Wenqing Liao, ‘Efficient Breach in the Common European Sales Law (CESL)’

In the classic economic theory, it is suggested that contract law should be structured in such a way that efficient breaches (i.e. those increasing social welfare) would be promoted. The default remedy of expectation damages was justified on this cognition. Nowadays, more and more suspects and critiques are raised against the so called simple efficient breach model. The aim of this paper is to re-sketch the theory of efficient breach and to compare the consequences resulting from economic analysis with the remedy rules of the Common European Sales Law (CESL). It is proposed that the doctrine of efficient breach has its theoretical significance for shedding light on how to design and assess contract law. Within the field of consumer contracts, this question is to be answered by balancing between on the one hand how to shape the business party’s incentive to take optimal performance and on the other hand how to make sure that the consumer parties will not be worse off when the contract is not performed. It is found that the Common European Sales Law rules are partially in line with the findings derived from the economic theory of efficient breach. The CESL has incorporated the model of efficient breach in relation to the stories of encouraging cooperation and re-negotiation, avoiding economic wasteful performance, ensuring consumer remedies and allocating risks. However, the CESL also deviates from the economic theory when addressing its damage rules and imposing an obligation to negotiate on the contract parties. Moreover, the application of efficient breach doctrine has its limits when it comes to the specific cases of cross-border consumer transactions that are covered by the CESL. It is difficult to achieve real efficiency if a business seller fails to perform the contract.

Wenqing Liao. 2013. “Efficient Breach in the Common European Sales Law (CESL)”.

First posted 2013-11-02 09:00:05

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