Comparative Contract Law and Economics

Comparative Contract Law and Economics

New Horizons in Law and Economics series

Mitja Kovač

Comparative Contract Law and Economics provides a deeper understanding of the similarities and differences between the legal systems of France, England, the US and Germany in terms of contract law.

Chapter 4: Unilateral Termination

Mitja Kovač

Subjects: economics and finance, law and economics, law - academic, commercial law, law and economics, law of obligations


This chapter surveys economic literature on the unilateral termination of contracts, and by providing an efficient optimal model rule, challenges widely accepted comparative premises, and critically examines the unilateral termination law of France, England, the USA and Germany. The main propositions of the comparative law and economics analysis in this chapter are the following: (1) an economically-inspired optimal model rule provides an additional rationale for permitting unilateral termination in instances of open-ended contracts or where such a right is expressly provided for, and for banning it in instances of fixed-term contracts; (2) in principle, and not unconditionally, efficiency requires permitting unilateral termination of open-ended contracts, as in fixed-term contracts where the right to unilaterally terminate is expressly provided for, and requires banning it in instances of fixed-term contracts; (3) it reveals that the compared legal systems differ less than comparatists tend to believe; (4) it reveals that wealth maximization is the main driving force behind judiciary decision-making, which confirms the hypothesis that decisions invariably tend toward efficiency; and finally (5) while addressing the general and statutory provisions it reveals the source of possible inefficiencies of all compared jurisdictions concerning the unilateral termination of open-ended, continuous contracts, and so an from economic point of view it offers significant room for improvement, where a path for statutory reform is clear. 4.1. INTRODUCTION The comparative legal and economic analysis concludes with the problem of unilateral termination of open-ended and fixed-term contracts, where the contractual relationship comes to...

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