to agree).
24. See generally Sw. Eng'g Co. v. Martin Tractor Co., 473 P.2d 18 (Kan. 1970) (addressing gap filling where payment and credit terms - elements that are purely distributive - are not fully specified);
25. Mantell v. Int'l Plastic Harmonica Corp., 55 A.2d 250 (N.J. 1947) (addressing gap filling in contract in which price was deliberately left out and yet court was more than ready to supply it).
26. U.C.C. § 2-305 (2004) ("The parties if they so intend may conclude a contract for sale even if the price is not settled."); see also United Nations Convention on Contracts for the International Sale of Goods (CISG) art. 55, Apr. 11, 1980, S. Treaty Doc. No. 98-9 (1986), 1489 U.N.T.S. 59, 69 (implying price where contract was validly concluded but without a price);
27. Int'l Inst, for the Unification of Private Law, UNIDROIT Principles of International Commercial Contracts art. 5.1.7 (2004) [hereinafter UNIDROIT Principles] (same);
28. Bruce W. Frier & James J. White, The Modern Law of Contracts 256-89 (2005) (discussing interpretation of contract terms);
29. Richard E. Speidel & Linda J. Rusch, Commercial Transactions: Sales, Leases and Licenses 174-203 (2d ed. 2001) (discussing effect of open contract terms).
30. See Feld, supra note 14, at 503-06 (surveying different approaches taken by courts);
31. see also sources cited in Ben-Shahar, Agreeing to Disagree, supra note 5, at 395-96 nn.15-19 (citing sources that describe some reasons why case outcomes differ).
32. See, e.g., Walker v. Keith, 382 S.W.2d 198, 203-04 (Ky. 1964) (finding that missing price indicates lack of mutual assent); U.C.C. § 2-305 cmt. 2 ("Under some circumstances the postponement of agreement on price will mean that no deal has really been concluded . . . .");
33. Farnsworth, supra note 3, at 202-03, 210-11 (distinguishing indefiniteness that is due to lack of assent).
34. See, e.g., U.C.C. § 2-305 (rejecting principle that indefinite agreements, or agreements to agree, are unenforceable);
35. Farnsworth, supra note 3, at 207-11 (noting that U.C.C. § 2-305 rejects traditional common law nonenforceability rule).
36. See Ben-Shahar, Agreeing to Disagree, supra note 5, at 403 (discussing negotiation practice of avoiding contentious issues that may make agreement impossible).
37. This is the typical situation in lease agreements with a tenant option to renew upon its expiration.
38. See U.C.C. § 2-305(1)(c) & cmt 4 (recognizing situation in which third party's judgment as to price is used to fill gap).
39. Craswell, supra note 2, at 3-4.
40. See Omri Ben-Shahar & James J. White, Boilerplate and Economic Power in Auto Manufacturing Contracts, 104 Mich. L. Rev. 953, 961-63 (2006) (describing contracting process in auto manufacturing).
41. Id. at 963-64.
42. For example, General Motors, who in 2004 entered into close to one million procurement transactions for a total volume of $80 billion, used for all these contracts a short, thirty-one paragraph, standard form. Id. at 957.
43. Id. at 961;
44. see, e.g., Toyota Motors Mfg. N. Am., Inc., Terms and Conditions § 4.2 (Oct. 1, 1998) (leaving price for service parts to be determined later). Due to the confidential nature of this contract, the Columbia Law Review does not have a copy of it on file.
45. For example, Nissan's contract forces suppliers to commit to selling the service parts for fifteen years at the price negotiated during the production phase, which is typically the lowest possible price and the one that accords the entire surplus from the service parts market to the buyer. Nissan N. Am., Inc., Master Purchase Agreement art. 19 (2003), available at http://www.butzel.com/ AutoIndustry/080907tcNissan-AI.pdf (on file with the Columbia Law Review).
