Thursday 18 February 2010 at 1300
Comparative Law Discussion Group
Mandatory Rules in Contract Law - the Draft Directive on Consumer Rights
Speaker: Professor Gerhard Wagner, University of Bonn
Venue: Institute of European and Comparative Law Seminar Room C (and IECL foyer for lunch from 12.30)
Private law in general, and contract law in particular, are thought to be the domain of party autonomy. Accordingly, the proper function of statutory as well as case law is characterized as a supplier of default rules. Absent legal rules, the parties would have to draft contracts and to devise rules of conduct for themselves. To economize on the associated transaction costs, the legal system supplies a set of off-the-rack rules. Theses rules are binding only if the parties do not choose otherwise, i.e. the parties always retain the authority to opt-out of the legal framework.
Default rules have been the subject of considerable research efforts. Major insights include the distinction between majoritarian and penalty default rules. In recent years the notion that default rules may be “sticky”, i.e. that they will gain much more impact in practice than one should think under a principle of party autonomy, has attracted considerable attention.
In contrast, the sibling of default rules, i.e. mandatory rules, has remained in the analytical darkness. This is surprising because mandatory rules are clearly on the rise, at least in the European theatre. The European Commission tends to legislate in the mode of mandatory law, as evidenced by the Draft Directive on Consumer Rights, recently presented to the public (COM(2008)614 Final).
What are the functions of mandatory law? One traditional objective concerns externalities. Where contracts affect the interests of third parties, the law strives to make the parties internalize the costs incurred by others. It is evident that such rules must be mandatory. However, mandatory rules also serve the function of protecting the parties to the transaction themselves, or rather: one of these parties against overreaching and exploitation by the other party. Usury laws which invalidate loan agreements imposing excessive interest rates are a pertinent example.
In recent years, additional functions of mandatory law have been discovered which warrant closer analysis. One is the idea, obviously popular within the European Commission, that the promotion of the internal market calls for mandatory rules as they create the much-desired “level playing-field” for European businesses. Somehow linked to this objective may be the idea that mandatory law works as an instrument of standardization, i.e. it makes life simple by reducing the complexity of everyday choices for a few options only. Default rules and mandatory rules no longer operate side-by-side within a given area of the law but rather come in “packages”. Under this approach, the parties are not authorized to derogate from the law on a rule-by-rule basis, thereby picking and choosing their own “law of contract”. Rather, the parties retain the authority to opt in into statutory frameworks which are optional as such but binding once the parties have made the choice
For more information please contact: Jenny Dix
Organised by the Comparative Law Discussion Group in conjunction with Institute of European and Comparative Law
