Sales Law Research Articles

Unweaving the CESL: Legal-economic reason and institutional imagination in European contract law

From a law-and-economics perspective, the European Commission's proposal for the introduction of an optional Common European Sales Law (CESL) has been criticized for overregulating consumer sales law in Europe and for being likely to yield more costs than benefits. In defence of CESL, it is submitted here that its optional nature may mitigate the risk of overregulation and provide an opportunity for firms to tailor their activities to consumer preferences in different markets. Furthermore, although the introduction of an optional instrument may increase transaction costs, it does not seem to be excluded that the benefits of increased cross-border trade may (on a long-term basis) outweigh these costs. Finally, in order to evaluate the institutional choices underlying the proposed rules of CESL, and other instruments of European contract law, it is suggested that the further analysis of these rules should take into account the legal-political as well as the legal-economic backdrop to this field of law.

Public supply of optional standardized consumer contracts: A rationale for the Common European Sales Law?

Byreadingthe B2C partofthe Common European Sales Law (CESL) as a supplyof optional standardizedcontracts, thisarticletriestogivetheCommission'sproposalthebestpossible rationale. In contrasttoconventionalcontractcodescharacterizedbyloosebundlesofdefaultrulesthepartiesmayselectively stick toordivergefrom, an optional standardizedcontractis a tightbundleofdefaultruleswith a nameattachedto it. As optional standardizedcontractsaresimplyidentifiablebytheirlabel, theycantheoreticallysolvetheproblemofreadingcostsandthusavoidadverseselection. This ideahelpstomake sense ofthe rigid internalstructureofthe CESL thatgenerallyexcludescherry-picking. Fromthisperspective, itis also unobjectionableforthe CESL toaimat an upscalesegmentofconsumersbyoffering a high levelofprotection (leadingtocorrespondingly high prices). However, welfare-increasingeffectscanonlybeexpectedif Member States, third States and private organizationsareallowedtojointhecompetitionbyprovidingotherstandardizedcontracts. As theregulatoryframeworkcreatedbythe EU (choice-of-lawrestrictionforconsumercontractsandsubstantiveharmonizationof Member State laws) ties down all potential competitors, theseeffectswill not materialize. This leadstotheconclusionthattheCommissionis not seriouslypursuingtheideaof an optional law, but ultimatelymeanstopre-empt Member States' lawswithitsproposal.

Another look at the Eurobarometer surveys

The current proposal for a Common European Sales Law (CESL) makes a number of empirical claims in support of its argument that differences in contract law among Member States are stifling trade, and that CESL will address these barriers to cross-border trade. These empirical claims rest largely on citations to a number of Flash Eurobarometer surveys and other surveys of businesses and consumers. A closer look at these surveys reveals that the cited statistics do not support the claims that contract-law-related obstacles present special barriers to cross-border trade for small- and medium-sized enterprises and consumers. Instead, a more ambiguous picture emerges - one that may suggest reconsideration of several of the design features of CESL. I conclude that a more careful assessment of the empirical foundations for CESL (whether in its current or a revised form) is necessary.

From a status to a transaction-based approach? Institutional design in European contract law

The Common European Sales Law (CESL), currently under examination at the European Parliament, is intended to introduce a regime for cross-border sales that individual Member States can extend to domestic transactions (Art.13), aiming to promote harmonization by choice rather than by command. It constitutes an opt-in system that parties can adopt (Art.8), as an alternative to the CISG in B2B transactions, and an alternative to national regimes in B2B transactions. The analysis of pre-contractual information in European contract law (ECL), with special reference to the CESL, is used to substantiate a broader claim: the weakness of a status-based approach to ECL and the desirability to move to a transaction-based approach, including reference to supply chains. The intuition is that the determination "if" and "how" disclosure should occur is, in both cases, a consideration primarily dependent on the type of transaction parties engage in, whether it is a standardized or a customized one. Only within this distinction might, the status of the parties play a role. This essay suggests a shift from status to transaction, with the sales regime organized around transaction technologies. Such a change will not eliminate the differences between consumer and business contracts but will reverse the order, with status as a potential sub-variable of the type of transaction.