46. See 5 Margaret N. Kniffin, Corbin on Contracts: Interpretation of Contracts § 24.27 (Joseph M. Perillo ed., rev. ed. 1998) (explaining that contra proferentum is "technique" in which courts "adopt the meaning that is less favorable in its legal effect to the party who chose the words").
47. See, e.g., Gaunt v. John Hancock Mut. Life Ins. Co., 160 F.2d 599, 601-02 (2d Cir. 1947) ("[C]ontra proferentum is more rigorously applied in insurance than in other contracts, in recognition of the difference between the parties in their acquaintance with the subject matter.").
48. See, e.g., Kenneth S. Abraham, A Theory of Insurance Policy Interpretation, 95 Mich. L. Rev. 531, 534 (1996) (noting that typical justification for contra proferentum is liability for negligent drafting);
49. Ian Ayres & Robert Gertner, Filling Gaps in Incomplete Contracts: An Economic Theory of Default Rules, 99 Yale L.J. 87, 91 (1989) (arguing that penalty default rules provide incentives for drafting explicit terms).
50. Craswell, supra note 2, at 4-5.
51. See 1 James J. White & Robert S. Summers, Uniform Commercial Code § 3-8 (5th ed. 2006) (describing use of market prices as gap fillers).
52. See, e.g., Oglebay Norton Co. v. Armco, Inc., 556 N.E.2d 515, 519-20 (Ohio 1990) (affirming use of market shipping rates in thick market for shipping, when contract pricing mechanism failed).
53. See James Gordley, Foundations of Private Law 363 (2006) ("[T]he market price preserves (so far as possible) each party's share of purchasing power.").
54. 55 A.2d 250, 254 (N.J. 1947).
55. Id. at 254-55.
56. Id. at 256.
57. See, e.g., Osborne & Rubinstein, supra note 13, at 29-65 (analyzing factors that affect bargaining outcome).
58. Robert Pindyck & Daniel Rubinfeld, Microeconomics 357-58 (6th ed. 2005).
59. See, e.g., Carboni v. Arrospide, 2 Cal. Rptr. 2d 845, 850 (Ct. App. 1991) ("[T]here was an inequality of bargaining power which effectively robbed [promisor] of any meaningful choice.");
60. see also UNIDROIT Principles, supra note 16, art. 3.10(1) (listing "lack of bargaining skill" as factor relevant to determination of unconscionability).
61. See, e.g., Restatement (Second) of Contracts § 176 cmt. f (1979) (discussing improper threats in bargaining process).
62. Id. § 206 cmt. a.
63. See, e.g., Circuit City Stores, Inc. v. Adams, 279 F.3d 889, 893 (9th Cir. 2002) (reasoning that employer "possesse[d] considerably more bargaining power than ... its employees" such that employees had to "take the contract or leave it").
64. See generally Omri Ben-Shahar & Lisa Bernstein, The Secrecy Interest in Contract Law, 109 Yale L.J. 1885 (2000) (discussing interest of contracting parties in concealing information for strategic purposes).
65. See Ben-Shahar, Agreeing to Disagree, supra note 5, at 402-05 (arguing that gaps in contracts often result from failed attempts to agree on negotiated provision).
66. See, e.g., Mkt. St Assocs. Ltd. P'ship v. Frey, 941 F.2d 588, 593-95 (7th Cir. 1991) (demonstrating various factors that need to be evaluated in figuring out how to interpret gap in contract).
67. See, e.g., Robert E. Scott, Rethinking the Default Rule Project, 6 Va. J. 84, 94 n.4 (2003) ("[C]hoosing a default rule on the basis of some normative conception of fairness would be wrong, in the sense that it would not increase the amount of fair contracts in the world, but it would increase the amount of contracting costs . . . .");
68. see also sources cited supra note 3.
69. Posner, supra note 3, at 96-99 ("[C]ontract law cannot readily be used to achieve goals other than efficiency, as a ruling that fails to interpolate the efficient term will be reversed by the parties in their subsequent dealings.").
