Efficiency of Civil and Common Law: A Comparative Analysis of Contract Law, Slides of Civil Law

Download Efficiency of Civil and Common Law: A Comparative Analysis of Contract Law and more Slides Civil Law in PDF only on Docsity! Civil Law and Economic Reasoning: The Case of Contract Law Docsity.com Law & Economics • An American product? • Very few studies on the economics of Civil codes Docsity.com My research • U of Chicago PhD Thesis (1999) • Encyclopedia L&E (2000) • IRLE (2003) • CLE (2004) • Chapter on Contract Law in Hatzis, ed. (2005) Docsity.com Civil Contract Law • total absence of theoretical discussion • lack of contemporary grand theories • legal studies in Europe are purely doctrinal Docsity.com Possible reasons • major differences in intellectual legal traditions • contract law was gradually divested of its substance Docsity.com Roman Law • Roman law was a decisive factor for the creation of the first commercial societies in Europe and for the rise of capitalism (James Whitman has established the close relation between the reemergence of Roman law and the birth of the first commercial society in Holland) • Roman law was developed in order to meet commercial needs and to regulate an advanced commercial society and its transactions. Docsity.com Roman Law • particularistic elaboration of issues based on the regulation of special types of categories of contractual relationships • Alan Watson describes Roman law as comprised of numerous self-contained “blocks” Docsity.com Roman Law • Roman economy was essentially a market economy. • According to Andreas Wacke (1993: 2): The ground rule of the Roman emperors with regard to private economic activity may be described […] as laissez-faire liberalism, which only sought to regulate to a limited extent the production of mainly agrarian and household goods, as well as their distribution on the predominantly small-scale markets [...] The market-economy principle of free competition remained, by and large, undisturbed by these state activities, which were important, but which remained peripheral to the general economic system. Docsity.com My project (again…) Five areas where there are marked differences between Civil and Common law • contract formation (Hatzis 1999) • the enforcement of liquidated damages and penal clauses (Hatzis 2003) • third party beneficiaries (Hatzis 1999, 2000) • frustration of performance (Hatzis 1999) • efficient breach (Hatzis 1999, 2000) Docsity.com Two tests • Efficient breach • Penalty clauses Docsity.com Efficient Breach Breaching is more efficient than performing when the costs of performing exceed the benefits to all parties. Cooter & Ulen 2004: 254 The only universal consequence of a legally binding promise is that the law makes the promisor pay damages if the promised event does not come to pass. In every case it leaves him free from interference until the time for fulfillment has gone by, and therefore free to break his contract if he chooses. Holmes 1881:301 • Even if the breach is deliberate, it is not necessarily blameworthy. The promisor may simply have discovered that his performance is worth more to someone else. If so, efficiency is promoted by allowing him to break his promise, provided he makes good the promisee's actual losses. Posner in Patton v. Mid-Continent Sys. (7th Cir. 1988) Docsity.com Common Law Approach [R]egardless of the soundness of efficient breach theory in economic science, it is not, and should not be, the basis of normative determinations in the legal system (Perillo 2000: 1106) Docsity.com Tort of Interference • efficient breach is the result of a third party's interference in a contractual relationship • this interference has been characterized as tortious (i.e. illegal) in common law Docsity.com Romano-Germanic family of Civil law • A contract is just a promise to perform or to pay damages instead • it does not transfer any property right to the promisor Docsity.com Penalty clauses • Unenforceable in both the U.S.A. and the U.K. The mere availability of such a remedy would seriously jeopardize the stability and predictability of commercial transactions, so vital to the smooth and efficient operation of the modern American economy. (General Motors Co. v. Piskor, 281 Md. 627, 381 A.2d 16 (1977) It is a fundamental tenet of the law of contract remedies than an injured party should not be put in a better position than had the contract been performed. (Farnsworth (1999: 787) Docsity.com Mainstream L&E Penalty clauses: • serve an insurance function • Solve the paradox of compensation • help calculation of risks • discourage opportunistic behavior • reduce transaction costs. • simplify efficient breach • serve a signaling function Docsity.com Minority in L&E • Deters efficient breach • Distributive consequences Docsity.com Posner (2003: 96-97) Now consider what to do about cases in which the parties' intentions, as gleaned from the language of the contract or perhaps even from testimony, are at variance with the court's notion of what would be the efficient term to interpolate into the contract? If the law is to take its cues from economics, should efficiency or intentions govern? Oddly, the latter. The people who make a transaction – thus putting their money where their mouths are – ordinarily are more trustworthy judges of their self-interest than a judge [...] who has neither a personal stake in nor first-hand acquaintance with the venture on which the parties embarked when they signed the contract. So even if the goal of contract law is to promote efficiency rather than to enforce promises as such [...] enforcing the parties' agreement insofar as it can be ascertained may be a more efficient method of attaining this goal than rejecting the agreement when it appears to be inefficient. Docsity.com Efficient + inefficient clauses • Efficient (second and third category) • Inefficient (first category – shot-gun clauses) • Courts should be able to differentiate between them Docsity.com Civil Law • Penalty clauses are enforceable since Roman times • 9.509 (Agreed Payment for Non-Performance) of the Principles of European Contract Law: Where the contract provides that a party who fails to perform is to pay a specified sum to the aggrieved party for such non-performance, the aggrieved party shall be awarded that sum irrespective of his actual loss. However, despite any agreement to the contrary the specified sum may be reduced to a reasonable amount where it is grossly excessive in relation to the loss resulting from the non-performance and the other circumstances. Docsity.com