Termination and cure under the Common European Sales Law: Consumer protection misunderstood

The CESL'sscheme of remedies for defective performance by the seller is different for commercial sales and for consumer sales. In case of a commercial transaction (B2B), the seller has a right to cure defective performance either by repair or by replacement, before the merchant-buyer is entitled toterminate the contract. The priority of cure over rescission offers an efficient solution as it keeps buyer opportunism at bay, while preserving the incentives of the seller to deliver conforming goods. The scheme of remedies for transactions involving consumer-buyers(B2C)deviates from this reasonable solution as the buyer, in the case of defective tender, is entitled to immediate rescission. The right to immediate cancellation is meant to privilege consumer-buyers but, in truth,this backfires as it increases the costs of sellers without benefitting buyers in the same or a higher measure. The right to immediate rescission allows buyers to call off the contract for opportunistic reasons, such as a drop in market price or, more importantly, a revision of personal preferences. The resulting increase in the costs of sellers will be passed on to the class of buyers through price increases. In this way,opportunistic buyers will be able to shift the costs associated with their behaviour to faithful buyers who will be forced to cross-subsidize their opportunistic brethren. It seems that this rather sad outcome is not what the framers of the CESL had in mind when they tried to enhance the remedies of consumer-buyers.

Optional law for firms and consumers: An economic analysis of opting into the Common European Sales Law

The European Commission has launched the Regulation Proposal on a Common European Sales Law as an optional instrument for European firms and consumers. Several critical opinions have been raised against the optional nature, characterizing it as an instrument for social dumping (i. e. lowering consumer protection standards, given that no set of rules with higher levels of protection would ever be chosen by firms), as depriving consumers of any meaningful choice, and emphasizing its futility. In this paper we present a simple model showing how these critiques present theoretical flaws, even if one does not rely on the efficiency gains that increasing cross border trade may bring in terms of having more efficient firms serving consumers in other national markets. The role of verification or compliance costs, and of the impact of legal diversity on firms' operating costs is crucial for understanding the effects of an optional instrument, and may make high levels of consumer protection, and consumer choice implementable. We also characterize how different levels of the standard may lead to complete replacement of national standards and to the joint use of European and national standards.

Precontractual disclosure duties under the Common European Sales Law

Article 23 of the Common European Sales Law requires sellers to make plain the basic attributes of what they are selling. The seller of goods has a duty to disclose "any information concerning the main characteristics of the goods . . . which [she] has or can be expected to have and which it would be contrary to good faith and fair dealing not to disclose to the other party." The largest effect of the rule may lie not in the value of the information that is communicated, but rather the legal consequences that attach to the information that is disclosed. Article 23 works in conjunction with Articles 69 and 100. These provisions require any description of the goods to serve as a warranty. Thus, the scope of the description that Article 23 requires is coextensive with the warranty that the seller must give with respect to the goods that she is selling. Because legal consequences attach to the description, sellers have reason to say less than they might otherwise. Ironically, CESL might lead to disclosure of less information and less useful information than a regime of caveat emptor.

Costs and benefits of an optional European sales law (CESL)

This contribution assesses the proposed Common European Sales Law (CESL) and its potential to enter into a fruitful competition with national laws ("Optional Scheme") against the background of a more general theory on vertical regulatory competition - drawing on the much richer theory of horizontal regulatory competition (namely concerned with Delaware). It does so along three lines of arguments: (i) Regulatory vertical competition, on a level playing field, has the potential to combine advantages of centralized rule-setting and decentralized rule-setting, but fails to do so in the case of this proposal. (ii) Regulatory vertical competition is in danger of being distorted by the central rule-setter when this rule setter not only makes one of the offers, but also arranges the conflict of laws rules and potentially even does in a way which favours its own offer - and this has been done in CESL. This kind of distortion of competition leads to the effect that parties may make choices not according to substantive law quality of the set of rules chosen, but because only one set profits from particularly advantageous rules of choice (reduction of transaction costs and economies of scale etc.). Finally, (iii) regulatory vertical competition may potentially lead to positive network effects of such importance that the set of rules proposed by the central rule setter, in fact, even though being optional only discards competitors altogether nevertheless. This may be an explanation of how the Delaware effect works and this may lead to a situation in which the 'external competition' of an EU Contract Law - with the national legislatures - is no longer strong enough. Therefore in the last two sections, the question is asked (i) how best to arrange 'internal competition' about the best ideas and the best schemes for an EU Contract Law Code and (ii) how to gain time for doing so (interim alternatives which would equally allow to realize most of the benefits which the adoption of CESL is aimed at). Based on all three lines of arguments, the paper strongly favours - as a minimum requirement - the transition for all national laws to an unrestricted home country principle for consumer sales, namely in e-commerce transactions.