70. See, e.g., id. at 95-96 (explaining mutual benefit to parties of leaving gaps in contract for contingencies that are unlikely to occur).
71. See, e.g., David A. Lax & James K. Sebenius, The Manager as Negotiator 112-13 (1986) (highlighting cooperative bargainer's concern for preservation of "self-esteem" and "helping counterparts to save face when necessary");
72. Robert H. Mnookin, Scott R. Peppet & Andrew S. Tulumello, Beyond Winning: Negotiating to Create Value in Deals and Disputes 44-68 (2000) (asserting that expressing "concern and respect" during negotiations "tend[s] to defuse anger and mistrust, especially where these emotions stem from feeling unappreciated or exploited").
73. See Richard H. Thaler, The Winner's Curse: Paradoxes and Anomalies of Economic Life 21-35 (1992) (surveying experimental research that shows that parties with less bargaining power will nevertheless refuse to accept deals in which they are treated unequally).
74. See, e.g., Alan Schwartz, Relational Contracts in the Courts: An Analysis of Incomplete Agreements and Judicial Strategies, 21 J. Legal Stud. 271, 284-90 (1992) (analyzing reasons for incompleteness of long-term contracts).
75. This technique is common in auto manufacturing contracts. The big auto manufacturers stipulate in long-term contracts with their suppliers that replacement parwill be sold at a price that will be agreed upon later. See, e.g., Gen. Motors, General Terms and Conditions § 20 (rev. Sept. 2004) ("[T]he price(s) during the first 3 years of this period shall be those in effect at the conclusion of current model purchases. For the remainder of this period, the price(s) for goods shall be agreed to by the parties.");
76. Toyota Motors Mfg. N. Am., Inc., supra note 27, § 4.2(d) ("[Toyota] will establish, after good faith negotiations with Supplier, a price for Service Parts."). Due to the confidential nature of these contracts, the Columbia Law Review does not have copies of them on file.
77. White & Summers, supra note 33, at 231.
78. For example, in the case law favorite Feld v. Henry S. Levy & Sons, Inc., 335 N.E.2d 320, 321 (N.Y. 1975), the parties had an output contract for breadcrumbs. The seller was entitled to set the quantity but did not have much bargaining power and indeed failed to induce the buyer to agree to pay for a cost increase of one cent per pound. Id.
79. See, e.g., Mathis v. Exxon Corp., 302 F.3d 448, 452-54 (5th Cir. 2002) (illustrating that oil companies follow one-sided pricing practices);
80. Shell Oil Co. v. HRN Inc., 144 S.W.3d 429, 432-33 (Tex. 2004) (same).
81. U.C.C. § 2-305(2) & cmt. 3 (2004);
82. White & Summers, supra note 33, at 226-34 (surveying cases in which courts applied good faith limitation to scrutinize price adjustment).
83. U.C.C. § 2-305(1) (c) & cmt. 4 (applying to cases in which a particular person is chosen to set price);
84. White & Summers, supra note 33, at 232 (providing examples for such formulae).
85. U.C.C. §2-309(2).
86. Id. ("[U]nless otherwise agreed [the contract] may be terminated at any time by either party." (emphasis added)).
87. See, e.g., Corenswet, Inc. v. Amana Refrigeration, Inc., 594 F.2d 129, 131 (5th Cir. 1979) (describing manufacturer's termination of distribution contract and holding "arbitrary termination . . . permissible under both the contract and the law of Iowa").
88. Id. at 132 (detailing distributor's claim that it made investment in relationship that would be squandered if contract was terminated). Indeed, this nowhere-to-go problem is often the case in termination of franchise contracts. See, e.g., Gillian K. Hadfield, Problematic Relations: Franchising and the Law of Incomplete Contracts, 42 Stan. L. Rev. 927, 951-53 (1990) (discussing problem of relationship-specific investment).
