Sequencing of remedies in sales law

Abstract

This paper analyzes the effects of different sequences of remedies on the incentives of sellers to invest in product quality and on the probability of contract termination. For most European jurisdictions, Directive 1999/44/EC on the sale of consumer goods and its subsequent implementation into national law resulted in a substantial change in the remedies available to the consumer if a product proves deficient. Despite the purpose of the directive to harmonize national legislation, sales laws still differ significantly among member states. The analysis uses a stylized model to compare the pertinent features of two prototypical legal regimes that can be found after the directive's implementation. The pivotal difference between the respective regimes lies in the sequence of remedies. We show that it is possible that investment incentives and the probability that contractual relationships initiated will be completed may be larger under either legal regime. Despite the general case's ambiguity, we establish that the cancelation probability is typically lower if sales law limits buyers initial choice of remedies to subsequent performance. Our analysis indicates that the EC's harmonization target has been missed. With regard to social optimality, we detail under which conditions it is desirable to provide an institutional framework that allows total seller investment to be split between an initial and an incremental input.

Opportunistic Termination

“…4 Although there are other remedies available to the buyer in the event of non-conforming delivery, we focus on the buyer's option to choose between monetary compensation and termination for a number of reasons. First, in all member states of the European Community, parties at some point have the choice between monetary compensation and termination, whereas the availability of other remedies varies across jurisdictions (see Friehe and Tröger, 2008). 5 Second, the EDT regime literally applies if the delivered goods are non-conforming 1 and cannot be restored to conformity by either repair or replacement.…”