Termination and Cure Under the Common European Sales Law: Avoiding Pitfalls in Contract Remedies
18 Pages Posted: 12 Jun 2012
Date Written: June 12, 2012
Standard economic analysis of breach of contract has focussed on the remedy of damages, while largely ignoring competing remedies such as termination. The present paper aims at helping to fill this void. The major issue posed by the buyer's right to termination is its coordination with the seller's right to cure non-conforming tender. In this regard, the proposal for a Common European Sales Law (CESL) offers a bifurcated approach. For B2B transactions the buyer's right to terminate the contract is subject to the seller's offer to cure the defect, thus providing the seller with an option to hold on to the contract and earn the price. In contrast, the consumer-buyer shall be entitled to walk away from the contract immediately upon discovery of a defect, without allowing the seller to cure the conformity. The right to immediate termination is mandatory for B2C transactions so that the parties cannot provide for a right to cure by agreement. The present article presents an economic analysis of the bifurcated approach adopted by the CESL. It is argued that the exclusion of party autonomy is misguided and that an immediate and unconditional right to termination diminishes the joint gains of the parties from the contract. The buyer is put in a position to impose disproportionate costs on the seller and no incentive is provided for inducing the buyer to refrain from doing so.
Keywords: Common European Sales Law, Contract Remedies, Rejection, Rescission, Cure, Harmonization of Contract Law
JEL Classification: K12
Suggested Citation: Suggested Citation