89. See supra note 13 and accompanying text (exploring factors that affect bargaining outcomes).
90. See, e.g., David M. Frankel, Creative Bargaining, 23 Games & Econ. Beh. 43, 49-50 (1998) (proving parties overinvest in creative strategies that improve their bargaining position).
91. See, e.g., Lucian Arye Bebchuk & Omri Ben-Shahar, Precontractual Reliance, 30 J. Legal Stud. 423, 431 (2001) (showing parties will make insufficient investments in relationship in absence of precontractual liability).
92. Restatement (Second) of Contracts § 204 cmt. d (1979) (emphasis added).
93. See, e.g., Charles A. Sennewald, Security Consulting 151 (3d ed. 2006) ("If the scope of any of the provisions of the Agreement is too broad in any respect whatsoever to permit enforcement to its full extent, then such provisions shall be enforced to the maximum extent permitted by law . . . .").
94. See, e.g., RealNetworks, Inc., Realplayer Distribution Agreement for Educational Institutions § 11, at http://forms.real.com/rnforms/products/ tools/rpedist/index.html (last visited Nov. 16, 2008) (on file with the Columbia Law Review) ("To the maximum extent permitted by applicable law, RealNetworks further disclaims all warranties . . . .").
95. C. James Levin & Avery R. Brown, Severability, in Negotiating and Drafting Contract Boilerplate 539, 547-48 (Tina L. Stark ed., 2003) (noting that severability clauses can apply to provisions such as indemnity and exculpation, noncompete, acceleration, damages and penalties, interest rates, and more).
96. See, e.g., C &J Fertilizer, Inc. v. Allied Mut. Ins. Co., 227 N.W.2d 169, 176-81 (Iowa 1975) (analyzing interpretation doctrines for insurance contracts);
97. Kenneth S. Abraham, The Expectations Principle as a Regulative Ideal, 5 Conn. Ins. L.J. 59, 63-64 (1998) (exploring foundations of reasonable expectation doctrine).
98. See, e.g., Kenneth S. Abraham, Insurance Law and Regulation 33-37 (3d ed. 2000) (discussing value of interpreted terms);
99. Michelle E. Boardman, Contra Proferentem: The Allure of Ambiguous Boilerplate, in Boilerplate: The Foundation of Market Contracts 176, 180 (Omri Ben-Shahar ed., 2007) (discussing reasons why insurance companies do not redraft).
100. U.C.C. § 2-309(2) (2004) (noting that contract with indefinite duration "may be terminated at any time by either party").
101. Antony W. Dnes, A Case-Study Analysis of Franchise Contracts, 22 J. Legal Stud. 367, 370-74 (1993) (analyzing termination of franchise agreements).
102. 970 F.2d 273 (7th Cir. 1992).
103. Id. at 282.
104. Id.
105. Id. In a somewhat mocking dissent, Judge Cudahy agrees that franchisees have less bargaining power than franchisors but responds to Judge Posner's bargain-mimicking default rule by saying: Apparently, the legislators had not read enough scholarly musings to realize that any efforts to protect the weak against the strong would, through the exhilarating alchemy of economic theory, increase rather than diminish the burden upon the powerless. I agree that the thumb of judges ought not be placed on the scales of justice. But judges have no obligation to ignore the numerous thumbs already put down on the side of economic power . . . .
106. Id. at 283 (Cudahy, J., dissenting).
107. "Material breach" was defined in the contract to include, among other things: "failing to maintain and operate the Cookie System Facility in a good, clean, wholesome manner and in strict compliance with the standards then and from time to time prescribed by" the Cookie Company; selling any product not authorized by the Cookie Company; failing to pay any service fee within 10 days after it is due; failing to pay any of the company's invoices within that period; underreporting gross sales (on which the Cookie Company's royalty from its franchisees royalty is based) by 1 percent or more; or failing to maintain certain insurance coverage. . . . Any three breaches, whether or not material, entitle the company to terminate the franchise within a 12-month period without giving the franchisee notice or an opportunity to cure. Id. at 278 (majority opinion).