The law and economics of mistake in European Sales Law

The Common European Sales Law (CESL) sets the conditions in which the mistaken party is prima facie entitled to rescission and compensation from the other party. Some of the CESL's provisions, however, are inconsistent with efficiency. First, under the CESL, as long as the mistake is fundamental, for the mistaken party to be allowed to rescind the contract, it is sufficient that the other party caused the mistake. From an efficiency perspective, however, causation is not enough to allow rescission. Second, the CESL permits rescission when one party failed to disclose information to the other party that would have revealed to the latter his fundamental mistake and the former party knew or could be expected to have known the mistake. In contrast, under efficiency, not all fundamental mistakes made by the one party that the other party knew or could have known about constitute grounds for rescission. Third, the CESL allows rescission for fraud, which includes non-disclosure of information. The CESL provides a list of considerations that should be taken into account in deciding whether a duty of disclosure arises. In contrast, under efficiency, there are far more concrete guidelines for determining whether a duty of disclosure arises, and in fact, under certain conditions, intentional ("fraudulent") misrepresentations are even permitted. Fourth, the CESL allows a contract to be rescinded when both parties made the same fundamental mistake. Yet efficiency considerations entail that this should not always be the case and that some mutual mistakes should not be grounds for rescission.

What can be wrong with an option? An optional Common European Sales Law as a regulatory tool

This paper analyses the proposed optional Common European Sales Law (CESL) as a regulatory tool. In principle, an optional CESL can be a sensible means to achieve some level of harmonization and the associated transaction costs savings plus network benefits and at the same time subject the CESL to a market test. However, whether these goals will actually be achieved depends on the design conditions and the content of the option. The CESL option which is currently on the table is harmful. The Draft CESL (DCESL) is a defective product. It might nevertheless become a success on the European market for contract laws or be at least highly influential as a reference text.

The questionable basis of the Common European Sales Law: The role of an optional instrument in jurisdictional competition

The Common European Sales Law is designed as an optional instrument that European parties engaged in cross-border transactions could choose for their transactions in preference to national law. The goal is to increase cross-border transactions and perhaps to enhance European identity. But the CESL is unlikely to achieve these goals. It raises transaction costs while producing few if any benefits; it is unlikely to spur beneficial jurisdictional competition; its consumer protection provisions will make it unattractive for businesses; and its impact on European identity is likely to be small.

Regulatory techniques in consumer protection: A critique of European consumer contract law

This Article classifies the consumer protection techniques that European contract law employs into four categories: Mandatory arrangements; disclosure; regulation of entry to and exit from contract; and pro-buyer default rules and contract interpretation. It argues that these techniques are far less likely to succeed than advocates, including the European Commission, believe, and they may bring about unintended consequences and hurt consumers. The techniques and their limits are illustrated through a study of proposed Common European Sales Law (CESL). The Article argues that the ambitious pursuit of consumer protection goals is also likely to interfere with the other main goal of the European contract law: harmonizing the laws of member states, encouraging cross border trade, and improving consumer' access to markets.

Identifying the legal costs of operation of the Common European Sales Law

The EU Commission has proposed an optional Common European Sales Law (CESL) whose main purpose is the reduction of the legal costs of cross-border contracting. This paper outlines the Commission's view as to these current legal costs and how its proposal would reduce them, and then compares these with the likely costs of operation of the CESL. It identifies these likely costs as lying in the complex legal framework into which the CESL would be set; the relative uncertainty of the concepts used by the CESL and of its substantive scope; and the significance of national judicial evaluations required by the complex legal standards used by the CESL, of which the most prominent is 'good faith and fair dealing'. The paper concludes that a number of the costs which the Commission expects to be saved by use of the CESL are likely to find parallels in costs generated by its use and that, owing to its own characteristics, the CESL is likely to generate its own further and new legal costs.

