The Contractual Liability Function: Efficient Breach Theory or Best Risk Bearer Theory? The Two Theories Tested by the Commercial Impracticability Doctrine in the Italian Legal System

Abstract

The aim of this paper is to examine whether the Italian commercial impracticability doctrine reflects the efficient breach theory or the best risk bearer model. The conclusion is that in the Italian legal system there is a discipline that could be considered as a form of “modified” efficient breach theory, according to which judges can decide to terminate contracts that are ictu oculi inefficient because the cost of performance (C) is greater than value for the promissory (V), but since judges’ decisions cannot always be right, it allows the potentially compliant party to offer a modification of the contract to the other party. In these hypotheses, if performance is efficient, that is C is less than V, parties will find an agreement to execute the contract.

Keywords: Law and Economics; Commercial Impracticability; Efficient Breach Theory; Best Risk Bearer Theory

JEL Classification: K10; K13