108. White & Summers, supra note 33, § 3-10 (analyzing U.C.C's force majeure jurisprudence).
109. U.C.C. § 2-615 cmt. 5 (2004) ("[E]xcuse should not result in relieving the defaulting supplier from liability nor in dropping into the seller's lap an unearned bonus of damages over.")
110. 719 F.2d 992, 999-1001 (9th Cir. 1983).
111. Id. at 1000.
112. Id. at 1000-01.
113. Id. at 1000 (stating that future parties might hesitate to move into the "more contractually secure part of the market").
114. See Bank of N.Y. v. Janowick, 470 F.3d 264 (6th Cir. 2006).
115. Id. at 267-68.
116. Id at 272.
117. The court stated that: Were we to attempt to discern the term to which the parties to the annuity contracts would have agreed (the less-favored mode of analysis under § 204's comment d), we would reach the same conclusion. . . . [U]nder the "hypothetical model of bargaining" approach, [the employees' trustee] would have demanded that any unanticipated proceeds . . . inure to the Employees to compensate them for this additional risk. Prudential would not have been in a position to favor either the Employees or Southwire, and would not have objected to this term. Id. at 272 n.7.
118. 382 P.2d 109, 111 (Okla. 1962).
119. Id. at 111-12, 120.
120. See, e.g., Timothy J. Muris, Cost of Completion or Diminution in Market Value: The Relevance of Subjective Value, 12 J. Legal Stud. 379, 384-92 (1983) (exploring a systematic understanding of case outcomes);
121. Alan Schwartz & Robert E. Scott, Market Damages, Efficient Contracting, and the Economic Waste Fallacy, 108 Colum. L. Rev. 1610, 1620-33 (2008) (surveying prevalence of economic waste notion in case law).
122. Peevyhouse, 382 P.2d at 111.
123. See Judith L. Maute, Peevyhouse v. Garland Coal & Mining Co. Revisited: The Ballad of Willie and Lucille, 89 Nw. U. L. Rev. 1341, 1358-64 (1995) (describing negotiations by Peevyhouses to protect their interests by insisting on terms that went beyond standard industry provisions).
124. Id. at 1365-66.
125. Id. at 1358, 1363.
126. See Patricia H. Marschall, Willfulness: A Crucial Factor in Choosing Remedies for Breach of Contract, 24 Ariz. L. Rev. 733, 734-36 (1982) (arguing willfulness is a factor explaining choice of remedy);
127. see also sources cited supra note 92.
128. Jacob & Youngs, Inc. v. Kent, 129 N.E. 889, 890 (N.Y. 1921).
129. Plante v. Jacobs, 103 N.W.2d 296, 298-99 (Wis. 1960) (holding that in stock floor plan house, a small shift of a wall does not entitle buyer to cost of repair measure).
130. See, e.g., Groves v. John Wunder Co., 286 N.W. 235, 238 (Minn. 1939) (finding cost of performance to be appropriate measure of damages even though this cost was much higher than decrease in value caused by breach);
131. O.W. Grun Roofing & Constr. Co. v. Cope, 529 S.W.2d 258, 262-63 (Tex. Civ. App. 1975) (noting that homeowners contracting for amenities can insist on perfect tender to their specifications);
132. see also Marvin A. Chirelstein, Concepts and Case Analysis in the Law of Contracts 174 (4th ed. 2001) (arguing that recovery should equal amount promisee could have bargained for at agreement stage);
133. Robert A. Hillman, Principles of Contract Law 140 (2004) (explaining that court should have considered "nature of the parties' bargaining over the restoration clause at the time of contracting" since this "would have shed light on Groves' motives").
134. See, e.g., Steven Shavell, Foundations of Economic Analysis of Law 304-12 (2004) (analyzing effect of remedies on overall surplus).