The Influence of the <i>Consumer Protection Act</i> 68 of 2008 on the Common Law Warranty Against Eviction: A Comparative Overview

The implementation of the Consumer Protection Act 68 of 2008 (CPA) has great implications for the South African common law of sale. In this contribution the influence of the CPA on the seller’s common law duty to warrant the buyer against eviction is investigated. Upon evaluation of the relevant provisions of the CPA, the legal position in the United Kingdom – specifically the provisions of the Sales of Goods Act of 1979 – is investigated.KEYWORDS: Consumer protection; consumer remedies; quiet possession; common law of sale; warranty against eviction

The Europeanization of private law: its progress and its significance for China

Ever since the Napoleonic codification of 1804, private law legislation has become a concomitant of the nation state. Although private law essentially lacks particular national characteristics, most civil codes have been enacted by national legislatures. This article gives an account of the efforts of the European Union (EU) to reduce the resulting divergences of the private law of its member states. For a better understanding, it explains the constitutional basis of such legislation in the Treaty on European Union (TEU) and the types of legislative acts available. So far, the EU legislation in this field is often fragmentary and inconsistent. While scholars have called for general principles for many years, the European Court of Justice (ECJ) has not responded to that call so far. Since 1980 scholarly initiatives have therefore taken the lead and prepared a basis for a general future legislation in the area of contract law. On this basis, the European Commission finally published a proposal in 2011 for an optional instrument on a Common European Sales Law (CESL), and this law is now under deliberation. This article explores the potential impact that this future instrument might have on Chinese legislation and on commercial relations between the EU and China.

Unconscionability, Unfair Exploitation and the Nature of Contract Theory - Comments on Melvin Eisenberg's ‘Foundational Principles of Contract Law'

This short paper contains comments prepared for the 'Foundational Principles of Contract Law Roundtable’ held at Berkeley in January 2013. It discusses the relationships between contract law and democracy, between contract prices and human dignity, and between the American doctrine of unconscionability and the European doctrine of unfair exploitation contained in the proposed Common European Sales Law.

Change of circumstances under the Common European Sales Law

Change of circumstances under the Common European Sales Law

Problems of Uniform Sales Law – Why the CISG May Not Promote International Trade

The United Nations Convention on Contracts for the International Sale of Goods (CISG) is the prime example of unification of private law at the global level. With over 75 contracting States that make up for an increasing number of the world’s largest economies, the CISG is usually seen as a big success. However, this assessment is largely based on how States perceive the advantages of the CISG. This contribution asks how other actors involved in the legal process (such as commercial parties, attorneys, in house-lawyers and courts) perceive the CISG. To this end, three persistent problems of the CISG are identified: its problematic uniform application by national and arbitral courts, its regular exclusion by parties, and its incompleteness. This calls for recognition that the establishment of a global uniform law is not the only possible way in which international trade can be promoted. It would be equally important to allow parties to make the national jurisdiction of their choice applicable to the contract. The value of the CISG then lies primarily in providing commercial parties with a common frame of reference, allowing them to compare the solutions of the CISG with various national jurisdictions and to act upon this.

Conference Report: ‘Competition in International Sales Law – Perspectives on Choice’, Held in Maastricht, the Netherlands, on 15 June 2012

Abstract: As the list of instruments available in the international sales law market continues to grow - most recently with the addition of the proposed Common European Sales Law - the debates comparing these various instruments have proliferated in kind. On 15 June 2012, a group of academics, practitioners, and representatives from revered institutions gathered in Maastricht not only to discuss the substantive attributes of these instruments and their differences but also to debate what it actually means to choose a particular instrument over the others. Hosted by the Maastricht European Private Law Institute (M-EPLI), this conference focused on the various perspectives on choice, which revealed a rather alarming disconnect between what choice means in theory for academics and what it means in 'reality' for practitioners.

International Exhaustion, Parallel Imports, and the Conflict between the Patent and Copyright Laws of the United States

This article analyses the principle of international exhaustion—the doctrine that sales in a foreign country extinguish intellectual property rights. Many developed countries have pushed the international community not to recognize international exhaustion, and thus, to prevent parallel imports. However, the Supreme Court of the United States has recently held that there is exhaustion under US Copyright law for international sales. This is an unexpected holding and it creates a conflict between copyright law and patent law on the issue of international exhaustion. This article examines the effects and possible resolution of that conflict.