Coase-Sandor Working Paper Series in Law and Economics

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Law & Economics Working Papers


The Common European Sales Law (CESL) sets the conditions in which the mistaken party is 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 essential, 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 for mistake. Second, the CESL permits rescission when one party failed to disclose information to the other party that would have revealed to the latter his essential mistake and the former party knew or could be expected to have known the mistake. In contrast, under efficiency, not all essential 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 Fourth, the CESL allows a contract to be rescinded when both parties made the same essential mistake. Yet efficiency considerations entail that this should not always be the case and that some mutual mistakes should not be grounds for rescission.



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