135. See, e.g., Posner, supra note 3, at 121 (suggesting that overcompensatory remedies would make efficient breach more costly).
136. Ian Ayres & Kristin Madison, Threatening Inefficient Performance of Injunctions and Contracts, 148 U. Pa. L. Rev. 45, 95-98 (1999) (discussing effect of damage measure on subsequent rounds of bargaining over release from inefficient performance and inefficient breach).
137. For background on the concept of maximally tolerable terms, see generally Omri Ben-Shahar, How to Repair Unconscionable Contracts (Univ. of Chi, Law Sch., John M. Olin Law & Economics, Working Paper No. 417, 2008), available at http://ssrn.com/abstract=1082926 (on file with the Columbia Law Review).
138. This rationale is recognized by Corbin: "[T]he line [representing the enforceable term] must be drawn somewhere, and it is drawn at the point where the protection to which the buyer is justly entitled ends." Arthur L. Corbin, A Comment on Beit v. Beit, 23 Conn. B.J. 43, 46 (1949).
139. 15 Grace McLane Geisel, Corbin on Contracts § 89.4-.5, at 626-31 (Joseph M. Perillo ed., rev. ed. 2003) (discussing practice of severing offensive portion of contract and enforcing remainder).
140. Id. at 629 (surveying cases in which courts partially enforced an overreaching term).
141. See, e.g., Harlan M. Blake, Employee Agreements Not to Compete, 73 Harv. L. Rev. 625, 646-51 (1960) (exploring common law treatment of noncompete clauses).
142. See, e.g., Fla. Stat. Ann. § 542.335(1)(d)1 (West 2007) ("[A] court . . . shall presume unreasonable in time any restraint more than 2 years in duration,").
143. See, e.g., Flickenger v. R.J. Fitzgerald & Co., 732 So. 2d 33, 34-35 (Fla. Dist. Ct. App. 1999) (holding that three year duration is excessive and reducing it to maximally tolerable term of two years).
144. Justin Belt Co. v. Yost, 502 S.W.2d 681, 685 (Tex. 1974).
145. 1 Arthur L. Corbin, Contracts § 129, at 402 (1964).
146. 676 N.Y.S.2d 569, 573-74 (App. Div. 1998).
147. Id. at 575.
148. Id.
149. Farnsworth, supra note 3, at 811-12.
150. For an explicit rejection of the reduce-and-enforce methodology in penalty clauses, see Cad Cam, Inc. v. Underwood, 521 N.E.2d 498, 503 (Ohio Ct. App. 1987).
151. CA 539/92 Zaken v. Ziva [1994] 1, 4 (Isr.) (on file with the Columbia Law Review).
152. Uri Yadin, Hok Hahozim: Terufot Beshel Hafarat Hozeh 1970 [Contract Law: Remedies for Breach of Contract 1970] 132 (2d ed. 1979) (Hebrew text);
153. see also Eyal Zamir et al., Haperush Hakatsar Lehukim Bamishpat Haprati [Brief Commentary on Law Relating to Private Law] 302 (2d ed. 1996) (Hebrew text) (stating, as translated, that "the measure of reduction of liquidated damages ought to be to the level for which the element of excessiveness no longer applies . . . [such that] if that level was set in the first place, it would not have been reduced by the court").
154. See, e.g., Symposium, Power, Inequality and the Bargain: The Role of Bargaining Power in the Law of Contract, 2006 Mich. St. L. Rev. 841 (describing various approaches to dealing with bargaining power asymmetries).
155. See Einer Elhauge, Statutory Default Rules: How to Interpret Unclear Legislation 5-12 (2008).
156. Ocean Accident & Guarantee Corp. v. Indus. Comm'n of Ariz., 257 P. 644, 645 (Ariz. 1927) ("Our enlightened modern thought realizes that an equality of bargaining power between two such unequal parties is impossible, and has attempted to equalize the balance . . . .").